[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
OUTCOME OF SUMMIT OF THE AMERICAS AND PROSPECTS FOR FREE TRADE IN THE
HEMISPHERE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MAY 8, 2001
__________
Serial No. 107-22
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
74-222 WASHINGTON : 2001
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone (202) 512�091800 Fax: (202) 512�092250
Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J. D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
------
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
E. CLAY SHAW, Jr., Florida SANDER M. LEVIN, Michigan
AMO HOUGHTON, New York CHARLES B. RANGEL, New York
DAVE CAMP, Michigan RICHARD E. NEAL, Massachusetts
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania
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 April 25, 2001, announcing the hearing............... 2
WITNESSES
Office of the United States Trade Representative, Hon. Robert B.
Zoellick, United States Trade Representative................... 31
U.S. General Accounting Office, Loren Yager, Director,
International Affairs and Trade................................ 55
______
American Apparel and Footwear Association, Stephen Lamar......... 129
American Federation of Labor and Congress of Industrial
Organizations, John J. Sweeney................................. 73
American Textile Manufacturers Institute, Carlos Moore........... 124
Bolivia, Republic of, Hon. Ana Maria Solares..................... 121
Christian-Christensen, Hon. Donna M., a Delegate in Congress from
the United States Virgin Islands............................... 16
Colombia, Government of, Hon. Marta Lucia Ramirez Rincon......... 112
Fisher, Hon. Richard W., Washington, DC.......................... 65
Moran, Hon. James P., a Representative in Congress from the State
of Virginia.................................................... 9
National Association of Manufacturers, Franklin J. Vargo......... 78
National Retail Federation, Erik Autor........................... 136
Tauscher, Hon. Ellen O., a Representative in Congress from the
State of California............................................ 13
U.S. Chamber of Commerce, Association of American Chambers of
Commerce in Latin America, and BankBoston Colombia, William
Gambrel........................................................ 95
United States Council for International Business, Daniel M. Price 87
SUBMISSIONS FOR THE RECORD
American Farm Bureau Federation, statement....................... 143
Asociacion De Exportadores De Prendas De Vestir A Los Estados
Unidos De America (Exporamerica), Lima, Peru, statement........ 146
Coalition for Sugar Reform, statement and attachment............. 147
Distilled Spirits Council of the United States, Deborah A. Lamb,
letter......................................................... 150
Florida Farmers & Suppliers Coalition, Inc., Lake Worth, FL, Paul
DiMare, letter................................................. 151
Florida Fruit & Vegetable Association, Orlando, FL, statement and
attachment..................................................... 152
Grocery Manufacturers of America, statement...................... 156
Kal Kan Foods, Vernon, CA, Marietta E. Bernot, letter............ 159
Michigan Farm Bureau, Lansing, MI, statement..................... 161
National Electrical Manufacturers Association, Rosslyn, VA,
Malcolm O'Hagan, statement..................................... 163
North American Peruvian Business Council, Myles Frechette,
statement...................................................... 163
Shaw, Hon. E. Clay, Jr., a Representative in Congress from the
State of Florida, statement.................................... 165
Union of Needletrades, Industrial and Textile Employees, New
York, NY, Jay Mazur, statement................................. 166
West Indies Rum and Spirits Producers Association, statement..... 172
OUTCOME OF SUMMIT OF THE AMERICAS AND PROSPECTS FOR FREE TRADE IN THE
HEMISPHERE
----------
TUESDAY, MAY 8, 2001
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:08 p.m., in
room 1100, Longworth 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
April 25, 2001
No. TR-2
Crane Announces Hearing on
Outcome of Summit of the Americas and
Prospects for Free Trade in the Hemisphere
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 outcome of the Summit of the
Americas held in Quebec City, Canada, April 20-22, 2001, and the
prospects and timing for achieving the Free Trade Area of the Americas
(FTAA). Members will also consider proposals to expand trade with
Andean countries through the extension and expansion of the Andean
Trade Preference Act which expires on December 4, 2001. The hearing
will take place on Tuesday, May 8, 2001, in the main Committee hearing
room, 1100 Longworth House Office Building, beginning at 2:00 p.m.
Oral testimony at this hearing will be from both invited and public
witnesses. Invited witnesses will include United States Trade
Representative, Ambassador Robert Zoellick, representatives from the
business community, and other interested groups. 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:
During the Trade Subcommittee hearing held March 29, 2001,
concerning whether the United States should negotiate more free trade
agreements, the Subcommittee heard testimony from small and large
companies on the urgent need for the United States to pursue trade
agreements to expand trade in this hemisphere. At this hearing,
witnesses are expected to expand on that premise, address the
advancements in the free trade agenda accomplished at the Summit of the
Americas meeting held April 20-22, 2001, and discuss issues related to
extension and expansion of the Andean Trade Preference Act.
The FTAA negotiations were officially launched at the Second Summit
of the Americas in Santiago, Chile, in April 1998. Leaders of 34
Western Hemisphere nations have committed to completing negotiations by
2005. The goal is to establish an agreement that would reduce barriers
to trade region-wide, allowing all countries to trade and invest with
each other under the same rules.
The 1991 Andean Trade Preferences Act (ATPA), P.L. 102-182, grants
Colombia, Bolivia, Ecuador, and Peru tariff preferences on certain
goods for 10 years in an effort to help those countries fight narcotics
trafficking. Several categories of import sensitive products, including
textiles and apparel are excluded from the program. The ATPA has proven
a valuable weapon in the war against drugs by creating economic
incentives to encourage the Andean countries to move out of the
production and shipment of illegal drugs and into legitimate products.
The four beneficiary countries have requested that ATPA be extended,
and benefits be expanded to include other products such as textiles,
apparel, and tuna.
In announcing the hearing, Chairman Crane stated: ``President Bush
has indicated that a Free Trade Area of the Americas is one of his top
trade priorities. The FTAA would open markets for U.S. farmers,
producers and service providers, help the U.S. economy rebound from the
current slump, and foster free and open societies in countries
struggling to establish and maintain democratic roots. While we are
moving toward hemispheric free trade, I would like to continue our
Andean preference program and expand it to create more economic
incentives for these countries to move away from drug production.''
FOCUS OF THE HEARING:
Witnesses are asked to address the trade commitments made at the
Summit of the Americas meeting in Quebec City and prospects for the
FTAA negotiations, and to offer trade proposals to assist Andean
countries in their fight against drug production.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Pete Davila at (202) 225-1721 no later than the close
of business, Tuesday, May 1, 2001 The telephone request should be
followed by a formal written request to Allison Giles, 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, along with
an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format,
of their prepared statement 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 Thursday, May 3, 2001.
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 six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect or MS Word format, with their name, address,
and hearing date noted on a label, by the close of business, Tuesday,
May 22, 2001, to Allison Giles, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Trade office, room 1104 Longworth House
Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or
MS Word format, typed in single space and may not exceed a total of 10
pages including attachments. Witnesses are advised that the Committee
will rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at ``http://waysandmeans.house.gov''.
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. Good afternoon. This is a hearing of the
Ways and Means Trade Subcommittee to consider the status of
negotiations to establish a Free Trade Area of the Americas and
also to receive testimony on the expansion of the Andean Trade
Preference Act which expires on December 4th. Ambassador
Zoellick is here to report on the outcome of the Quebec Summit
meeting where President Bush communicated his deep commitment
to the creation of a free trade area in this hemisphere
encompassing 800 million people, $11 trillion in economic
production, and $3.4 trillion in regional trade.
Ambassador Zoellick reached a strong agreement on detailed
deadlines that give the talks new structure and momentum. The
heads of State indicated their decision to make the draft
negotiating text public, which is an unprecedented step forward
in fostering open discussion regarding the impact of expanding
trade in the region. I welcome the President's pledge to
achieve trade promotion authority and conclude the United
States-Chile Free Trade Agreement by the end of the year.
I am convinced that free trade success in the Americas will
help spur the World Trade Organization (WTO) to launch a new
round of multilateral negotiations. In recent years, the United
States has lapsed in its responsibility to lead the world and
the hemisphere on these issues, and I am anxious to build on
the strong successes coming out of the Free Trade Area of the
Americas (FTAA) Summit in Quebec.
With respect to extension of the Andean Trade Preference
Act, I want to welcome the Colombian Minister of Foreign Trade,
Marta Lucia Ramirez, and Bolivia Vice Minister of Trade, Ana
Maria Solares, who will speak later this afternoon. I would
also like to recognize the other two Andean Ministers who are
with us today.
Today, the United States serves as both the leading source
of the Andean region's imports and the largest market for its
exports, a relationship that yields more than $18 billion worth
of commerce. The four Andean nations are taking courageous
steps to eliminate drug production among their farmers, and it
is my intention to craft an Andean Trade Preferences Act (ATPA)
bill that will offer real economic alternatives to the Andean
citizens as they move out of the drug trade.
Through expanded trade, we intend to undermine high
unemployment and poverty as the factors and motivations for
otherwise good, productive citizens to become involved in
illicit crop cultivation that is eventually sold on our
streets.
And now I would like to yield to the ranking minority
Member of the Subcommittee, Mr. Levin, for any remarks he would
like to make.
[The opening statement of Chairman Crane follows:]
Opening Statement of the Hon. Philip M. Crane, a Representative in
Congress from the State of Illinois, and Chairman, Subcommittee on
Trade
Good Afternoon. This is a hearing of the Ways and Means Trade
Subcommittee to consider the status of negotiations to establish a Free
Trade Area of the Americas and also to receive testimony on the
expansion of the Andean Trade Preference Act, which expires on December
4th.
Ambassador Zoellick is here to report on the outcome of the Quebec
Summit meeting, where President Bush communicated his deep commitment
to the creation of a free trade area in this hemisphere encompassing
800 million people, $11 trillion in economic production, and $3.4
trillion in regional trade. Ambassador Zoellick reached a strong
agreement on detailed deadlines that give the talks new structure and
momentum. The Heads of State indicated their decision to make the draft
negotiating text public, which is an unprecedented step forward in
fostering open discussion regarding the impact of expanding trade in
the region.
I welcome the President's pledge to achieve trade promotion
authority and conclude the United States-Chile free trade agreement by
the end of the year.
I am convinced that free trade's success in the Americas will help
spur the WTO to launch a new round multilateral negotiations. In recent
years, the United States has lapsed in its responsibility to lead the
world and the hemisphere on these issues, and I am anxious to build on
the strong successes coming out of the FTAA Summit in Quebec.
With respect to extension of the Andean Trade Preference Act, I
want to welcome the Colombian Minister of Foreign Trade Marta Lucia
Ramirez and Bolivian Vice Minister of Trade Ana Marie Solares, who will
speak later this afternoon. I would also like to recognize the other
two Andean ministers who are with us today.
Today, the United States serves as both the leading source of the
Andean region's imports and the largest market for its exports-a
relationship that yields more than $18 billion of commerce. The four
Andean nations are taking courageous steps to eliminate drug production
among their farmers, and it is my intention to craft an ATPA bill which
will offer real economic alternatives to Andean citizens as they move
out of the drug trade. Through expanded trade we intend to undermine
high unemployment and poverty as factors and motivations for otherwise
good, productive citizens becoming involved in illicit crop cultivation
that is eventually sold on our streets.
I'll now yield to the Ranking Minority Member of the Subcommittee,
Mr. Levin, for any remarks he would like to make.
And now I welcome my colleagues Mr. Moran, Ms. Tauscher, and Ms.
Christensen to hear their testimony.
Mr. Levin. Thank you. Thank you, Mr. Chairman.
It is time to move ahead on the trade agenda for 2001. I
would like to offer a few brief observations and action items
to consider. It will not help to misdescribe or misunderstand
the record of the last administration. In the last session,
there was forward motion. The Clinton administration and the
Congress, working on a truly bipartisan basis, acted on China
PNTR and Africa Caribbean Basin Initiative, CBI, breaking the
5-year deadlock on trade legislation. The administration also
negotiated new trade agreements with Jordan and Vietnam.
It also will not help to frame the issues of 2001 in terms
of old labels or old battles. There was movement during the
last few years in good measure because there was a recognition
that the nature of trade has been changing, both in its size
and its contents. As developing nations with different economic
structures from our own and other industrialized nations have
become an increasing part of global trade, new issues have
arisen. The effort to address these new issues is not a new
kind of protectionism. Such labeling is mistaken and
counterproductive, setting up a polarization that could help
derail the trade agenda.
No one can turn back the clock on globalization. On the
other hand, it is a mistake to believe that one cannot or
should not shape its course. Shaping globalization requires a
forthright effort, among other things, to address the issues of
labor and environmental standards because of their very
relevance to international economic competition.
The nexus between trade and labor is reflected in the
recent New York Times article, ``Labor standards clash with
global reality,'' where an executive of an American company
stated, regarding its practices on labor standards, ``We cannot
be the whole solution. The solution has to be labor laws that
are adequate, respected, and enforced.'' And in the same
article, the statement by the President of El Salvador,
describing the variation of government enforcement of core
labor standards, ``The difficulty in this region is that there
is labor that is more competitively priced than El Salvador.''
It is also reflected, whether one agrees with the decision
or not, in the rationale stated by the Bush administration when
it withdrew from the Kyoto treaty of global warming, and I
quote, ``It exempts the developing nations around the world,
and it is not in the U.S. economic best interest.''
It will not be helpful to try to finesse these issues. They
are not entirely new. We have had some previous experience. For
example, labor standards have long been part of the General
System of Preferences (GSP) where there has been a full array
of enforcement mechanisms available to us, and they have been
used by us responsibly. The same is true of the labor
provisions in the Cambodia Textile and Apparel Agreement.
It is time to build on these experiences and move ahead,
not be stuck in past polarizations. I have urged we should move
on Jordan as negotiated, we should move on Vietnam, doing so in
a way that recognizes the need to further address labor
standard issues as we negotiate a textile and apparel agreement
with Vietnam. The steel crisis also needs to be addressed
resolutely. Doing so in a collaborate and bipartisan fashion
will help to build the experience and confidence necessary to
work effectively on FTAA and the Andean Trade Preference Act
and on the significant transfer of power from Congress to the
executive branch embodied in fast track negotiating authority.
Congress has taken this step only twice before in our
history. On both of those occasions, in 1974 and 1988, extended
in 1991, the laws contained three critical components: one,
negotiating objectives and related legal mandates to the
Executive; two, mechanisms for congressional involvement in and
public input into the negotiating process; and, three,
commitment to an up or down vote on the final package. It
ignores history to say that Congress can recapture this grant
simply through the implementation legislation.
So how do we move forward to design the three components? I
believe we need to start getting into this in detail. On the
first component, negotiating objectives, we need to get beyond
general concepts. For example, one issue is whether we are
going to establish separate negotiating priorities for
multilateral, regional, and bilateral agreements. I believe
that that makes sense.
Another issue, going beyond the general concepts of one-
size-does-not-fit-all, is to develop language that ensures that
dispute settlement remedies are designed to be demonstrably
effective in a variety of contexts, and that dispute settlement
procedures are more open and inclusive in all contexts.
Turning to the second component, updating the partnership
between Congress and the Executive, we are going to have to
decide what procedural mechanisms are needed to ensure
effective congressional oversight of and public input into each
step of the process. For example, how many and what kinds of
congressional checkpoints should we build into the process? For
instance, should there be a congressional Committee vote at the
beginning and a midpoint in each negotiation? What additional
mechanisms should we create? And how exactly should they work?
For example, providing for meaningful labor standard and
environmental reviews, updating the advisory Committee for
business, labor, environmental, and other groups?
There is a close relationship between negotiating
objectives and procedural mechanisms. A right fast track
approach requires that we move beyond slogans and sound bites,
embrace all of the issues of trade, old and new, and strive to
shape globalization with rules of competition that promote U.S.
economic interests and raising living standards around the
world. And I look forward to the testimony here as we talk
about our relationships with the rest of the Americas.
Thank you, Mr. Chairman.
[The opening statement of Mr. Levin follows:]
Opening Statement of the Hon. Sander M. Levin, a Representative in
Congress from the State of Michigan
It is time to move ahead on the trade agenda for 2001. I would like
to offer a few brief observations and action items to consider.
It will not help to mis-describe or misunderstand the record of the
last Administration. In the last session there was forward motion. The
Clinton Administration and the Congress, working on a truly bi-partisan
basis, acted on China PNTR, and Africa/C.B.I., breaking the five-year
deadlock on trade legislation. The Administration also negotiated new
trade agreements with Jordan and Vietnam.
It also will not help to frame the issues of 2001 in terms of old
labels or old battles. There was movement during the last few years in
good measure because there was a recognition that the nature of trade
has been changing--both in its size and its contents. As developing
nations with different economic structures from our own and other
industrialized nations have become an increasing part of global trade,
new issues have arisen.
The effort to address these new issues is not ``a new kind of
protectionism.'' Such labeling is mistaken and counterproductive,
setting up a polarization that only helps to derail the trade agenda.
No one can turn back the clock on globalization; on the other hand,
it is a mistake to believe that one cannot or should not shape its
course. Shaping globalization requires a forthright effort to address
the issues of labor and environmental standards because of their very
relevance to international economic competition.
The nexus between trade and labor is reflected in a recent New York
Times article, ``Labor Standards Clash with Global Reality,'' where an
executive of an American company stated, regarding its practices on
labor standards, ``We can't be the whole solution. . .The solution has
to be labor laws that are adequate, respected and enforced.'' And, in
the same article, the statement by the President of El Salvador
describing the variation of government enforcement of core labor
standards, ``The difficulty in this region is that there is labor that
is more competitively priced than El Salvador.'' It is also reflected,
whether one agrees with the decision or not, in the rationale stated by
the Bush Administration when it withdrew from the Kyoto Treaty on
Global Warming, ``It exempts the developing nations around the world
and it is not in the United States' economic best interest.''
It will not be helpful to try to finesse these issues. They are not
entirely new; we have had some previous experience. For example, labor
standards have long been part of our GSP system where there has been a
full array of enforcement mechanisms available to us and they have been
used responsibly. The same is true of the labor provisions in the
Cambodia textile and apparel agreement.
It is time to build on these experiences and move ahead, not be
stuck in past polarizations.
I have urged we should move on Jordan, as negotiated. We should
move on Vietnam, doing so in a way that recognizes the need to further
address labor standard issues as we negotiate a textile and apparel
agreement with Vietnam. The steel crisis needs to be addressed
resolutely.
Doing so in a collaborative and bipartisan fashion will help to
build the experience and confidence necessary to work effectively on
FTAA and the Andean Trade Preference Act and on the significant
``transfer of power'' from Congress to the Executive branch embodied in
Fast Track trade negotiating authority.
Congress has taken this step only twice before in our history. On
both those occasions--in 1974 and 1988--the laws contained three
critical components: (1) negotiating objectives and related legal
mandates to the executive; (2) mechanisms for congressional involvement
in--and public input into--the negotiating process; and (3) commitment
to an up or down vote on the final package. It ignores history to say
that Congress can ``recapture'' its grant simply through the
implementation legislation.
So, how do we move forward to design the three components? I
believe we need to start getting into this in detail. On the first
component--negotiating objectives--we need to get beyond general
concepts. For example, one issue is whether we are going to establish
separate negotiating priorities for multilateral, regional and
bilateral agreements. I believe that makes sense. Another issue--going
beyond the general concepts of ``one size does not fit all''--is to
develop language that ensures that dispute settlement remedies are
designed to be demonstrably effective in a variety of contexts and that
dispute settlement procedures are more open and inclusive in all
contexts.
Turning to the second component--updating the partnership between
Congress and the executive--we are going to have to decide what
procedural mechanisms are needed to ensure effective Congressional
oversight of and public input into each step of the process. For
example, how many and what kinds of congressional checkpoints should we
build into the process--for instance, should there be a congressional
or committee vote at the beginning and a midpoint in each negotiation?
What additional mechanisms should we create and how exactly should they
work--for example, providing for meaningful labor standard and
environmental reviews, updating the advisory committee system for
business, labor, environmental and other groups. There is a close
relationship between negotiating objectives and procedural mechanisms.
A right fast track approach requires that we move beyond slogans
and sound bites, embrace all issues of trade, old and new, and strive
to shape globalization with rules of competition that promote U.S.
economic interests and raise living standards around the world.
Chairman Crane. And now I welcome my colleagues, Mr. Moran,
Ms. Tauscher, and Ms. Christensen, to hear their testimony, and
I would like to ask you to try and keep the oral testimony to
roughly 5 minutes. And any written testimony will be made a
part of the permanent record.
We will proceed in the order I introduced you.
STATEMENT OF THE HON. JAMES P. MORAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF VIRGINIA
Mr. Moran. Thank you very much, Mr. Chairman. I appreciate
the fact that on this Committee seniority trumps beauty and
brains, so it is nice to be able to go first as a result.
Chairman Crane and Ranking Member Levin and Mr. Becerra,
Mr. Houghton, Mr. Camp, Ms. Dunn, Mr. English, Mr. Brady, I
thank all of you for this opportunity to testify on two
important hemispheric trade priorities: negotiation of a Free
Trade of the Americas Agreement and reauthorization of the
Andean Trade Preferences Act.
I would first like to cite my firm support for granting
trade promotion authority to the President. Trade Promotion
Authority (TPA) is crucial to the President's ability to
negotiate an FTAA, and its approval by Congress would
demonstrate the United States' commitment to expanding
hemispheric trade. I encourage Members of this Committee to act
in a bipartisan manner to advance legislation implementing TPA
that also appropriately addresses concerns over labor and the
environment.
The expansion of trade in the Western Hemisphere represents
one of our greatest economic and societal opportunities in the
coming decade. The creation of an FTAA will create a $10
trillion trading bloc of 34 countries and 800 million people
stretching from the Bering Strait to Tierra del Fuego. The
stars are aligned in terms of Latin America's leadership,
enabling us to have a historic opportunity to lead in this
endeavor, to ensure that an FTAA reflects U.S. interests and
values that can sustain the path of democracy and economic
reform by our Latin American partners. Expanding trade
relations with our neighbors in this hemisphere not only makes
sense from a trade perspective, but also from a foreign policy
and an economic security standpoint.
As cochair of the New Democrat Coalition, we believe our
future economic growth and prosperity depend on trade, but that
we should be able to balance our economic interests with
democratic values. Trade is and should be a non-partisan issue,
the result of collective efforts by bipartisan Members to
advance our overall economic interests. But in order for this
to be a successful bipartisan effort, we must address labor and
environmental concerns in a genuine and purposeful manner.
I commend the administration's emphasis on expanding our
trade relations in the Western Hemisphere. U.S. Trade
Representative Bob Zoellick has already shown leadership in
this endeavor. He has provided the guidance and expertise that
is essential to crafting an agreement that represents U.S.
interests in the region, but also secures the backing of our
Latin American partners.
Despite this bright start, I would like to sound the
caution expressed by Peter Hakim, President of the Inter-
American Dialogue, in his article entitled ``The Uneasy
Americas,'' that appeared in a recent issue of Foreign Affairs.
He cites that, and I am quoting, ``If Latin America loses
confidence in Washington . . . the opportunities for American
leadership in the hemisphere will diminish, along with hopes
for an effective U.S.-Latin American partnership.'' Mr.
Chairman, this administration and Congress cannot overstate the
importance of TPA renewal to securing the support of our Latin
American neighbors for wider economic and political
cooperation.
We must also recognize the difficult economic and political
situations faced by many of these countries, which are
increasingly skeptical of the U.S. commitment to the region.
The United States leadership in negotiating an FTAA, along with
congressional approval of TPA, will send the right signal to
our Latin American allies. Such steps as renewing the Andean
Trade Preference Act and expanding consultation with our Latin
American neighbors on trade and development matters will go a
long way toward repairing ties with many countries in the
hemisphere.
Reauthorization of the ATPA, although of marginal
consequence to the United States, is critical to the Andean
region's economy. Renewal of ATPA should expand upon the
existing program and allow similar preferences for apparel
items that the Congress offered to the Caribbean countries last
year. The formula that worked for the Caribbean countries fit
the economic realities of the Caribbean's apparel industry
while being sensitive to U.S. textiles. We need to find a
similar approach for addressing the economic realities of the
apparel industry in the Andean region.
At a minimum, the Caribbean Basin Trade Partnership Act
weakens the Andean countries' apparel industries and leads to
revenue and job losses as apparel producers begin moving their
operations to Caribbean locations. I encourage the Committee
not only to reauthorize the Andean Trade Preference Act, but to
expand the agreement to include items such as apparel, tuna
fish, and petroleum products that are crucial to sustaining
economic growth outside the drug industry.
Under Plan Colombia, the United States has invested more
than $1.3 billion in military aid in Colombia to fight the drug
war. This aid, while important, does not go far enough in
offering alternative economic development that can deter the
cultivation and exportation of cocaine in Colombia. Expansion
of ATPA benefits that includes apparel items is one critical
for the United States to fight the drug war while also
improving economic opportunity and stability in the region.
Basically, poor farmers need alternative ways to feed their
families. For Colombia to be truly successful in stemming the
drug trade, it will need more economic opportunities that will
provide jobs and wages that can sustain Colombian workers and
farmers.
We also need to encourage countries like Bolivia, which has
successfully and courageously nearly eradicated the drug
industry, but whose struggling economy depends upon textiles
and apparel made of specialty wool from llamas and alpaca
sheep. The relatively small investment of providing greater
trade incentives under ATPA renewal would reap tremendous long-
term gains for these countries and for U.S. consumers. Our
Andean trading partners are also poised to be strong allies in
our mutual efforts to secure a larger hemispheric trading bloc.
I urge the Committee to expedite consideration of an expanded
ATPA before the expiration of this agreement later this year.
Mr. Chairman, I would simply close by reiterating the
importance of congressional approval of trade promotion
authority legislation. I am confident we can successfully
tackle the difficult issues of labor and the environment in
this process. Hopefully, the Jordanian agreement will prove to
be a helpful precedent in this regard. TPA is integral to
demonstrating United States' resolve in the region and will
offer the opportunity to negotiate other trade agreements that
benefit American consumers and businesses.
As expressed in the Declaration of Quebec City approved by
President Bush and the 33 other heads of State from the
Americas, ``we do not fear globalization, nor are we blinded by
its allure. We are united in our determination to leave to
future generations a Hemisphere that is democratic and
prosperous, more just and generous, a Hemisphere where no one
is left behind.'' The President's words best express the
importance of an FTAA to our future.
Mr. Chairman, I thank you for this opportunity to appear
before the Committee and would be happy to respond to any
questions you and other Members may wish to ask, and I urge
your positive and timely passage of this crucially important
trade legislation.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Moran follows:]
Statement of the Hon. James P. Moran, a Representative in Congress from
the State of Virginia
Chairman Crane, Ranking Member Levin, and Members of the
Subcommittee, I thank you for this opportunity to testify on two
important hemispheric trade priorities: negotiation of a Free Trade of
the Americas Agreement (FTAA) and reauthorization of the Andean Trade
Preference Act (ATPA).
As an unwavering supporter of free trade, I would first like to
cite my firm support for granting trade promotion authority (TPA) to
the President, but it should appropriately address labor and
environment concerns. TPA is crucial to the President's ability to
negotiate an FTAA and its approval by Congress would demonstrate the
United States' commitment to expanding hemispheric trade. I encourage
Members of this Committee to act in a bipartisan manner to advance
legislation implementing TPA.
The expansion of trade in the Western Hemisphere represents one of
our greatest opportunities in the coming decade. The creation of a FTAA
will create a $10 trillion trading bloc of 34 countries and 800 million
people stretching from the Bering Strait to Tierra del Fuego. If the
sheer magnitude of this hemispheric agreement is not compelling enough
to prompt Congressional approval of trade promotion authority, a Free
Trade of the Americas Agreement is critical in another sense. We have
an historic opportunity to lead in this endeavor to ensure that it
reflects U.S. interests and values that can sustain the path of
democracy and economic reform by our Latin American partners. Expanding
trade relations with our neighbors in this hemisphere not only makes
sense from a trade perspective, but also from a foreign policy and
economic security standpoint.
Mr. Chairman, as you know, I have been one of my party's strongest
proponents of free trade. As co-chair of the New Democrat Coalition, I
have worked with other members who believe our future economic growth
and prosperity depend on trade, but that we should be able to balance
our economic interests with democratic values. Trade is and should be a
non-partisan issue, the result of collective efforts by bipartisan
Members to advance our overall economic interests. In order for this to
be a successful bipartisan effort, we must address labor and
environmental concerns in a meaningful way.
I commend the Administration's emphasis on expanding our trade
relations in the Western hemisphere. U.S. Trade Representative Robert
Zoellick has already shown outstanding leadership in this endeavor,
providing the guidance and expertise that is essential to crafting an
agreement that represents U.S. interests in the region, but also
secures the backing of our Latin American partners.
Despite this bright start, I would like to sound the caution
expressed by Peter Hakim, President of the Inter-American Dialogue, in
his article entitled ``The Uneasy Americas,'' that appeared in a recent
issue of Foreign Affairs. He cites that ``If Latin America loses
confidence in Washington . . . the opportunities for American
leadership in the hemisphere will diminish, along with hopes for an
effective U.S.-Latin American partnership.'' For these reasons, this
Administration and Congress cannot neglect the regional importance of
renewing trade promotion authority in securing the support of our Latin
American neighbors for wider economic and political cooperation.
We must also recognize the difficult economic and political
situations faced by many of these countries, which are increasingly
skeptical of the U.S. commitment to the region. The United States
leadership in negotiating an FTAA, along with Congressional approval of
TPA, will send the right signals to our Latin American allies. Such
steps as renewing the Andean Trade Preference Act and expanding
consultation with our Latin American neighbors on trade and development
matters will go a long way toward repairing dormant ties with many
countries in the hemisphere.
Reauthorization of the ATPA, though of little consequence to the
United States, is critical to the Andean region's economy. It should
also be expanded to offer greater economic incentives to our Andean
partners, including a reduction in tariffs on apparel goods. The
formula that worked for the Caribbean Basin Initiative (CBI) countries,
which last year were extended duty-free and quota-free treatment for
U.S. imports of apparel assembled in these countries, fit the economic
realities in the Caribbean's apparel industry. We need to find a
similar approach for addressing the economic realities of the apparel
industry in the Andean region.
The apparel industry in Colombia, for example, has suffered as a
result of the improved trade preferences extended to the CBI countries,
with many manufacturers closing their operations and setting up
facilities in the Caribbean. This has dealt a tremendous blow to
Colombia and the other Andean countries which have lost any competitive
advantage in apparel goods. For Colombia, trade in apparel represents a
significant industry for a country suffering from economic instability
and few employment opportunities. The United States has invested more
than $1.3 billion in military aid in Colombia under Plan Colombia to
fight the drug war. This aid, while important, does not go far enough
in offering alternative economic development that can deter the
cultivation and exportation of cocaine in Colombia. Expansion of ATPA
benefits that includes apparel items is one critical way for the United
States to fight the drug war while also improving economic opportunity
and stability in the region. The relatively small investment of
providing greater trade incentives to Colombia and the other nations
under ATPA renewal would reap tremendous long-term gains for these
countries and for U.S. consumers.
While ATPA has offered the Andean countries tariff preferences on
certain goods in an effort to enable them to pursue alternatives to
cocaine production and trafficking, it has not gone far enough to
stimulate long-term economic incentives that will sufficiently counter
the narcotics industry in the region, most notably Colombia. For
Colombia to be truly successful in stemming the drug trade, it will
need more economic opportunities that will provide jobs and wages that
can sustain Colombian workers and farmers.
Renewal of ATPA should expand upon the existing program and allow
similar preferences for apparel items that the Congress offered to the
Caribbean countries last year. This is absolutely essential in the case
of Colombia, whose apparel industry employs roughly 300,000 workers and
comprises $408 million in U.S. imports. At a minimum, the Caribbean
Basin Trade Partnership Act (CBTPA) will weaken the Andean countries'
apparel industries and lead to revenue and job losses as apparel
producers begin moving their operations to Caribbean locations.
According to the U.S. International Trade Commission's March 2001
report on U.S. Andean Apparel Trade, ``Among the most immediate
potential impacts that could occur from Colombia's loss of
competitiveness with the CBERA countries are (1) a decline in foreign
investment and a diminished alternative to drug production in Colombia
and (2) a further decline in production-sharing trade with the United
States that has occurred since 1997.'' I would also add that the Andean
countries will face additional competition from Asian suppliers of
apparel goods, who will gain access to the U.S. market free of quota
restrictions in 2005.
Our Andean trading partners are also poised to be strong allies in
our mutual efforts to secure a larger hemispheric trading bloc. We
should start our efforts to expand trade in the Americas by first
approving an expanded Andean Trade Preference Act that includes apparel
and other goods from the region. I urge my colleagues on the Committee
to expedite consideration of an expanded ATPA before the expiration of
this agreement later this year.
Mr. Chairman, I would simply close by reiterating the importance of
Congressional approval of trade promotion authority legislation. I am
confident we can successfully tackle the difficult issues of labor and
the environment in this process. TPA is integral to demonstrating the
United States' resolve in the region, and will offer the opportunity to
negotiate other trade agreements that benefit American consumers and
businesses.
As expressed in the Declaration of Quebec City approved by
President Bush and the 33 other heads of state from the Americas, ``we
do not fear globalization, nor are we blinded by its allure. We are
united in our determination to leave to future generations a Hemisphere
that is democratic and prosperous, more just and generous, a Hemisphere
where no one is left behind.'' I think this splendidly captures the
importance of an FTAA to our future.
Mr. Chairman, I thank you for this opportunity to appear before the
Committee and would be happy to respond to any questions you and other
Members may wish to ask.
Chairman Crane. Thank you, Mr. Moran. And now, Ms.
Tauscher?
STATEMENT OF THE HON. ELLEN O. TAUSCHER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Tauscher. Thank you, Mr. Chairman and the ranking
member and other members of the Subcommittee. Thank you for
inviting me to express my views on U.S. trade with our southern
neighbors. We are at a critical point in the ongoing
relationship with our good friends in Central and South
America. We have already established free trade agreements with
Canada and Mexico. Now we must look to widen our horizons,
expand business and cultural opportunities, share the good
fortunes of free trade with our Andean neighbors, and then
proceed with trade agreements for the rest of the democratic
countries in South America.
Through my role on the House Armed Services Committee, I
have been deeply involved in U.S. operations in Central and
South America, especially in terms of U.S. development and
support of Plan Colombia. I recently traveled to this region
and met with the fine young men and women of the U.S. armed
forces who are working diligently to achieve the goals that
Congress set when this body passed legislation to provide
assistance in this most difficult of battles: the war on drugs.
I met with the commanding generals in Southern Command, the
troops in the field, the special operations community, and the
Colombian military. Their morale is high, their missions are
clear, and their work to achieve these goals is working well as
we speak. We have every right to be proud of our military and
must strive to provide them the best support possible.
I have also met the Colombian leadership, President
Pastrana, Minister Ramirez, the Colombian Trade Minister, Mr.
Urrutia, the head of the Colombian Central Bank, and other
cabinet-level leaders in Colombia. One constant through all of
the discussion on how to win this war on drugs is this central
thesis: to move a population from an industry of drug
cultivation, production, transportation, and dissemination,
there must be gainful employment somewhere else. The only true
and proven method of increasing opportunities in an emerging
economy is to open trade. There are no alternatives in a
democratic society.
The existing ATPA arrangement has been positive towards
this end, but it needs substantial expansion of trade benefits.
Colombian President Pastrana clearly stated his desire for
expanded trade opportunities when he visited with President
Bush here in February. Two weeks ago in Quebec City, he again
declared his country's need for enhanced trade with the United
States. While less than 1 percent of total U.S. imports of
apparel come from ATPA beneficiaries, the U.S. exports
approximately $10 billion in goods to these nations. Between
1992 and 1999, the industries in Colombia favored by ATPA
generated $1.2 billion in output and approximately 140,000
jobs. It is also important to note that a 1999 Department of
Labor report shows that preferential tariff treatment under
ATPA does not appear to have had an adverse impact on or have
constituted a significant threat to U.S. employment.
As you know, last year the United States formalized our
commitment to the Colombian government in the form of $1.3
billion in assistance. Plan Colombia includes assistance in the
peace process, counter-drug efforts, reform of the justice
system with attention to human rights, enhanced efforts toward
democratization and social development, and support of the
Colombian economy. The Colombian government has committed $4
billion to this program, which is expected to cost $7.5 billion
over a 6-year period. Of the $1.3 billion U.S. dollars sent to
the region, approximately $147 million is programmed for
alternative economic development; this is far below what we
need to do in this area. All the pillars of the program are
critical, but the concept of ``weaning'' the Andean economies
off drugs as an industry is intrinsically linked to the
development of industries that engage in conventional trade.
The most unasked question in the war on drugs is: ``What if
the plan succeeds?'' A couple of numbers clearly illustrate how
unprepared we, as a hemispheric community, are for the best-
case scenario: The World Bank estimates that the combined gross
domestic product, GDP, of the four Andean nations involved in
ATPA is approximately $200 billion. The Office of the National
Drug Control Policy estimates that annual exports of cocaine
from the Andean region are approximately $12 billion. A very
cursory, macro examination quickly reveals that if tomorrow all
the drug industries were crushed and drug money disappeared
from this region, the Andean nations would experience a 6
percent drop in gross domestic product. For comparison's sake,
you will most likely remember one of our worst economic crises
in the United States, the Arab oil embargo in the early
seventies. That difficult time caused only a 3.5 percent drop
in our own GDP, and it was catastrophic for us. Whether
instantaneous or over the next 5 years, this region is clearly
not prepared to replace drug money with wages and other sources
of revenue that are derived from standard business practices.
We must open up the doors of trade to speed the transition of
these economies away from drug money.
This is a multi-dimensional problem that we are deeply
involved in: We are part of the problem and need to be part of
the solution. To date, we in the United States have made a
``bet'' that $1.3 billion of American assistance can help solve
this problem. I believe that if we truly want to shape the
environment to ensure our success, we must ``protect our bet''
with a trade package that sets the conditions to change their
earnings source from drug money to industries that are part of
the 21st century economy.
Thank you, Mr. Chairman, for inviting me to speak to you
today on the issues of Andean trade. It is my hope that we can
develop an effective Andean Trade Preference bill with strong
bipartisan support that expands the trade preferences and
extends the timeline well into the future.
Thank you.
[The prepared statement of Ms. Tauscher follows:]
Statement of the Hon. Ellen O. Tauscher, a Representative in Congress
from the State of California
Mr. Chairman, thank you for inviting me to express my views on U.S.
trade with our southern neighbors. We are at a critical point in the
ongoing relationship with our good friends in Central and South
America. We have already established free trade agreements with Canada
and Mexico. Now we must look to widen our horizons, expand business and
cultural opportunities, share the good fortunes of free trade with our
Andean neighbors, and then proceed with trade agreements for the rest
of the democratic countries in South America.
Through my role on the House Armed Services Committee, I have been
deeply involved in U.S. operations in Central and South America,
especially in terms of U.S. development and support of ``Plan
Colombia''. I recently traveled to this region and met the fine men and
women of the U.S. armed forces who are working diligently to achieve
the goals that the Congress set when this body passed legislation to
provide assistance in this most difficult of battles: the war on drugs.
I met with the commanding generals in Southern Command, the troops in
field, the special operations community, and the Colombian military.
Their morale is high, their missions are clear, and their work to
achieve these goals continues as we speak. We have every right to be
proud of our military and must strive to provide them the best support
possible.
I have also met with the Colombian leadership, President Pastrana,
Minister Ramirez, the Colombian Trade Minister, Mr. Urrutia, the Head
of the Colombian Central Bank, and other cabinet-level leaders in
Colombia. One constant through all of the discussion on how to win this
war on drugs is this central thesis: to move a population from an
industry of drug cultivation, production, transportation, and
dissemination, there must be gainful employment elsewhere. The only
true and proven method of increasing opportunities in an emerging
economy is to open trade. There are no alternatives in a democratic
society.
The existing ATPA arrangement has been a positive influence towards
this end, but it needs substantial expansion of trade benefits.
Colombian President Pastrana clearly stated his desire for expanded
trade opportunities when he visited with President Bush here in
February. Two weeks ago in Quebec City, he again declared his country's
need for enhanced trade with the United States. While less than 1% of
total US imports of apparel come from ATPA beneficiaries, the U.S.
exports approximately $10 billion in goods to these nations. Between
1992 and 1999, the industries in Colombia favored by ATPA generated
$1.2 billion in output and approximately 140,000 jobs. It is also
important to note that a 1999 Department of Labor report shows that
preferential tariff treatment under ATPA does not appear to have had an
adverse impact on, or have constituted a significant threat to U.S.
employment.
As you know, last year the United States formalized our commitment
to the Colombian Government in the form of $1.3 billion in assistance.
Plan Colombia includes assistance in the peace process, counter-drug
efforts, reform of the justice system with attention to human rights,
enhanced efforts toward democratization and social development, and
support of the Colombian economy. The Colombian government has
committed $4 billion to this program, which is expected to cost $7.5
billion over a six-year period. Of the $1.3 billion U.S. dollars sent
to the region, approximately $147 million is programmed for alternate
economic development; this is far below what we need to do in this
area. All the pillars of the program are critical, but the concept of
``weaning'' the Andean economies off of drugs as an industry is
intrinsically linked to the development of industries that engage in
conventional trade.
The most unasked question in the War on Drugs is ``What if the plan
succeeds?'' A couple of numbers clearly illustrate how unprepared we,
as a hemispheric community, are for the best case scenario: The World
Bank estimates that the combined GDP of the four Andean nations
involved in ATPA is approximately $200 billion. The Office of the
National Drug Control Policy estimates that annual exports of cocaine
from the Andean region are approximately $12 billion. A very cursory,
macro examination quickly reveals that if tomorrow, all of the drug
industries were crushed and drug money disappeared from this region,
the Andean nations would experience a 6% drop in GDP. For comparison's
sake, you most likely remember one of our worst economic crises in
recent times, the Arab Oil embargo in the early 1970's. That difficult
time caused only a 3.5% drop in GDP. Whether instantaneous or over the
next 5 years, this region is clearly not prepared to replace drug money
with wages and other sources of revenue that are derived from standard
business practices. We must open up the doors of trade to speed the
transition of these economies away from drug money.
This is a multi-dimensional problem that we are deeply involved in:
we are part of the problem and need to be part of the solution. To
date, we have made a ``bet'' that a $1.3B American assistance program
can help solve this problem. I believe that if we truly want to shape
the environment to ensure our success, we must ``protect our bet'' with
a trade package that sets the conditions to change their earnings
source from drug money to industries that are a part of the 21st
century economy.
Thank you, Mr. Chairman, for inviting me to speak to you today on
the issues of Andean trade. It is my hope that we can develop an
effective Andean Trade Preference bill with strong bipartisan support
that expands the trade preferences and extends the timeline well into
the future. Thank you.
Chairman Crane. Thank you.
Ms. Christensen.
STATEMENT OF THE HON. DONNA M. CHRISTIAN-CHRISTENSEN, A
DELEGATE IN CONGRESS FROM THE UNITED STATES VIRGIN ISLANDS
Ms. Christian-Christensen. Thank you, Mr. Chairman, ranking
member, distinguished colleagues, for the opportunity to
testify this afternoon on the important hearing on the Andean
Trade Preferences Act and a future Free Trade Area of the
Americas. In particular, though, I am grateful for the chance
to explain to the Subcommittee on Trade the critical importance
of retaining current treatment for rum in any renewed ATPA and
of opposing future tariff reductions for rum in the context of
the FTAA.
I am accompanied today by Mr. Andrew Wechsler, sitting
behind me, of the Law & Economics Consulting Group, who is
currently conducting an updated economic analysis of the rum
tariff issues for the governments of the Virgin Islands and
Puerto Rico. Both Mr. Wechsler and I would be pleased to answer
any specific questions after my testimony, and I would like to
submit a statement from the Governor of the Virgin Islands,
Charles Turnbull, for the record with your permission.
Chairman Crane. Without objection, so ordered.
[The following was subsequently received:]
Statement of the Hon. Charles W. Turnbull, Governor of the United
States Virgin Islands
Introduction
Mr. Chairman and distinguished Members of the Subcommittee on
Trade, I am pleased to provide this statement on behalf of the
government of the United States Virgin Islands (``GVI'') in conjunction
with the Subcommittee's hearing on the future of trade in the Western
Hemisphere. In particular, I appreciate the opportunity to outline for
the Subcommittee the crucial role which rum plays in the economy and
financial stability of government of the Virgin Islands and for other
island jurisdictions in the Caribbean. For the reasons set forth below,
Congress must assure that any legislation extending the Andean Trade
Preferences Act (``ATPA'') includes the current exclusion of low-value
Andean rum. For the same reasons, I also respectfully urge that
Congress oppose additional tariff reductions for rum in the negotiation
of any future Free Trade Agreement of the Americas (``FTAA'').
In 1991, after careful consideration, Congress affirmatively acted
to exclude rum from the list of products eligible for duty free
treatment under the ATPA. The powerful reasons of this exclusion--
including the critical importance of rum to Caribbean Basin economies
and the resource, cost and capacity advantages of Andean producers--
still exist today. Indeed, as explained below, U.S. duties on low-value
bulk and bottled rum were recently affirmed after delicate and complex
discussions among the United States, the European Union, Caribbean
governments and non-governmental stakeholders in the 1997 ``zero-for-
zero'' agreement on distilled spirits.
The result of these 1997 negotiations reflects longstanding United
States policy to preserve tariffs on imported rum. This consistent U.S.
policy is based on the fundamental fact that the rum industry and
existing U.S. tariff preferences play a critical role in the economies
of the Virgin Islands and other Caribbean jurisdictions. Under, a
congressionally mandated program to foster the development of the
Virgin Islands, Federal excise taxes on Virgin Islands rum shipped to
the United States are returned to the GVI treasury. This revenue
source--which accounts for approximately 15 percent of the GVI's total
budget--secures hundreds of millions of dollars of government-issued
bonds to finance the capital infrastructure of the Islands.
Any reduction or elimination of existing tariffs on low-value rum
would disrupt these carefully considered trade and finance programs.
Any such steps would have particularly devastating consequences for the
fiscal stability of the GVI, which is currently struggling with a
financial crisis exacerbated by the massive destruction wrought by
successive 100-year hurricanes and other natural disasters over the
last dozen years. Moreover, the elimination or reduction of duties on
rum would have dire consequences for U.S. producers in the Virgin
Islands and Puerto Rico--who comprise virtually all of the domestic rum
industry--and for Caribbean beneficiaries of the U.S. Caribbean Basin
Initiative (``CBI'').
Congress must, therefore, continue to oppose any efforts to
facilitate reductions in rum tariffs in the context of the ATPA or the
FTAA.
A. The Virgin Islands Economy Is Linked By Congressional Design To The
Health Of the Territory's Rum Industry
As an unincorporated territory of the United States, the Virgin
Islands is uniquely dependent upon the continuing health and vigor of
its rum industry.
Rum is a product of special significance to the Virgin Islands and
other Caribbean jurisdictions. Rum has been produced in the Caribbean
for centuries, providing important contributions to local economies, as
well to the history and lore of the region. Today, the rum industry
plays even greater role in the prosperity and stability of the Virgin
Islands economy. Indeed, rum production is the second most important
industry in the Virgin Islands, surpassed only by tourism.
Most Virgin Islands rum occupies the low-price end of the market
and is sold as unaged bulk rum to regional distributors in the United
States. The distributors, in turn, bottle and sell the rum under
private labels or sell to national beverage companies which market
under various product labels. Virgin Islands-produced rum is also sold
as prepared cocktail mixes. Because Virgin Islands bulk rum is
generally sold as a commodity and does not have name brand recognition,
it cannot command premium prices. Rather, bulk rum is extremely price
sensitive and is sold in a highly competitive environment where pennies
can literally make or break a sale. As a result of this position in the
market, Virgin Islands-produced rum is vulnerable to imports from low-
cost countries, like Brazil and Colombia, with large indigenous sugar
cane industries.
In recognition of the special importance of rum to the Virgin
Islands economy, successive Administrations have acted affirmatively to
maintain tariffs on imports of low-value rum from non-CBI countries.
Current U.S. tariffs on low-priced rum are 25.9 cents per proof liter
for bottled rum valued at $3 per proof liter or less and 25.9 cents per
proof liter for bulk rum valued at $0.69 per proof liter or less. These
duties are critical to the continued viability of the Virgin Islands
rum industry. (As noted below, the importance of these tariffs was
affirmed as recently as 1997 in a U.S.-EU accord on rum.) Removal of
the current duty on low-value rum, on the other hand, would confer an
enormous advantage upon Andean and other non-CBI producers, who already
enjoy substantial cost and production advantages and would likely
expose Virgin Islands producers to immediate and destructive import
competition. In short, the current duty is necessary to prevent serious
injury to the Virgin Islands rum industry and, by extension, to the
entire Virgin Islands economy.
Corollary to its interest in ensuring the competitive health of a
historic industry, the GVI and the United States Government also have a
common interest in protecting one of the GVI's principal sources of
governmental revenue. Congress has, by statute, mandated that Federal
excise taxes imposed on Virgin Islands rum be returned to the treasury
of the Islands to finance needed capital projects and public services.
Under the Virgin Islands Revised Organic Act 1954 (``ROA''), Pub. L.
No. 517, 68 Stat. 12, which established a comprehensive scheme of local
self-government in the Territory, Congress provided that Federal excise
taxes collected on rum manufactured in the Virgin Islands and shipped
to the United States shall be returned to the treasury of the Virgin
Islands. ROA, Sec. 28(b) (codified at 26 U.S.C. Sec. 7652(b), (e)).
Prior to the enactment of the Revised Organic Act, the Virgin Islands
was dependent upon ad hoc congressional appropriations for the support
of its local government. As part of its statutory scheme for the
political and economic development of the Virgin Islands, Congress
intended that these tax cover-over provisions generate a permanent
source of funds for the Virgin Islands government and thus contribute
to the financial self-sufficiency of the Territory. See S. Rep. No.
1271, 83d Cong., 2d Sess. 4 (1954), reprinted in 1954 U.S. Code Cong. &
Ad. News 2585. See also Commonwealth of Puerto Rico v. Blumenthal, 642
F.2d 622 (D.C. Cir. 1980), cert. denied, 451 U.S. 983 (1981) (purpose
of cover-over provisions is ``to ease financial plight'' of the Virgin
Islands and Puerto Rico).
The rum industry and the cover-over provisions of the Revised
Organic Act presently contribute approximately 15 percent of the
Territory's total budget. For 2000, the GVI received approximately $75
million in rum excise taxes. These cover-over revenues are used to
secure bonds issued by the GVI and sold to mainland institutions and
investors. These bonds, in turn, finance needed capital improvements
and infrastructure development in the Territory including, inter alia,
the construction of schools, health care facilities, airports and other
vital projects throughout the Virgin Islands--projects made all the
more necessary by the billions of dollars of damage caused by major
hurricanes and other natural disasters over the last decade. In
addition, the number of direct jobs generated by these capital
expenditures run into the thousands--far outpacing the number of jobs
in the rum industry, which is itself one of the largest manufacturing
industries in the Territory.
The rum industry thus provides one of the principal sources of
employment and government revenue in the Virgin Islands. Even a modest
increase in imports from Andean and other non-CBI producers triggered
by extending duty-free treatment to low-cost rum would invariably
result in depressed prices and correspondingly reduced profits for U.S.
rum producers in the Virgin Islands. Because of the linkage established
by Congress between the industry and excise tax revenues, even minimal
displacement of Virgin Islands rum shipments to the United States by
foreign competition will threaten the fiscal stability of the
Territorial Government, raise the cost of the government borrowings,
and, derivatively, put the entire economy of the Islands at risk.
Accordingly, Congress must retain current restrictions on rum in the
ATPA and oppose the inclusion of rum in any tariff negotiations under
the FTAA.
B. Any Reduction or Elimination of Current U.S. Duties on Low-Value Rum
Would Run Counter to Long-Standing Federal-Territorial Policy
Both the Congress and the Executive Branch of the United States
have repeatedly recognized the unique role that the rum industry plays
in the legal, economic and political relationship between the United
States and its island territories in the Caribbean. The United States
has taken affirmative action on many occasions to protect the Virgin
Islands and Puerto Rico rum industries from potential competitive harm
that would result from changes in trade preferences for rum.
Historically, all foreign-produced rum imported into the United
States was subject to U.S. customs duty. In 1983, in response to the
President's foreign policy objectives for the Caribbean, Congress
enacted the Caribbean Basin Economic Recovery Act (``CERA'')--popularly
known as the ``Caribbean Basin Initiative''--which created a special
system of tariff preferences for products (including rum) originating
from eligible Caribbean countries. Pub. L. No. 98-67, 19 U.S.C.
Sec. Sec. 2701 et seq. The legislation was carefully developed to
balance domestic economic interests against U.S. foreign policy goals
for the Caribbean. After careful Congressional deliberation, a
legislative compromise was worked out to protect the Virgin Islands and
its rum industry from any increase in Caribbean rum imports. Among
other things, Congress enacted several compensatory measures in
recognition of the heightened vulnerability of the Virgin Islands rum
industry to CBI imports, including a partial rebate to the GVI of a
percentage of excise taxes imposed on foreign-produced rum. See Pub. L.
No. 98-67 Sec. 214, 19 U.S.C. Sec. Sec. 1202, 2251 (note), 2703 (note),
33 U.S.C. Sec. 1311 (note).
The Federal Government has also demonstrated its continued
recognition of the special role of rum in the Virgin Islands economy in
its disposition of various petitions under the Generalized System of
Preferences. In 1981, 1982, 1987 and 1990, the U.S. government rejected
various GSP petitions seeking duty-free entry of rum produced by non-
Caribbean producers. The rejection of these GSP petitions reaffirmed
the import-sensitivity of the rum industry and reflects a considered
judgment that the potential harm to the Virgin Islands and Puerto Rican
rum industries outweighed any policy benefit to the petitioning
countries.
For all these reasons, efforts to eliminate or reduce current
tariff preferences for rum--whether in the context of ATPA renewal or
future FTAA negotiations--would be contrary to longstanding Federal
policy against the extension of tariff preferences for low-value rum
produced outside of the Caribbean.
C. Changes in Current Tariff Treatment for Rum Would Be Inconsistent
With the Considered Judgments Which Underlie the APTA and the
1997 Agreement on Rum
Of particular importance in the context of the Subcommittee's
consideration of a renewed ATPA is that fact that Congress expressly
excluded rum from the list of products eligible for duty-free treatment
when the ATPA was enacted in 1991. This action was taken by Congress
and the Administration after very careful consideration of the impact
that duty-free treatment for rum would have on the Virgin Islands, and
Puerto Rico and CBI jurisdictions generally. In explaining this action,
the House Ways & Means Committee 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 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 resource 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). As explained below, the
powerful reasons then for excluding rum from duty-free treatment under
the ATPA still exist today.
Developments over the last decade also make the retention of
current rum tariffs even more imperative for the Virgin Islands and
other CBI beneficiaries. As part of a tariff agreement initialed at the
December 1996 WTO Ministerial in Singapore, the United States and the
European Union (``EU'') committed to phase out their tariffs on ``white
spirits'' (including rum) by no later than 2000. In response to this
unexpected announcement, U.S. and Caribbean governments and producers,
Administration officials and Members of Congress strongly emphasized to
U.S. and EU negotiators that, unless exempted, such a drastic change in
the duty structure for rum would deal a severe blow to the Virgin
Islands, Puerto Rico and the island nations of the Caribbean, whose
economies and governments depend heavily on revenues generated by trade
in rum.
In response to these demonstrable concerns, the United States and
the EU returned to the negotiating table in 1997 and--with substantial
input from the GVI and other Caribbean governments and producers--
subsequently fashioned a compromise tariff mechanism for rum. This
mechanism sought to balance trade liberalization with the particular
concerns of the Caribbean region. It did so by retaining existing MFN
duties (and the duty preferences of Caribbean producers) on low-priced
bottled and bulk rum while substantially liberalizing duties on more
expensive rum. Pursuant to this agreement, current higher U.S. duties
on low-priced rum are cut off above $3.00/proof liter for bottled rum
and $0.69/proof liter for bulk rum.
The willingness of U.S. and EU negotiators to reopen their initial
tariff commitments to address the import sensitivity of low-value rum
affirms the special and the significant role which rum generally plays
for the economies and governments throughout the Caribbean. The 1997
rum agreement was a reasoned compromise agreed to by the concerned
governments with substantial participation by key non-governmental
stakeholders. In renewing the ATPA and advising on a negotiating
strategy for the FTAA, Congress must recognize and continue this
careful approach to the unique issues raised by rum.
The exclusion of rum from duty-free treatment under the ATPA and
the careful compromise reached in the 1997 rum accord demonstrate that
rum is not a product which can or should be included in any across-the-
board grant of duty-free treatment or formula-based tariff reduction
schemes. Rather, any renewal of the ATPA and any tariff discussions in
the context of the FTAA must address the special economic and political
significance of the rum trade to the Caribbean region. The considered
compromise reached in the 1997 agreement on rum provides a proper
balance between the needs of the Virgin Islands and other Caribbean
producers of low-value rum and liberalized trade for higher-priced rum.
D. The Reduction or Elimination of Current U.S. Duties on Rum Would
Result In Serious Injury To U.S. Producers In the Virgin
Islands And The Overall Economy of the Virgin Islands
Duty reductions for rum pursuant to a renewed ATPA or as part of
any FTAA negotiations would impose unacceptable hardships on the Virgin
Islands and its rum producers. Because it lacks strong name brand
identification and a well-developed national distribution network,
Virgin Islands rum generally cannot command premium prices. Rather, as
explained above, most Virgin Islands rum is sold at the low end of the
market and is generally purchased in bulk as an unaged commodity by
U.S. bottlers. In this sales environment, Virgin Islands producers must
compete almost exclusively on the basis of price and, accordingly, are
particularly vulnerable to competition from low-cost producers of bulk
rum.
Removal or reduction of current duties on low-value rum would
provide producers from outside the Caribbean region with an
irresistible incentive to target the low end of the U.S. rum market
currently occupied by Virgin Islands producers. For example, Andean and
Brazilian producers and producers from other large South American
countries currently enjoy numerous economic advantages relevant to the
production of rum. These include below-world-market prices for
molasses, more highly developed transportation and distribution
networks, inexpensive fuel, low manufacturing-sector wages and freedom
from U.S. regulatory requirements. The extension of ATPA to rum would
open the doors especially to Colombia, but also Peru. Colombia
presently consumes more rum than France, 2.5 million cases per year.
This does not include aguardiente, an extremely popular Colombian
beverage that, like rum, is derived from sugar cane. Colombia has four
major rum distillers and a mature industry. Colombia has a significant
existing capacity in rum and an ability to augment it rapidly by
diverting from aguardiente. Duty-free access to the United States,
coupled with its clear cost advantages, would allow Colombia rapidly to
enter the low-valued rum market, displacing the Virgin Islands
producer.
The extension of duty-free rum treatment to all of South America
via the FTAA would create an even more grim picture for the future of
this traditional Virgin Islands industry. Brazil is the global
industry's 800 pound gorilla--it is the world's largest producer of
caned spirits, accounting for 73 percent of global consumption in 1999.
Cachaca, a product very similar to rum, is the national drink of
Brazil. Brazil clearly has the capacity to single-handedly suffocate
the Virgin Islands rum industry in its low-valued market. The role of
the existing duties is crucial to the competitiveness of the Virgin
Island's rum industry because Brazil's wage structure in the beverage
industry is far below that of the Virgin Islands. Brazil is also a
major producer of sugar and molasses, the key cost component in rum
production. With more sugar than it can use, and low energy costs (due
to both subsidies and the burning of cane stalk), Brazil would,
overnight, become the lowest-cost large source for low-valued bulk rum
if duties were removed.
The GVI and other interested parties have commissioned Mr. Andrew
Wecshler, Managing Director of LECG, LLP, a leading trade and economic
consulting firm, to conduct an analysis of the probable economic
effects of the elimination of current duties on rum. Attached to this
statement is a Power Point presentation which summarizes Mr. Wechsler's
preliminary conclusions. This analysis makes clear that, without the
benefit of the current tariff protection affirmed in the 1997 rum
agreement, Virgin Islands producers would quickly be overwhelmed by
non-CBI producers in the price-based segment of the U.S. market in
which Virgin Islands rum competes.
The elimination of U.S. tariff protection for the price-sensitive,
low-value segment of the U.S. rum market would also seriously threaten
the future of the Congressionally mandated program to finance the
development needs of the Virgin Islands through the return of excise
taxes on rum to the GVI treasury. As explained above, this cover-over
program finances some 15 percent of the GVI's annual budget and secures
government bonds issued for crucial development and infrastructure
projects. This vital economic program depends, however, on the
continued existence of a viable rum production industry in the Virgin
Islands.
Without current tariff protections, non-CBI producers would likely
use their tremendous competitive advantages to displace Virgin Islands
rum from the U.S. market, thereby drying up GVI treasury revenues from
the return of excise taxes on Virgin Islands-produced rum. This lost
revenue could not be made up by the partial rebate of excise taxes on
foreign rum granted by the CBI. The CBI provides only a limited
guarantee of Virgin Islands rum revenues and simply does not make the
Virgin Islands whole where foreign imports are increasing
disproportionately at the bottom end of the bulk rum market--precisely
the segment where the Virgin Islands industry competes. Moreover, from
a practical political standpoint, even this limited rebate program
would be unlikely to continue if Virgin Islands rum production were no
longer viable.
Finally, and perhaps most significantly, the very prospect of
serious reductions in rum cover-over revenues would likely imperil the
GVI's bond rating and overall economy even before any non-CBI rum
producers could avail themselves of reduced U.S. tariffs. Bond markets
and investors are justifiably wary of risk and would hesitate to
provide needed bond financing at acceptable costs to the GVI based on a
threatened and declining stream of cover-over revenues.
Thus, the elimination of current tariff preferences for Virgin
Islands rum would have a devastating domino effect on the Virgin
Islands and its economy. Without these preferences, rum cover-over
revenues would seriously decline and the GVI could lose access to
financial markets. Because of the dependence of the Virgin Islands on
rum-related revenues, these developments would ultimately put at risk
the fiscal autonomy, if not solvency, of the GVI.
E. The Elimination of Current Tariff Preferences on Rum Would Be
Contrary To Sound Public Policy In Light of the Precarious
Fiscal State of the Virgin Islands
As noted above, current tariff protections for Virgin Islands rum
are founded on a longstanding Federal-Territorial policy which links
the Islands' development with revenues from rum. This policy provides
compelling reasons to resist any elimination of tariff preferences for
Virgin Islands rum. Moreover, in view of the current precarious fiscal
state of the GVI, any tariff reductions for rum pursuant to a renewed
ATPA or FTAA tariff talks would be particularly ill-timed and
inconsistent with sound public policy.
Indeed, the new administration in the GVI has inherited a fiscal
state of affairs of enormous and alarming proportions. The current
recurring and non-recurring liabilities of the GVI exceed $1.2 billion,
excluding the funding requirements for many capital projects such as
schools, correctional facilities and solid waste management facilities.
A sizeable portion of the Government's current liabilities is the
direct result of successive hurricanes which have battered the Virgin
Islands over the past decade. As of December 31, 2000, these hurricane-
related liabilities included nearly $200 million in outstanding FEMA
loans. In addition, the GVI requires over $125 million in assistance
for rebuilding/replacing a number of capital projects, such as schools,
prisons and other facilities mostly destroyed during the hurricanes.
The GVI is committed to extraordinary self-help measures to address
this fiscal crisis. With the ongoing assistance of the U.S. Department
of Interior, the GVI has developed a Five-Year Fiscal Recovery Plan and
is implementing a number of specific measures to reduce or cut costs
and enhance revenue collections. As part of this recovery effort, the
GVI is seeking over $300 million in Federal relief relating to FEMA
disaster loans and hurricane-related infrastructure reconstruction.
Additionally, the GVI is seeking further Federal assistance through the
extension of the increase in the rum tax cover-over rate to $13.25 per
proof gallon, which Congress enacted in 1999 and which expires on
December 31, 2001.
In light of the Federal Government's substantial involvement and
interest in these recovery efforts, it makes no sense for the U.S.
Government to simultaneously undermine one of the major sources of
revenue of the GVI through the elimination of current rum preferences
pursuant to a revised ATPA or FTAA tariff negotiations. Sound fiscal
policy--as well as longstanding trade and development policies embodied
in the ATPA and other legislation--thus supports the maintenance of the
current tariff structure and the preservation of the U.S.-EU rum
accord.
Conclusion
For reasons discussed above, the reduction or elimination of
tariffs on rum in the context of a revised ATPA or future FTAA
negotiations would pose an inevitable and serious threat to the health
of the Virgin Islands economy and its rum industry, as well as to the
fiscal autonomy of its Government. Granting duty-free treatment to rum
would have a devastating impact on one of the Virgin Islands' most
significant and historic industries and one of its largest and sources
of governmental revenue. The United States has wisely refused to
abandon the critical rum industry in the Virgin Islands. Because of the
current weakened fiscal state of the Virgin Islands Government, the
case against changing current U.S. tariff protections for rum is even
more compelling today. For the reasons set forth above, the Congress
must retain current ATPA restrictions against duty-free treatment for
Andean rum and must preserve the careful compromise embodied in the
1997 U.S.-EU rum accord by excluding rum from future FTAA tariff
reduction negotiations.
[GRAPHIC] [TIFF OMITTED] T4222A.001
[GRAPHIC] [TIFF OMITTED] T4222A.002
[GRAPHIC] [TIFF OMITTED] T4222A.003
[GRAPHIC] [TIFF OMITTED] T4222A.004
[GRAPHIC] [TIFF OMITTED] T4222A.005
[GRAPHIC] [TIFF OMITTED] T4222A.006
[GRAPHIC] [TIFF OMITTED] T4222A.007
[GRAPHIC] [TIFF OMITTED] T4222A.008
[GRAPHIC] [TIFF OMITTED] T4222A.009
[GRAPHIC] [TIFF OMITTED] T4222A.010
[GRAPHIC] [TIFF OMITTED] T4222A.011
Ms. Christian-Christensen. Thank you. In 1991, after very
careful consideration by Congress and the administration, rum
was expressly excluded from duty-free treatment under the ATPA.
The Ways and Means Committee then explained that this action
was necessary to preserve the benefits that Congress had
provided to Puerto Rico, the Virgin Islands, and the Caribbean
Basin countries.
Developments over the last decade--particularly a landmark
1997 international trade understanding and agreement on rum
tariffs--have made the retention of current tariff preferences
on rum even more imperative for the Virgin Islands and the
Caribbean region as a whole.
Today, rum is the second most important industry in the
Virgin Islands, surpassed only by tourism. It provides an
essential revenue source for the Virgin Islands Government
because under a congressionally mandated program for the
development of the Islands, Federal excise taxes on rum shipped
to the United States are returned to the local treasury. These
funds currently account for more than 15 percent of the Virgin
Islands total budget and have played a critical role in the
economic and budgetary health of the Islands.
Most rum produced in the USVI is sold as unaged bulk rum to
regional distributors in the United States as a commodity
without name brand recognition. Therefore, the rum cannot
command the premium prices. It is also extremely price-
sensitive and vulnerable to imports from low-cost countries. As
Congress recognized in 1991, Andean and other non-CBI producers
have significant natural resource advantages in the production
of rum. These advantages include: large, indigenous sugar cane
industries, inexpensive fuel, low wages, and substantial rum
and alcohol production capacity. Without current U.S. tariff
preferences, these low-cost regional producers can be expected
to overwhelm Virgin Islands and CBI producers of low-value rum
in the U.S. market.
In addition to excluding rum from duty-free benefits under
the ATPA in 1991, Congress also adopted and maintained a
special compensatory program for Virgin Islands rum in the
context of CBI. Through the 1980s and 1990s, successive
administrations also repeatedly rejected various GSP petitions
for duty-free entry of rum produced by non-Caribbean producers.
All of these decisions reflect a recognition that rum is highly
import-sensitive. They were also the result of a carefully
considered judgment that the likely harm to the Virgin Islands
and the island nations of the Caribbean far outweighs any
potential policy trade benefits from tariff liberalization.
The unique and critical role of rum in the Caribbean region
and the importance of maintaining preferences for low-value rum
was most recently affirmed in a landmark 1997 understanding
between the United States and the European Union. In WTO tariff
negotiations in 1996, U.S. and EU negotiators had initially
agreed to phase out all tariffs on rum and other ``white
spirits'' by 2000. This unexpected development, which was the
last occasion on which I testified before this Subcommittee,
was met with alarm by Caribbean governments, administration
officials, and Members of Congress, who emphasized to the trade
negotiators that such a drastic change in the tariff structure
for rum would deal a severe blow to the economics of the U.S.
Virgin Islands, Puerto Rico, and the Caribbean.
In response, the U.S. and EU, as well as Caribbean
governments and producers, revisited rum tariffs in complex and
delicate discussions to address the special role of rum in the
Caribbean region. These discussions resulted in a carefully
constructed compromise for rum under which the United States
agreed to substantially liberalize duties on expensive rum,
while protecting the interests of the USVI and other Caribbean
island producers, maintaining existing MFN duties on low-value
bottled and bulk rum.
The 1997 agreement on rum forms the basis for current U.S.
tariff preferences on rum.
In summary, in 1991, this Committee wisely decided to
exclude rum from duty-free treatment under ATPA. This decision
reflected a longstanding concern by the United States that
trade preferences for rum are vitally important to the
economies of the Virgin Islands, Puerto Rico, and the island
nations of the Caribbean. The wisdom of this decision has been
confirmed by developments since 1991. In particular, the 1997
agreement on rum between the United States and the EU reflects
the understanding that tariff liberalization of rum must be
tempered with an appreciation for the special role that rum,
particularly low-value rum, plays in the Caribbean region. For
these and other reasons, we ask Congress to assure that the
current, carefully considered tariff preferences for rum are
not disturbed by the ATPA or by other regional trade
arrangements.
Thank you, Mr. Chairman, ranking member, other members of
the Subcommittee. Mr. Wechsler and I would be pleased to answer
any questions, and thank you again for the opportunity to
testify.
[The prepared statement of Ms. Christian-Christensen
follows:]
Statement of the Hon. Donna M. Christian-Christensen, Delegate, United
States Virgin Islands
Mr. Chairman and distinguished colleagues, I am pleased to
participate in this important hearing on the future of hemispheric
trade relations under a renewed Andean Trade Preferences Act (``ATPA'')
and a future Free Trade Area of the Americas (``FTAA''). In particular,
I am grateful for the opportunity to explain to the Subcommittee on
Trade the critical importance of retaining the current treatment for
rum in any renewed ATPA and of opposing future tariff reductions for
rum in the context of the FTAA.
I am accompanied today by Mr. Andrew Wechsler of the Law &
Economics Consulting Group, who is currently conducting an updated
economic analysis of rum tariff issues for the Governments of the
Virgin Islands and Puerto Rico. Mr. Wechsler would be pleased to answer
any specific questions that the Subcommittee may have. In addition, I
am submitting a written statement from Virgin Islands Governor Charles
W. Turnbull, which I respectfully request be included in the record of
this hearing.
In 1991, after very careful consideration by Congress and the
Administration, rum was expressly excluded from duty-free treatment
under the ATPA. At that time, the Ways & Means Committee explained that
this action was necessary to preserve the benefits that 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 resource and cost advantages over their
Caribbean and U.S. Territorial counterparts as well as large excess
production capacity.
Developments over the last decade--particularly a landmark 1997
international trade understanding and agreement on rum tariffs--have
made the retention of current tariff preferences on rum even more
imperative for the Virgin Islands and the Caribbean region as a whole.
Rum has been produced in the Caribbean for centuries and is an
important part of the history, lore and economic fabric of the region.
Today, rum is the second most important industry in the Virgin Islands,
surpassed only by tourism. Rum also provides an essential revenue
source for the Virgin Islands government. Under a congressionally
mandated program for the development of the Islands, federal excise
taxes on rum shipped to the United States are returned to the local
treasury. These funds currently account for more than 15 percent of the
Virgin Islands total budget.
Rum has played a particularly critical role in the economic and
budgetary health of the Virgin Islands over the last decade. During
that period, the Islands have struggled to recover from the massive
destruction and economic dislocation caused multiple natural disasters,
including two of the most devastating hurricanes of the century.
Most rum produced in the USVI is at the low-price end of the market
and is sold as unaged bulk rum to regional distributors in the United
States. Because it is sold as a commodity without name-brand
recognition, this rum cannot command premium prices. It is also
extremely price-sensitive and vulnerable to imports from low-cost
countries. As Congress recognized in 1991, Andean and other non-CBI
producers have significant natural resource advantages in the
production of rum. These advantages--which continue today--include
large, indigenous sugar cane industries, inexpensive fuel, low wages,
and substantial rum and alcohol production capacity. Without current
U.S. tariff preferences, these low-cost regional producers can be
expected to overwhelm Virgin Islands and CBI producers of low-value rum
in the U.S. market.
This Congress and successive Administrations have repeatedly
recognized the vital role which rum plays in the economies of the
Virgin Islands, Puerto Rico and the Caribbean region, and have
consistently resisted making significant changes to tariff preferences
for rum. In addition to excluding rum from duty-free benefits under the
ATPA in 1991, Congress has also adopted and maintained a special
compensatory program for Virgin Islands rum in the context of the CBI
program. Throughout the 1980s and 1990s, successive Administrations
also repeatedly rejected various GSP petitions for duty-free entry of
rum produced by non-Caribbean producers. All of these decisions reflect
a recognition that rum is highly import sensitive. They were also the
result of a carefully considered judgment that the likely harm to the
Virgin Islands and the island nations of the Caribbean far outweighs
any potential policy trade benefits from tariff liberalization.
The unique and critical role of rum in the Caribbean region--and
the importance of maintaining preferences for low-value rum--was most
recently affirmed in a landmark 1997 understanding between the United
States and the European Union. In WTO tariff negotiations in 1996, U.S.
and EU negotiators had initially agreed to phase out all tariffs on rum
and other ``white spirits'' by 2000. This unexpected development was
met with alarm by Caribbean governments, Administration officials and
Members of Congress. They emphasized to the trade negotiators that such
a drastic change in the tariff structure for rum would deal a severe
blow to the economies of the USVI, Puerto Rico, and the Caribbean.
In response to this outcry, U.S. and EU negotiators, as well as
Caribbean governments and producers, revisited rum tariffs in complex
and delicate discussions aimed at addressing the special role of rum in
the Caribbean region. These discussions, which involved officials at
the highest levels of the various governments, resulted in a carefully
constructed compromise for rum. Under this compromise, the United
States agreed to substantially liberalize duties on expensive rum.
However, to protect the interests of the USVI and other Caribbean
island producers, the United States also agreed to maintain existing
MFN duties on low-value bottled and bulk rum.
This 1997 agreement on rum forms the basis for current U.S. tariff
preferences on rum. In this landmark agreement, the United States and
key trading partners struck a careful balance between tariff
liberalization and the unique concerns of the Caribbean region. Any
efforts to eliminate current tariff preferences for rum in the context
of ATPA renewal or FTAA negotiations will upset this careful balance
and will result in serious damage to the Caribbean region.
In 1991, this Committee wisely decided to exclude rum from duty-
free treatment under the ATPA. This decision reflected a longstanding
concern by the United States that trade preferences for rum are vitally
important to economies of the Virgin Islands, Puerto Rico and the
island nations of the Caribbean. The wisdom of this decision has been
confirmed by developments since 1991. In particular, the 1997 agreement
on rum between the United States and the EU reflects the understanding
that tariff liberalization for rum must be tempered with an
appreciation for the special role that rum--particularly low-value
rum--plays in the Caribbean region. For these and other reasons,
Congress must assure the current, carefully considered tariff
preferences for rum are not disturbed by the ATPA or by other regional
trade arrangements.
Mr. Wechsler and I would be pleased to answer any questions.
Chairman Crane. Thank you, Ms. Christensen. Are there any
questions of our witness?
[No response.]
Chairman Crane. If not, let me express--oh, Mr. Levin?
Mr. Levin. I would like to thank them very much for their
testimony, and this helps to kick off the discussion of these
important issues. Thank you very, very much.
Chairman Crane. Well, it does, and we look forward to
working on a cooperative basis with you all, and we appreciate
your testimony this afternoon. Thank you so much.
And now I welcome our distinguished U.S. Trade
Representative, the Honorable Robert Zoellick. Proceed when
ready.
STATEMENT OF THE HON. ROBERT B. ZOELLICK, UNITED STATES TRADE
REPRESENTATIVE
Mr. Zoellick. Mr. Chairman, Representative Levin, Members
of the Committee, if I could request that my full statement
will be entered into the record, and I would then summarize it.
Chairman Crane. Without objection.
Mr. Zoellick. I want to begin by thanking you for giving me
this opportunity to speak before the Subcommittee. I have
certainly benefited from discussions with the Members of this
Committee, and I look forward to working closely with all of
you. I also wish to thank, in particular, Representatives Levin
and English for joining the President at the Summit of Americas
meeting in Quebec City.
I also appreciate Congressman Moran's fine statement. I am
delighted to be one of his constituents, and recognizing where
Congresswoman Tauscher and Christensen come from, I would be
delighted to be their constituents, too, I think.
I am pleased to report that in the administration's first
months, with your help, we have been able to take steps to
advance free trade in this hemisphere and around the world. We
have launched the negotiations on the free Trade Area of the
Americas, made progress on bilateral free trade agreements with
Chile and Singapore, and have resolved productively a number of
disputes with our trading partners.
Yet we should not let this progress mask a more troubling
reality: the United States is falling behind the rest of the
world when it comes time to trade liberalization. Globally,
there are 130 free trade agreements. The United States is a
party to just two. The European Union has free trade or special
customs agreements with 27 countries, 20 of which have
completed in the last 10 years, and the EU is negotiating 15
more right now. Last year, the European Union and Mexico--the
second-largest market for U.S. exports--entered into a free
trade agreement. Japan is negotiating a free trade agreement
with Singapore and is exploring free trade agreements with
Mexico, Korea, and Chile.
We have no one to blame for falling behind but ourselves,
and there is a price to pay for our delay. As Senator Graham of
Florida has pointed out, during the last century, when it came
time for countries to adopt standards for the great innovation
of that era--electric power--Brazil turned to European models
because the United States was not active in Brazil. So when you
visit Brazil, be sure to bring an electric adapter. Today, as
Senator Graham has explained, Brazil is making decisions about
standards for autos and other products. So the United States
needs to decide whether it wants to stand on the sidelines
again.
To cite just one other example, while U.S. exports to Chile
face an 8-percent tariff, the Canada-Chile trade agreement will
free Canadian imports of this duty. This is the same agreement
that President Clinton said that we would no negotiate in 1994.
As a result, U.S. wheat and potato farmers are now losing
market share in Chile to Canadian exports.
One of our colleagues, Congressman John Tanner, summed up
the big-picture stakes as effectively to me as anyone that I
have heard: ``America's place in the world is going to be
determined by trade alliances in the next 10 years in the way
military alliances determined our place in the past.''
In any discussion of future free trade agreements, we need
to highlight the benefits of previous accords. Together, North
American Free Trade Agreement (NAFTA) and the completion of the
Uruguay round have resulted in higher incomes and lower prices
for goods, with benefits amounting to between $1,300 and $2,000
a year for the average American family of four. That is real
money for farmers, nurses, teachers, police officers, and
office workers, not bonuses for corporate executives.
Trade barriers hurt families. When trade is restricted,
hardworking fathers and mothers pay the biggest portion of
their paychecks for higher cost food, clothing, and appliances
imposed through taxes on trade.
NAFTA has also produced a dramatic increase in trade. U.S.
exports to our NAFTA partners increased 104 percent between
1993 and 2000; U.S. trade with the rest of the world grew only
half as fast.
Increased trade supports good jobs. In the 5 years
following the implementation of NAFTA, employment grew 22
percent in Mexico and generated 2.2 million jobs. In Canada,
employment grew 10 percent and generated 1.3 million jobs. And
in the United States, employment grew more than 7 percent and
generated about 13 million jobs.
I recognize that these benefits of open trade can only be
achieved if we build public support for trade at home. To do
so, the administration will enforce, vigorously and with
dispatch, our trade laws against unfair practices. In the world
of global economics, justice delayed can become justice lost.
The administration will also be monitoring closely
compliance with our trade agreements, as well as insisting on
performance by our trading partners. Thanks to the help of the
Congress and its support of the Trade Compliance Initiative
advanced last year, USTR received additional staffing to
strengthen its ability to ensure that the terms of agreements
are fulfilled.
The Bush administration is promoting free trade globally,
regionally, and bilaterally. By moving on multiple fronts, we
can create a competition and liberalization that will increase
U.S. leverage and promote open markets in the hemisphere and
around the world.
The Free Trade Area of the Americas provides a framework
for the administration's hemispheric strategy. This area, once
completed, will be the largest free market in the world.
At the Summit of the Americas in Quebec City, all 34 heads
of State signed a declaration pledging to conclude negotiations
on the FTAA no later than January 2005. The United States is
committed, working with others, to meet or beat that deadline.
Moreover, the draft text of the agreement will be released
once it has been translated into the four official languages of
the FTAA. This is an important, and perhaps unprecedented, step
to build public awareness and support an open process. All 34
nations participating in the Quebec City Summit also committed
to help the smaller economies of the hemisphere, especially the
nations of the Caribbean and Central America, so they could
address the unique challenges they face in moving forward with
hemispheric integration.
Furthermore, summit leaders agreed that any
unconstitutional alteration or interruption of the democratic
order in a state of the hemisphere would disqualify that
Government from further participation in the Summit of the
Americas process.
While pursuing regional free trade through the FTAA, the
Bush administration is also negotiating a free trade agreement
with Chile. During a visit I made to Santiago last month, I met
with President Lagos and other senior Government and
legislative officials, as well as representatives of business,
labor, and environmental groups. I had two objectives: One, I
wanted Chile to know that the Bush administration is serious
about the free trade agreement, a point that President Bush and
President Lagos made clear following their recent White House
meeting, when they announced their goal of completing the
negotiations by the end of this year.
My second objective was to send a signal to the nations of
Latin America and the rest of the world. The United States will
reward good performers. Chile, for example, has been at the
forefront of Latin American nations in liberalizing trade,
while setting an example to the world of a free people
reclaiming their democracy and making the transition to a
mature, developed economy.
Leaders from many other nations in this hemisphere have now
told me that they want to pursue free trade agreements with the
United States. We will consider each of these offers seriously,
while focusing on the FTAA.
We are also pleased to have made progress on a number of
trade disputes. Last month, we settled the U.S.-EU banana
conflict, an issue that interfered with our economic relations
for nearly a decade. We have resolved a number of disputes by
working through the World Trade Organization and the NAFTA
Agreement. For example, Greece has moved to counter the piracy
of U.S. films and television programs. Mexico has agreed to
allow dry beans from the United States to be imported in a more
timely and predictable manner, and India has lifted on U.S.
agricultural, textile, and industrial products.
Frequent and substantive communication lies at the heart of
the executive-congressional partnership on trade, and I intend
to keep our lines of communication open as we move on our free
trade agenda.
The Bush administration's top trade priority is for the
Congress to enact U.S. Trade Promotion Authority by the end of
this year. Under this authority, the Executive Branch would be
bound by law to consult regularly, and in detail, with Members
of Congress as trade agreements are being negotiated. But once
that long and exhaustive process of consultation is completed,
and the painstaking negotiations have ended in an agreement,
our trading partners have the right to know that Congress will
vote on the agreement, up or down. Indeed, in the absence of
Trade Promotion Authority, which expired in 1994, other
countries have been reluctant to close out complex, politically
sensitive trade agreements with the United States.
We would like to launch a new round of global trade
negotiations in the WTO, emphasizing a key role for
agriculture. Further reforms in the Middle East and Africa need
our encouragement, and we are committed to working with the
Congress to enact legislation for a free trade agreement with
Jordan. I compliment the Committee for its important work with
Africa and the Caribbean last year and look forward to working
with the Congress to improve the implementation of the Africa
Growth and Opportunity Act and the Caribbean enhancement
provisions. We would also welcome your ideas about additional
legislative authority to promote trade, economic growth,
openness, the rule of law, and democracy in Africa.
We hope to see the Andean Trade Preferences Act, which
expires in December, renewed and expanded. I am delighted that
the Committee has invited ministers from the region to provide
them direct testimony about the effects of this law, and I plan
to meet with them tomorrow. The Central American countries have
expressed an interest in a free trade agreement with the United
States, and we will seek your ideas and preferences as we
consider that possibility.
There are opportunities in the Asia Pacific Economic
Cooperation and, I hope, with APEC. We will start with a free
trade agreement with Singapore, and we will work with you to
pass the basic trade agreement with Vietnam negotiated by the
Clinton administration. We are encouraged by the renewed
emphasis on structural and regulatory reform by the Koizumi
administration, and we look forward to working with Japan as it
pursues this agenda, which is long overdue.
To help developing nations appreciate that globalization
and open markets can assist their own efforts to reform and
grow, we will need to extend the legislation authorizing the
Generalized System of Preferences program.
And now that there is a fragile peace in the Balkins, we
must secure it by pointing people toward economic hope and
regional integration. Therefore, we would like to work with the
Congress to follow through on the prior administration's
proposal to offer trade preferences to countries in Southeast
Europe.
As we pursue this agenda, we would like to work with you to
consider a range of ideas for improving labor and environmental
conditions of our trading partners, as long as these proposals
are not protectionist. We might use incentives, not just
disincentives, to encourage better environmental protection and
labor standards. For example, incentives can be related to aid
programs, financing through multilateral development banks, and
preferential trade. We can also strengthen the role of
complementary specialized institutions, such as the
International Labor Organization (ILO).
USTR has announced recently that we will conduct written
environmental reviews of major trade agreements, including the
FTAA and the negotiations on agriculture and services underway
in the World Trade Organization. In addition to the current
environmental advisors, the Bush administration agreed to add
an environmental representative to the Chemical Advisory
Committee, in response to requests by environmental groups for
participation on that committee. I have already benefited from
both individual and group meetings with representatives of many
environmental groups from the United States and other
countries.
At the Summit of the Americas, President Bush stated, ``Our
commitment to open trade must be matched by a strong commitment
to protecting our environment and improving labor standards.''
As the Congress and the executive branch explore how to
demonstrate that trade supports labor and environmental
standards, we should look first to economic growth. As the
President has said, ``When there is more trade, there is more
commerce, and there is more prosperity. And a prosperous
society is one more likely to have good environmental standards
and to be able to enforce those standards.''
The EPA and others can provide the kind of technical
assistance that will improve the ability of our trading
partners to improve both the adequacy of their environmental
protection regimes and their ability to enforce their laws and
regulations.
We should enable advocacy groups to plant local roots. If
labor standards and environmental protection come to be seen by
developing nations as a price of trade imposed by wealthy
countries, these causes will not gain widespread local support.
When we think about the connection among trade, economic
growth, labor, and the environment, we should see them as being
mutually supportive, not in conflict with one other. So I look
forward to working with the Congress, and interested parties in
the private sector, to discuss these issues further and to seek
to find common ground.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Zoellick follows:]
Statement of the Hon. Robert B. Zoellick, United States Trade
Representative
Chairman Crane, Representative Levin, and Members of the Committee:
I want to begin by thanking all of you for giving me this
opportunity to speak before the Ways & Means Subcommittee on Trade. I
have benefited from discussions with members of the Committee and look
forward to working closely with all of you as the Bush Administration
moves forward with its free trade agenda. I also wish to thank in
particular Representatives Levin and English for joining the President
at the recent Summit of the Americas meeting in Quebec City.
In Quebec City, the President explained why free trade is one of
his top priorities: ``Free and open trade creates new jobs and new
income. It lifts the lives of all our people, applying the power of
markets to the needs of the poor. It spurs the process of economic and
legal reform. And open trade reinforces the habit of liberty that
sustains democracy over the long haul.''
I am pleased to report that in the administration's first months,
with your help, we have been able to take steps to advance free trade
in this hemisphere and around the world. We have launched the
negotiations on the Free Trade Area of the Americas, made progress on
our bilateral free trade agreements with Chile and Singapore, and have
resolved productively a number of disputes with our trading partners.
The U.S. is Falling Behind
Yet we should not let this progress mask a more troubling reality:
the United States is falling behind the rest of the world when it comes
to trade liberalization. Years ago, U.S. involvement in international
trade negotiations was a prerequisite for them to succeed. That is not
the case today.
Globally, there are 130 free trade agreements. The United States is
a party to just two: one is with Canada and Mexico--NAFTA--and the
other is with Israel. The European Union has free trade or special
customs agreements with 27 countries, 20 of which it completed in the
last 10 years. And the EU is negotiating another 15 accords right now.
Last year, the European Union and Mexico--the second-largest market for
American exports--entered into a free trade agreement. Japan is
negotiating a free trade agreement with Singapore, and is exploring
free trade agreements with Mexico, Korea, and Chile.We have no one to
blame for falling behind but ourselves. And there is a price to pay for
our delay. As Senator Graham of Florida has pointed out, during the
last century, when it came time for countries to adopt standards for
the great innovation of that era--electric power--Brazil turned to
European models because the United States was not active in Brazil. So
when you visit Brazil, be sure to bring an electric adapter. Today, as
Senator Graham points out, Brazil is making decisions about standards
for autos and other products--so the United States needs to decide
whether it wants to stand on the sidelines again.
Our inaction hurts American businesses, workers, and farmers, as
they find themselves shut out of the many preferential trade and
investment agreements negotiated by our trading partners. To cite just
one example, while U.S. exports to Chile face an eight percent tariff,
the Canada-Chile trade agreement will free Canadian imports of this
duty. As a result, U.S. wheat and potato farmers are now losing market
share in Chile to Canadian exports.
Congressman John Tanner has summed up the big picture stakes to me
as effectively as anyone I have heard: ``America's place in the world
is going to be determined by trade alliances in the next 10 years in
the way military alliances determined our place in the past.''
The Benefits of NAFTA and other Trade Agreements
In any discussion of future free trade agreements, we need to
highlight the benefits of previous accords. Together, NAFTA and the
completion of the Uruguay Round have resulted in higher incomes and
lower prices for goods, with benefits amounting to $1300 to $2000 a
year for an average American family of four. That is real money for
farmers, nurses, teachers, police officers, and office workers, not
bonuses for corporate executives.
Trade barriers hurt families. When trade is restricted, hard-
working fathers and mothers pay the biggest portions of their paychecks
for the higher cost food, clothing, and appliances imposed through
taxes on trade.
NAFTA has also produced a dramatic increase in trade between the
United States and Mexico. When the Congress approved NAFTA in 1993,
U.S.-Mexico trade totaled $81 billion. Last year, our trade hit $247
billion--nearly half a million dollars per minute. U.S. exports to our
NAFTA partners increased 104 percent between 1993 and 2000; U.S. trade
with the rest of the world grew only half as fast.
Increased trade supports good jobs. In the five years following the
implementation of NAFTA, employment grew 22 percent in Mexico, and
generated 2.2 million jobs. In Canada, employment grew 10 percent, and
generated 1.3 million jobs. And in the United States, employment grew
more than 7 percent, and generated about 13 million jobs.
I recognize that these benefits of open trade can only be achieved
if we build public support for trade at home. To do so, the
Administration will enforce, vigorously and with dispatch, our trade
laws against unfair practices. In the world of global economics,
justice delayed can become justice lost.
The Administration will also be monitoring closely compliance with
trade agreements as well as insisting on performance by our trading
partners. Thanks to the help of the Congress in its support of the
Trade Compliance Initiative advanced last year, USTR received
additional staffing to strengthen its ability to pursue a two-track
strategy of negotiating agreements and ensuring that the terms of these
agreements are fulfilled. With these added resources, USTR will
increase the number of staff devoted to monitoring the practices of our
trading partners under existing trade agreements and to litigating
trade disputes in all sectors.
For the United States to maintain an effective trade policy and an
open international trading system, its citizens must have confidence
that trade is fair and works for the good of all people. That means
ensuring that other countries live up to their obligations under the
trade agreements they sign.
Moving Forward
The Bush Administration is promoting free trade globally,
regionally, and bilaterally. We are working to help launch a new round
of global trade negotiations in the World Trade Organization later this
year, while pursuing regional agreements such as the Free Trade Area of
the Americas and bilateral agreements with countries such as Chile and
Singapore. By moving on multiple fronts, we can create a competition in
liberalization that will increase U.S. leverage and promote open
markets in our hemisphere and around the world.
The Free Trade Area of the Americas provides a framework for the
Administration's hemispheric strategy. This area, once completed, will
be the largest free market in the world.
We have made real progress in turning the idea of an FTAA into a
reality. At the Summit of the Americas in Quebec City, all 34 heads of
state signed a declaration pledging to conclude negotiations on the
FTAA no later than January 2005. The United States is committed to
working with others to meet, or beat, that deadline.
Moreover, the draft text of the agreement will be released once it
has been translated into the four official languages of the FTAA. This
is an important, and perhaps unprecedented, step to build public
awareness and support an open process. All 34 nations participating in
the Quebec City summit also committed to help the smaller economies of
the hemisphere--especially the nations of the Caribbean and Central
America--address the unique challenges they face in moving forward with
hemispheric integration.
The commitment to free trade was made in tandem with an unambiguous
pledge to support democracy. Summit leaders agreed that any
unconstitutional alteration or interruption of the democratic order in
a state of the hemisphere would disqualify that government from further
participation in the Summit of the Americas process. For a region that
was home to the strict Calvo doctrine on non-interference by others in
states' internal affairs, this democracy clause is a striking sign of a
new political outlook for the hemisphere.
While pursuing regional free trade through the FTAA, the Bush
Administration is also negotiating a free trade agreement with Chile.
During a visit to Santiago last month, I met with President Lagos and
other senior government and legislative officials, as well as
representatives of business, labor, and environmental groups. I had two
objectives. One, I wanted Chile to know that the Bush Administration is
serious about the free trade agreement--a point that President Bush and
President Lagos made clear following their recent White House meeting,
when they announced their goal of completing the negotiations no later
than the end of the year.
My second objective was to send a signal to the nations of Latin
America, and the rest of the world: The United States will reward good
performers. Chile, for example, has been at the forefront of Latin
American nations in liberalizing trade, while setting an example to the
world of a free people reclaiming their democracy and making the
transition to a mature, developed economy.
Leaders from many other nations in this hemisphere have now told us
they want to pursue free trade agreements with the United States. We
will consider each of these offers seriously, while focusing on the
FTAA.
We are also pleased to have made progress on a number of trade
disputes. Last month, we settled the U.S.-EU banana conflict, an issue
that had interfered with our economic relations for nearly a decade. We
have resolved a number of disputes by working through the World Trade
Organization and the North American Free Trade Agreement. For example,
Greece has moved to counter the piracy of U.S. films and television
programs, Mexico has agreed to allow dry beans from the United States
to be imported in a more timely and predictable manner, and India has
lifted restrictions on U.S. agricultural, textile, and industrial
products.
The Legislative Agenda
Frequent and substantive communication lies at the heart of the
Executive-Congressional partnership on trade, and I intend to keep our
lines of communication open as we move on our free trade agenda.
The Bush Administration's top trade priority is for the Congress to
enact U.S. Trade Promotion Authority by the end of the year. Under this
authority, the executive branch would be bound by law to consult
regularly and in detail with members of Congress as trade agreements
are being negotiated. But once that long and exhaustive process of
consultations is completed, and the painstaking negotiations have ended
in an agreement, our trading partners have the right to know that
Congress will vote on the agreement up or down. Indeed, in the absence
of Trade Promotion Authority, which expired in 1994, other countries
have been reluctant to close out complex and politically sensitive
trade agreements with the United States.
We would like to launch a new round of global trade negotiations in
the WTO, emphasizing a key role for agriculture. We will seek to
negotiate regional and bilateral agreements to open markets around the
world. Further reforms in the Middle East and Africa need our
encouragement, and we are committed to working with the Congress to
enact legislation for a free trade agreement with Jordan. I compliment
the Committee for its important work with Africa and the Caribbean last
year and we look forward to working with the Congress to improve the
implementation of the African Growth and Opportunity Act and the
Caribbean enhancement provisions. We would also welcome your ideas on
additional legislative authority to promote trade, economic growth,
openness, the rule of law, and democracy in Africa.
We also hope to see the Andean Trade Preferences Act, which expires
in December, renewed and expanded. President Pastrana of Colombia has
said that renewing the act would be one way to counter the drug
traffickers in his country, as it would stimulate job creation in the
real economy and diminish the appeal of the drug trade. The Central
American countries have expressed interest in a free trade agreement
with the United States, and we will seek your ideas and preferences as
we consider that possibility.
There are opportunities in the Asia Pacific and, I hope, with APEC.
We will start with a free trade agreement with Singapore and will work
with you to pass the basic trade agreement with Vietnam negotiated by
the Clinton administration. We are encouraged by the renewed emphasis
on structural and regulatory reform by the Koizumi administration, and
we look forward to working with Japan as it pursues this agenda, which
is long overdue.
To help developing nations appreciate that globalization and open
markets can assist their own efforts to reform and grow, we will need
to extend the legislation authorizing the Generalized System of
Preferences program.
Of vital importance, we will seek to work closely with the European
Union and its candidate members in Central and Eastern Europe, both to
fulfill the promise of a trans-Atlantic marketplace already being
created by business investment and trade, as well as to reinvigorate,
improve, and strengthen the WTO processes.
Now that there is a fragile peace in the Balkans, we must secure it
by pointing people toward economic hope and regional integration.
Therefore, we would like to work with the Congress to follow through on
the prior administration's proposal to offer trade preferences to
countries in Southeast Europe.
Protecting Labor Standards and the Environment
As we pursue this agenda, we would like to work with you to
consider a range of ideas for improving the labor and environmental
conditions of our trading partners, as long as these proposals are not
protectionist. We might use incentives, not just disincentives, to
encourage better environmental protection and labor standards. For
example, incentives can be related to aid programs, financing through
multilateral development banks, and preferential trade. We can also
strengthen the role of complementary specialized institutions, such as
the International Labor Organization.
USTR has announced recently that it will conduct written
environmental reviews of major trade agreements, including the FTAA and
the negotiations on agriculture and services underway in the World
Trade Organization. These reviews provide negotiators with timely
information on the environmental implications of trade accords and give
us guidance on how trade and economic growth can strengthen
environmental performance. In addition to the current environmental
advisors, the Bush Administration agreed to add an environmental
representative to the chemical advisory committee, in response to
requests by environmental groups for participation on that committee. I
have already benefited from both individual and group meetings with
representatives of many environmental groups from the United States and
other countries.
At the Summit of the Americas, President Bush stated, ``Our
commitment to open trade must be matched by a strong commitment to
protecting our environment and improving labor standards. As the
Congress and the executive branch explore how to demonstrate that trade
supports labor and environmental standards, we should look first to
economic growth. As the President has said, ``When there's more trade,
there's more commerce and there's more prosperity. . . . And a
prosperous society is one more likely to have good environmental
standards and be able to enforce those standards.''
The Environmental Protection Agency and others can provide the kind
of technical assistance that will improve the ability of our trading
partners to improve both the adequacy of their environmental protection
regimes and their ability to enforce their environmental laws and
regulations.
We should enable advocacy groups to plant local roots. If labor
standards and environmental protection come to be seen by developing
nations as a price, imposed by wealthy countries, these causes will not
gain widespread appeal.
When we think about the connection among trade, economic growth,
labor, and the environment, we should see them as being mutually
supportive, not in conflict with each other. I look forward to working
with the Congress, and interested parties in the private sector, to
discuss these issues further and to seek to find common ground.
Conclusion
The Bush administration has an ambitious trade agenda, reflecting
the importance President Bush assigns to free trade. We should seize
the opportunity before us to reassert America's leadership in setting
trade policy and to build a post-Cold War world on the cornerstones of
freedom, opportunity, democracy, security, free markets, and free
trade. By doing so, we can set a course for peace and prosperity for
the Americas and the global system, not just for a year or two, but for
decades to come.
Chairman Crane. Thank you, Mr. Ambassador.
Let me take advantage of this opportunity to congratulate
you on the outstanding work you did with the EU in resolving
the banana dispute with them.
Mr. Zoellick. Thank you.
Chairman Crane. And we want to see you continue down that
outstanding path.
Mr. Zoellick. Thank you.
Chairman Crane. Since U.S. trade with non-NAFTA, Western
hemispheric nations is relatively small compared to levels of
trade with NAFTA countries, why should the United States be
interested in an FTAA, and in what sectors is the United States
most likely to benefit from a completed FTAA?
Mr. Zoellick. Well, Mr. Chairman, there is a combination of
reasons. First, as a number of you mentioned, this would create
the largest free trade agreement in the world, covering some
800 million people. And some of the numbers that I cited about
the boom in trade, including U.S. exports with Canada and
Mexico, give a sense of some of the potential that we would
have with the rest of the countries of Latin America. And,
indeed, even without that agreement, we have had increased
growth of our exports to Latin America in excess of the growth
that we have had in the rest of the world.
But, in addition to that direct trade purpose, I think
there is a broader economic purpose. The countries of this
region are still undergoing serious economic reforms. They are
doing so with relatively fragile democracies, many of them
created over the past 10 or 15 years. And, frankly, that reform
process is under stress and some of the democracies are under
strain. So one of the best ways that we can help support
lasting economic reform by democratic partners is to create a
framework for cooperation and economic growth.
Indeed, if you look back at this hemisphere, Mr. Chairman,
it wasn't so long ago that some of the major countries,
including Brazil and Argentina, were trying to develop nuclear
programs. Indeed, Argentina was developing a missile being
funded by Iraq. But in the process of opening those economies
and moving to democracies, both Brazil and Argentina created
full-scope nuclear safeguards, and Argentina not only gave up
its missile program, but it destroyed that missile that had
been funded by Iraq.
So the stakes of this run to trade, they run to economic
growth and stability, and they also run to democracy and
security, including, as a number of speakers have pointed out
here, in the Andean region. So, frankly, the stakes are high,
and one way that the President has spoken about this is that we
spent much of the last 50 years trying to overcome an East-West
divide. We still face a North-South divide. And our own work in
this hemisphere, with freedom, with economic openness, with
democracy, with a peaceful set of security relations, could
give us the opportunity to create a bridge between North and
South that will be a model for the rest of the world.
And so the stakes, in my view, Mr. Chairman, are strategic,
as well as economic.
Chairman Crane. I think it is important that the
Subcommittee work closely with you to craft an Andean bill
which offers concrete economic opportunities to the Andean
countries and which is, if at all possible, simpler to
administer than the recently passed CBI legislation.
Have the countries given you an idea of what they think
will work to help them create additional employment
opportunities?
Mr. Zoellick. Well, I should obviously let some of the
officials from those countries emphasize their key points. I
think the starting point, Mr. Chairman, is that, as Congressman
Moran and Congresswoman Tauscher emphasized, they are looking
for ways to not only promote growth, but to promote export
diversification. So, while many of the topics focus on a
sensitive sector like textile and apparel, I think we should be
open and look for possibilities beyond that area.
So I think the task, Mr. Chairman, is to look at ways we
could both extend the ATPA and to broaden it. On extending it,
at least it is our proposal, that this be targeted to December
2005 so that it is a bridge to the FTAA, since that is our date
for trying to complete it and bring it into force.
In terms of broadening it, at a minimum, I think we would
want to try to create parity with the Caribbean and the African
bills that the Congress passed last year, and I think, where
possible, we should look to go beyond that. I have talked with
some of you in the apparel area about how some regional
arrangements might help both U.S. firms, as well as firms in
the region, as we look toward the end of the Multi-Fiber
Agreement in a couple of years and create a more integrated
market.
But having said this, Mr. Chairman, I think the thing we
have to keep in mind is we have to get this done by December 4,
and we all know that there are some very sensitive issues here,
and that it is not going to be an easy process to work through.
So I think my suggestion for a starting point would be to
achieve parity and see where we can go beyond, but not let the
perfect be the enemy of the good.
Chairman Crane. Thank you, Mr. Ambassador. Mr. Levin?
Mr. Levin. Thank you, and welcome.
Let me focus in on the two specific subject matters before
us. I have already, in my opening statement, as you know, Mr.
Ambassador, expressed my views on the larger issues, and I have
tried to do so clearly in that opening statement regarding
Jordan, and Vietnam, and other issues and fast track the Trade
Promotion Authority.
As I understand it, the administration may be issuing a
Statement of Principles later this week or sometime hereafter,
and I will welcome the opportunity for further discussion, and
I think you can expect that I will speak as clearly as I can on
them, as I did this morning or this afternoon on these issues,
these broader issues, and will continue to talk, both privately
and publicly, about these issues. I think it is the only way to
move forward.
I think it is interesting, in your statement, that you talk
about a matter that was brought at Quebec, and that is what
happens when a country interrupts its democratic path and
essentially the disqualification from further participation in
the summit. I think that helps to illustrate what I think is a
basic notion, and that is that we should be careful not to
equate free trade as automatically leading to democracy, that,
to some extent, we should be working towards democratic
processes as part of the trade equation. I mention that just
because I think that that discussion in Quebec illustrated and
underlined the need for us to look upon trade not as an end, in
and of itself, but as a tool.
So let me just say one other thing and then ask you a few
specific questions. On Page 6, there is a reference in
relationship to labor standards and environmental standards, a
reference to the danger of it appearing that we are imposing on
other countries. It says here, ``imposed by wealthy countries
as a price.'' Just a couple of comments on that.
You know, to some extent, this whole struggle for free
markets, for free trade and what goes into it, could be
characterized as an imposition of free market principles on
other countries. I think we need to be careful when we describe
it in terms of imposition. We have a model in mind, and it is
based--it is what the WTO is based on, and it is really what
the FTAA is based on, I think, and that is the notion that free
markets, and I mean that in a broad sense, that free markets
will be beneficial. And we have particular ingredients as to
what we mean by it. When intellectual property was proposed, as
you know, 10/15 years ago, it was argued by some that we were
trying to impose industrialized nation standards on those of
other countries.
And so I just want to kind of send up a warning flag that
we are not really doing that here. In terms of labor standards,
for example, the vast majority of these countries have agreed,
in various ways, to abide by core labor standards of the ILO,
and the question is not our imposition of them, but their
abiding by them and the implementation of those within the
trade ambit.
But let me then just ask you, specifically, because I think
that might be most helpful in this hearing, to tackle one or
two of the issues. The textile issue and Andean has been
raised. Also, let me raise an issue in the FTAA, one of the
most thorny issues, to help us begin to sink our teeth into
this, and that is agriculture, where there is a clear interplay
between what we might discuss within the FTAA and what we might
be discussing in the WTO.
Could you just give us, perhaps preliminarily, your
thoughts about how we are going to handle one of the most
thorny of issues within the FTAA and how that interacts with
what we might be doing in discussions in Geneva, and Brussels,
and elsewhere.
Mr. Zoellick. Certainly. Let me just make three points
here:
First, as you noted, Congressman Levin, the President said
yesterday that he would be sending up some principles later
this week. And the reason I want to highlight that,
particularly for this Committee, given its jurisdiction, is
that we have consciously taken an approach of stressing
consultation first, without things on paper, and the next step
is to come up with an outline of ideas, but still short of a
bill. And I know that from my earliest meetings here there was
some concern the administration might move very quickly,
present bills, and create a more difficult environment, and
this was a conscious effort by us to now, after 3 months, put
words on paper, but to still create an opportunity for a full
exchange about transforming that into a bill.
The second point, since you mentioned the environment and
labor local roots. Let me emphasize the point I was seeking to
make because I do think it is also critical in the dialog that
we have started here.
As you know, I have dealt with international issues for
some 20 years, and I have seen them pursued in different ways
around the world. And my key point is that, as someone who has
actually promoted environmental movements, in particular, in
many parts around the world, including developing countries,
what I have seen is that those NGOs and those countries that
build on local constituencies and help create an environment
for free exchange, freedom of assembly, democracy, and the
prosperity that allows those groups to build their own case
within those countries, are much more successful in planting
local roots for those causes, and I believe the same is true
for labor organizations and labor unions.
What I have certainly seen before, and I have certainly
seen in the 3 months I have been on this job, is there is a
very strong fear out there in the developing world that we
cannot ignore, that the developed countries, including the
United States, want to use some of these labor and
environmental standards as a new form or protectionism. Now you
may not like the term, but it is something they feel very
strongly. And as you and I have discussed, I think some members
do want to use it for protectionism.
And so I think it is critical, as we go forward with this
debate, that we do so in a way that creates the win-win
environment that I think both of us would like to develop in
these countries. And that is why I think a richer set of tools
and a set of incentives can help these countries develop their
own interest in the environment and labor, and I, frankly,
agree with you, one best way to do this is to build on their
own commitments and their own laws; for example, core labor
standards. But I think this is a key point worth emphasizing.
On agriculture, the approach that we have taken in the FTAA
is that the larger issues of dealing with subsidies,
particularly domestic subsidies, have to be dealt with
globally. We, as a country, cannot agree to concessions in a
hemispheric context that would, frankly, put us in a more
difficult position, in terms of dealing with those in a global
round. That has been our position.
Now there are other things that we can try to do. For
example, we can open access to markets. We can actually try to
gain cooperation with a number of the countries of Latin
America, and others in the CAIRNES [ph] group, to try to cut
export subsidies, which has continued to be a plague that the
rest of the world has encountered from the European Union. And
an increasingly important area is the question of sanitary and
phytosanitary standards. In fact, if there is one issue that I
have seen the increased seance of, in the time between when I
last was in government and now, it is the danger that these
standards, for either health or safety reasons, can be misused
or used for protectionist purposes, which emphasizes the need
for, on the one hand, science and reasoned analysis, as people
put them in place, some common set of standards, which we have
been working, for example, in something called the CODEX on
recently and had some very successful meetings, but also to
help these countries be able to have the capability to develop
the appropriate systems. Part of this is trade capacity
building.
We have talked, in this context, a little bit about the
Africa bill, and this is another critical area that we need to
do work with the African countries, in terms of their ability
to take part in the agriculture market of the United States and
vice versa.
So that at least gives you, I think, a general sense.
Mr. Levin. Thank you. I just want to emphasize that the
impetus on labor and environmental standards, the impetus is
not a new kind of protectionism. This is an issue that we need
to address and work on, and for most of us it is an essential
ingredient of expanded trade, not diminished trade. Thank you,
Mr. Chairman.
Chairman Crane. Mr. Jefferson.
Mr. Jefferson. Thank you, Mr. Chairman.
Mr. Ambassador, it is a pleasure to have a chance to meet
with you on the global wide range of issues with you.
I want to narrow, if I can, just to the question of African
Growth and Opportunity Act, AGOA-II, which we optimistically
speak of around here, at least some of us do. I want to talk
about the specific provisions that such a piece of legislation
might have and to see how you feel about that, whether that is
your vision as well.
First, last year we ran into last-minute issues about caps,
as you know, on the use of regional fabric. It was not an issue
when it left the House, but it became an issue late in the
process and came out with caps that are somewhat restrictive in
reaching the goals that we had for the bill starting out. So I
would like you, first, to comment on that if you could, about
how you feel about the prospect of that being in AGOA-II and
how important it is as a provision.
The second is some technical issues that we talked about
that will allow textiles from the region to be imported into
the country and additional funds finally for technical
assistance for subsidized African countries and U.S. companies
to take advantage of the bill. A lot of these countries don't
have enough money and enough technical expertise to figure out
how to make this thing as fully as it should, and we talked
about this whole question of providing some opportunities for
them to have more of a chance there.
And, lastly, we talked about allowing for duty-free imports
of other special fabric categories of apparel and textile
products that we don't produce in the U.S., that is the idea,
ones we don't produce, so they aren't in competition with our
products, but to permit them to come in from African countries.
Could you tell me whether or not you think those four items
will be, in your mind, ones to be included in AGOA-II.
Mr. Zoellick. Certainly, and let me just start with a more
general point, if I could, Congressman.
I have had a chance to meet the AGOA coalition that helped
enact this bill, and it was one of the best meetings that I had
because it covered everything from civil rights groups to
business groups. And the degree of enthusiasm and interest that
this had generated for the continent, as well as for trade, was
really an amazing thing, and it is something that I followed up
on by inviting the African ambassadorial community to come in
and brief me on their sense on how we are doing with the
implementation.
So, in general, when I think about this area, I am
thinking, first, about the implementation of what we have got
and what Congress passed. And, second, I would very much
welcome a dialog about what we could do to add on to it because
I think the potential is quite tremendous here, and I would
like it to be a key of what we do, and I know Secretary Powell
is also very interested in this.
Second, I want to look closely at some of the non-apparel
issues, as well. Because as I talk to some of the ambassadors,
I know many of the political fights are on the apparel topics,
but as we are going to help some of these countries move to
other stages of value added, including some basic
manufacturing, this is an area that I think we need to
highlight.
Third, on some of the particular issues that you mentioned,
we are trying to work with Customs on the knit-to-shape issue,
and I hope that is moving closer to resolution; similar on the
accumulation of inputs issue. My own view on that is that we
should interpret those as broadly as possible to promote trade.
And if we can't get that done in the regulatory process, for
whatever reason, then I would certainly be pleased to come back
and work with you in the legislative process.
As you also know, and as you suggested, part of this we can
accomplish in the accumulation area with the visa systems, and
we are trying to move quickly to approve the countries. We have
now approved, I think, five countries, we have got two more on
the way, to be able to take full advantage of this. But as you
also mentioned, in terms of the Sanitary/Phytosanitary, SPS,
system with agriculture, this is an area where we are working
to get some technical assistance funding to be able to try to
help countries take part and also to be able to impart our
goods.
We recently received some additional support from AID on
this, in terms of putting together some of the briefings in
regional areas and centers in Africa. We just had one for the
African countries in Geneva, for their WTO delegations. And I
am meeting the AID-designate director, Mr. Nascio [ph], from
Massachusetts, in part, to emphasize this interest, and I
understand he has a very strong interest in it as well.
So I think, in terms of working with AID, but also I have
mentioned this to President Wolfensohn of the World Bank, in
terms of developing the trade capacity, so I think the full set
that you mentioned, the one cautionary point that I will make,
and you know very well, is that, as we move this forward, you
mentioned the caps issue, the Committee encountered what
happened with caps last year around, and I would like to try to
get more done in this area, and I would be pleased to try to
work with you to carry through as much as we can.
We know there are some obstacles and points in our own
political system, and I think we also need to be open, in terms
of trying to figure out other ways we can help these countries.
And I would add to that, frankly, the whole HIV/AIDS issue,
which we also talked about because this is a clear issue that
is critical to their economies. I mean, it is a health issue,
but it is pretty hard to have a healthy economy if your people
are suffering like that.
So I tend to see this in a comprehensive fashion and would
be pleased to work on both the implementation and follow-up
legislation.
Mr. Jefferson. Thank you, Mr. Chairman.
Mr. Houghton. Mr. Zoellick, good to see you here. Thanks
very much for what you are doing for all of us. As you know, I
am a big free trader. I agree in this. And yet, I do not think
there is any inconsistency between doing what is right for the
people who are working in this country and also opening up
markets overseas. And I just--I have always found it difficult
to find that we cannot break this thing open, make it possible,
whether it is trade promotion authority or the Free Trade of
the Americas or what it is, we just seem to come upon little
roadblocks, and we just don't seem to get over them.
Let me ask you a few questions. I do not think this will
take long to answer. You talked about there are certain
countries that have been reluctant to close trade agreements
with us. What are those countries?
Mr. Zoellick. I am sorry. The countries reluctant to close
trade agreements?
Mr. Houghton. Yes. You said in your testimony there are
certain countries that have been reluctant to close on trade
agreements with us absent a fast-track authority.
Mr. Zoellick. Oh. Well, the best example would be when we
were having the discussions on the Free Trade Area of the
Americas in Buenos Aires. There were many countries--Brazil has
been one of the most publicly outspoken about this--that feel
that if we do not have the overall negotiating authority, then
there is no need for them to move forward.
Mr. Houghton. Can I ask you a question? In your heart of
hearts do you really feel that is the reason Brazil said what
it did? I have a feeling that Brazil wants to keep us out of
Mercosur, and is basically an enemy in this area, and they will
use any excuse to justify their position.
Mr. Zoellick. I honestly think it is more complicated than
that. Brazil is certainly a country that has had a very insular
economic policy, in many ways like the United States did,
because it was a continental-sized economy. And there are, no
doubt, very strong industrial interests that are quite happy
with the way it is, but I do think that President Cardoso and
the current trade and foreign minister, Minister Lafer, deserve
a lot of credit for trying to move Brazil into a global
economic system, and they are taking on some of these
interests, and they face their political constraints as well,
including the presidential election in 2002.
I think in the case of Mercosur, there are some that look
upon Mercosur as a separate area from the rest of the world,
but I think that is going to be increasingly hard to sustain.
Mercosur has had its own strains. I mean, as Brazil had a
devaluation of its currency, and Argentina's currency was
linked to the dollar, you could see the strains within the
Mercosur system. This led Uruguay to say that it would like to
have a free trade agreement with the United States. Some in
Argentina have explored additional arrangements with the United
States, and indeed, part of the Argentine economic solution was
to pose tariffs on other parties that were different from the
customs union. So I think Mercosur itself is under some degree
of strain.
But I think that the current Brazilian leadership does
indeed want to bring the country into the international
economic system. It is 170, 180 million people. We trade more
with Brazil than we do with China. They have got great
possibilities for that country. But they do face some sensitive
sectors, and frankly, so do we, and some of the questions that
they are raising are legitimate questions about our points of
sensitivity. And so they do want to know if they are going to
face their difficult political challenges, and cross those
bridges and make agreements that their elected leaders can be
criticized for, they do not want the rug pulled out from them
at the end of the day on our side, and that is a reasonable
point.
Mr. Houghton. I understand that. Are there any other
countries similar to them?
Mr. Zoellick. Well, I think as we approach the overall
global round, some of the other major developing countries, for
example, India, are concerned about our ability to follow
through. Now, as you know, the United States launched the
Uruguay Round in 1986 and we did not have the overall authority
until 1988. So I am not saying that it is impossible to launch
a round. I do believe that, for better or for worse, the world
is watching the U.S. Congress on this issue right now because
circumstances have changed since the 1980s. There was not such
a question about this in the 1980s, but now there is a question
because Congress has failed to pass it since 1994. So East Asia
is another region where countries believe that the United
States, frankly, is moving to a greater protectionist course.
So I have mentioned some of the big players, but it is true
for some of the smaller countries as well, and again, the truth
is in some of the facts. President Clinton stood with Prime
Minister of Canada, Prime Minister Chretien, and President
Zedillo, in 1994, and said to the Chileans, ``We are going to
go ahead and do a free trade agreement.'' The Canadians did.
The Mexicans did. And we all of a sudden announced in December
of last year that we would start. And that was simply based on
the fact of political paralysis up here. So I take Mr. Levin's
point, that there has been progress made, including by this
Committee, but I can point to a lot of examples around the
world where we have been frozen, and you can talk to other
people around the world and get a sense of the things we have
not engaged in, whether they be bilateral agreements, regional
or global, so it is costing us.
Mr. Houghton. My time is up. Thanks very much.
Chairman Crane. Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman, and welcome,
Ambassador. It is good to have you back, and congratulations on
the great job you did up north on our behalf.
I wanted to ask you a question about the protection of
intellectual property. We both share that goal of protecting
intellectual property. Can you give us some of your insights on
some of your discussions that occurred in Quebec City on
protecting and enforcing intellectual property rights among the
countries involved in the FTAA?
Mr. Zoellick. Well, it is a critical issue that covers
everything from pharmaceuticals, where you know the sensitive
discussion that was prompted by the HIV/AIDS issue, to a
question of enforcement of copyrights issues, to a question of
its connection to the high-tech world, which we have discussed
in other contexts. It is a great area of comparative advantage
for the United States, and so economically, it is important to
us, but I also find that in discussing this with other
countries, that most recognize that it serves their interest as
well, because intellectual property is often going to be a key
to investment and developing new businesses.
And to give you an example from another part of the world,
I had this discussion with President Kim of Korea, where he
understood the problems that Korea was having in terms of
enforcement, and he in part supported our efforts because he
believed that it would hurt Korea's economy and its own
development to fail to move forward.
So I think increasingly, Congresswoman, the issue is not
just one of rules, it is one of enforcement. And as we look at
the optical disks area, for example, we recently initiated some
action against Ukraine, which has a terrible problem in terms
of basically pirating intellectual property through disks. So I
believe that increasingly this will be an issue of how this
relates to high-tech, e-commerce and how we deal with the
enforcement topics.
Ms. Dunn. Thank you. Let's move then to the Japanese
market. Many sectors of the United States' economy are very
worried about the barriers in the Japanese market, especially
from my neck of the woods, in the medical technology sector. In
the next few months you are going to have an opportunity to
meet with the Japanese negotiators. What actions have you
thought about proposing on behalf of this administration to
encourage greater market access in Japan?
Mr. Zoellick. Well, I will speak both specifically to
medical technology and a little more generally. As you know,
and in part you have been very deeply involved with, the United
States is the world leader in terms of advanced medical
technology. And my predecessors had worked on this issue in
Japan through the broader framework of deregulation that they
created. Japan is about a $24 billion market. It is the largest
export market for the United States. And some of the
deregulation at issue that provided advances in areas like
accepting foreign clinical data for the approval of materials,
and frankly, moving to a pricing system that would accelerate
the reimbursement pattern. Because of that the United States
now has about 25 percent of that market, if my recollection is
correct, but it is one that, in working with the industry, we
think we can also enhance.
So what we would like to do in the medical services area is
very similar to what we would like to do more broadly, which is
to try to promote deregulation, structure reform, more
competition in Japan, which we believe will open the market for
the United States and foreign competitors, but also will be
vital for Japan's own revival, which is going to be important
for buying all sorts of goods from the United States and around
the world. Japan has poured countless billions, trillions of
yen into various fiscal expansion programs, and they have
gotten to the point where they have put cement on almost every
stream in Japan. But it is not working, and I think one
possibility for the Koizumi government is to move toward this
greater form of competition through deregulation. We are
proposing some ideas to the Japanese on this. I met one of the
new cabinet ministers last week, who just flew in for 24 hours,
a gentleman I had known before, an economics professor. And so
I think this is an area where it has the best chance of success
because it is a win-win proposition. It is good for Japan and
it is good for us. And the medical technology is a good example
of where I think this can be a win-win sub-sector.
Ms. Dunn. Good. I am very happy to hear about that. So will
some of my constituents be happy.
Touching on a third area in my last minutes, I am
interested in the United States and Vietnam Bilateral, because
it will be of very direct benefit to some of the companies that
I represent in Washington State, companies, for example, that
produce aircraft, agricultural products and software. Can you
give us an update on where that agreement stands? What is the
timing, for example, that is in the back of your mind for the
administration to send this agreement to Congress?
Mr. Zoellick. Well, we are very interested in moving this
agreement forward. We also believe it is an important
agreement. As you know, it has a slightly more complicated
procedure because it has got a privileged motion. So once it is
submitted, it moves on a clock through the Congress. And so we
have been, frankly, looking to work with the Congress to see
how we can move Jordan, which some of you talked about, the
Andean trade preferences, the Vietnam agreement, the Balkans
agreement, the GSP and the Trade Promotion Authority.
I know that the communist government in Vietnam would like
us to do this overnight. I know that Mr. Crane had a chance to
talk to them. A communist government does not have to worry
about floor time. We do.
A second problem is, that we ought to at least recognize,
is having spoken to the officials in the Clinton administration
that handled this, that communist government in Vietnam sat on
this agreement for about a year, when they were urged, time and
time and time again, to move it forward. So basically from 1999
to 2000 there was nothing done on the Vietnamese side.
So I think it is important to move forward. I think it
could support those in the government in Vietnam that are
moving forward with economic reforms. But even here, I would
emphasize that we are not standing in the way of economic
reforms. There is lots of countries in the world that figure
out how to reform their economy without necessarily having us
be looking over their shoulder. So, frankly, that excuse does
not cut much with me.
And I will also point out that in the consultations that I
have done with some of your colleagues about this, there are
some items that I will be asking the US Embassy to follow up
on. For example, the US Commission on International Religious
Freedom had a recent hearing where they had some troubling
incidents in terms of the Christians and the Buddhist
community. There has also been some real repression about some
of the ethnic people in the highlands. We had some issues
raised by some of your colleagues about textiles and about
catfish, and so I do not want these to get in the way, but I
think if we are going to move quickly, then we are also going
to need to be able to get some response from the Vietnamese
government on things that some of your colleagues would like to
see.
So I would be pleased with you to work with it quickly, but
I think, frankly, it is going to depend a little bit on the
congressional reaction to the other items that we are sending
up this week.
Ms. Dunn. Good. Thank you very much. Thanks, Mr. Chairman.
Chairman Crane. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman.
Ambassador, thank you for being with us, and thank you for
your comments on the Free Trade with the Americas Agreement.
Let me ask a couple of questions with regard to your
statement, and I do not know if you mentioned it in your
summary, your verbal statement, but in your written statement,
on page 6, where you talk about labor and the environment, you
mention that we might want to consider using incentives, not
just disincentives, to encourage better environmental
protection on labor standards, and you mention also that we
might want to strengthen the role of complementary specialized
institutions, such as the International Labor Organization. I
am wondering if you could give us a little bit more detail
about what you mean about strengthening the role of the ILO and
if you might comment on your position, or the administration's
position, with regard to providing some kind of enforcement
mechanism within the ILO for purposes of labor standards.
Mr. Zoellick. Yes. And I just interrupt your time for a
minute because of one thing I forgot to answer with
Congresswoman Dunn's question is, I discovered we also had an
agreement with Laos that we have not acted on since 1997, and
frankly, we ought to try to deal with that at the same time. It
is a similar sort of agreement without privileged purpose.
I am glad you highlighted that point, Congressman, because
part of the larger message that I have been trying to make is
that, as Congressman Levin has mentioned, I do think we need to
integrate environment and labor into this broader agenda, but I
think that there is a wide spectrum of possibilities between
what can develop through growth on its own and rushing to some
negative form of sanctions. And some of these I have talked
about with the heads of some of the development banks about how
they can try to create some financial support for programs that
would support correlator standards or support the integration
of environmental objectives with larger lending.
Now, in the case of the ILO in particular, I met with the
head of the ILO actually before I assumed office, and I think
it is an organization that offers some interesting
possibilities in terms of some basic standards that all of us
can stand by, the recognition that many countries have agreed
to those standards, going back to Mr. Levin's point about
building on other areas that people have agreed on, and then
trying to work with them to support either their local
legislation and the enforcer of that legislation.
I mean, just to give you an example, I spoke to a
Guatemalan official about a week or two about labor legislation
they were passing, because I thought it was important that we
try to support the effort for a society that has known much
violence, to be able to implement laws that followed their own
obligations. We can do this with their AID funding.
But particularly in the ILO area, in the past year or two,
you know, the ILO, which has been seen as not really having an
effective enforcement arm, has started to explore whether it
might suggest enforcement actions for its member States. And
the key first test to this relates to Burma, and I have taken a
particular interest in this because I think it is important for
Burma as well as the principle of where we would like the ILO
to go. Now, the issue with Burma related to forced labor, and
as you may know, we have had various sanctions on Burma related
to investment and other provisions dating back to the last time
that I was in government. I was willing, frankly, to explore
the use of additional trade sanctions and discussed this with
my EU colleague, because I do not think it is wise for us to do
this just on our own. The problem in this case is that I
learned that Aung San Suu Kyi, the Nobel prize winner, has
engaged in a dialog now with the military government, and does
not believe that sanctions at this time would be constructive.
So I can do a lot of things. I cannot jump in the shoes of a
Nobel Peace prize winner on that issue. And so I am trying to
follow that one, because I think, frankly, if things do not
improve, I would like to look at that as another time to see
whether we might move forward.
Mr. Becerra. I am not sure if you are telling me though
whether or not you would be in favor of providing the ILO with
teeth, some enforcement teeth, in order to help bring about
some higher standards on labor and environment.
Mr. Zoellick. Well, what I am saying is, is the way the ILO
would do that, is it would make a recommendation for its Member
States, and I am saying this is a real-life example as opposed
to a concept, and I am certainly willing to look at it.
Mr. Becerra. Sounds like some kind of reporting mechanism,
where we can use the reports by the ILO on the activities of a
country to guide us on whether or not there could be any
enforcement or attempts to try to get the country to better
enforce its own labor standards or perhaps improve their labor
standards.
Mr. Zoellick. Exactly. And let me give you one other
example, and that is, you know, Congressman Levin has been
involved with this in the case of Cambodia and the textiles
arrangement, and there has been sort of a mixed record about
that, but one of the things that I think will improve it, is
the ILO is now sending a team to try to help with the
implementation of that agreement, and I think that is a very
constructive step. So it is a good example of how the ILO can
set standards, it can help us in terms of the technical
assistance, and we can direct some of our funding and multi-
development banks with funding, but, frankly, I am also open to
the idea of enforcement efforts done by national governments
related to those core standards.
Mr. Becerra. Thank you very much.
Mr. Houghton. [Presiding.] Mr. English.
Mr. English. Thank you, Mr. Chairman.
Ambassador Zoellick, I also want to congratulate you on
your inspired advocacy of America's economic interests in
Quebec City, for what I think was your active role in making
sure that that summit was perhaps the most transparent we have
ever had in response to some of the criticisms from the street.
Clearly this was a much more open process than has happened in
the past. And also I want to congratulate you and the
administration on grappling with some very difficult issues
about the scope of the negotiation.
Now, having been out in Seattle, I understand how important
this is in launching a negotiation. I went out to Seattle
hoping to have a chance to meet with some of my counterparts,
to talk about why I thought that anti-dumping and
countervailing duties laws should not be on the agenda. I know
that you faced basically the same issue in Quebec City. And at
the same time, the administration, as I understood it, came out
against including anti-dumping and countervailing duties on the
agenda you were advocating, keeping open the option of labor
and environmental issues. And as I understand it, the
compromise that was struck, was that you were able to leave the
agenda open so that any Member nation would be able to include
things on the agenda as the FTAA went forward. I think that is
a good solution. I would like you to comment a little bit about
it, and if I might, I would also like to express the fact that
I do not believe that an FTAA negotiation is an appropriate or
feasible way of making significant changes in our anti-dumping
and countervailing duty laws. Your comments, sir?
Mr. Zoellick. Well, as you suggested, the way these
negotiations work is that people are allowed to put forward
their own text, and in the environment and labor area, we
fought long and hard for the freedom to be able to put forward
some language that basically said that countries should not
adjust their environmental labor standards to draw up an
investment, and some language very similar to what we already
have in the NAFTA provision. And at the end of the day, people
agreed with our right to put forward that language. It partly
relates to some of the other questions I have, that it does
reveal the degree of sensitivity in the developing world about
what I think is a very modest set of proposals, but how people
are worried that they are going to be used for protectionist
purposes, whether people here like that term or not. They do.
The second point is, is that in the anti-dumping area, as
you said, there are many people that would like to change our
anti-dumping laws. Our position is that we do not want to
change them, and so that is our stated role. There are issues
that people have looked at more generally in terms of the
transparency in the procedures, and in sort of how the
procedures work, which, frankly, I am open to more because I am
concerned about how these laws will be used against US
companies elsewhere in the world. There are some striking
charts about how other countries are now using these anti-
dumping and countervailing duty laws without the rules and
transparency that the United States has. But, you know, I share
the belief that I know you do, that I think that to be able to
sustain free trade in this country, we are going to have to be
able to have strong laws to deal with unfair trade practices.
And if I might add, I feel this on the safeguards as well,
on the whole issue of the 201. You know, this is a subject I
have talked about with a lot of my colleagues, and I have
raised overseas. I think in a world where, you know,
information can move at the speed of light, and financial
transactions at a similar speed, and trade is moving at a close
to similar speed, it is just a reality that some industries in
some communities are not going to move as quickly. And I do not
believe our solution should be to protect them and not let them
adjust, but I do believe we have to create some mechanisms to
allow them to adjust in time so as to be able to maintain
support for trade. And this is true in some agricultural areas,
and it is true in some manufacturing categories. I think for us
to be able to do this effectively, however, we are going to
have to be stringent, because, as you know, all the pressures
will be on, you know, holding back change which cannot be held
back. So I am a strong believer in trying to see how this
administration can use 201 provisions effectively, but without
letting them slip into a new form of protectionism.
Mr. English. Mr. Chairman, with your indulgence, I wanted
to ask a quick follow-up question.
Since you, Ambassador, raise the issue of 201, and you are
aware of my interest in the steel issue, I was wondering if you
could quickly update us on the administration's current
thinking on the possible use of a section 201 action to remedy
the steel industry's dilemma?
Mr. Zoellick. The main point I should make, Congressman, is
that since you do such a good job of monitoring this closely,
there is very little I can add from the last time that you
asked me, which was probably last week.
But in essence, this is a topic that Secretary O'Neill,
Secretary Evans, Secretary Chao and myself have all been deeply
engaged in. There is an interagency group that is chaired out
of the White House. Secretary O'Neill I think has taken a
particular interest in some potential international solutions
based on his experience with the aluminum industry.
And so we have also, as you know, discussed this with the
wide range of industry members, and as you know, there are some
different views on this because some of the industry feels that
they are more efficient, and they would be able to operate
better if some capacity was not in place, and others, it
depends on the nature of their business operations and whether
they are a fully integrated operation, or it depends somewhat
on their strategy. And in similarly, obviously, some of the
local unions that are related to specific plants, have a
different perspective from the general steel workers who may be
recognizing an overall need for restructuring.
So my sense is, Congressman, that this is an issue that we
believe is going to have to be resolved in a matter of weeks to
month. I cannot say for sure. There is no decision. You know my
own preference, but that is not--I do not mean to suggest that
is going to by any means be the result, but I do think that it
is important for those interested in the issue to be actively
engaged, because we are.
Mr. English. Thank you for sharing our sense of urgency,
and thank you for you testimony today.
Mr. Houghton. Mr. Brady.
Mr. Brady. Thank you, Mr. Chairman.
Mr. Ambassador, you made the point very early on that we
have a lot of time and a lot of effort to catch up on, and
these trade jobs are the ones that our kids are going to use to
be able to raise a family on, and it is embarrassing to know
that Chile has free trade agreements with every nation in this
hemisphere except the United States and Cuba. It is
embarrassing to know that out of the investment treaties we
have--which basically when America invests in a country, we
sell to that country--we are 26th in the world there, just
behind those free-enterprise bastions of Cuba and Morocco, but
we have edged out Tunisia, I think, in those investment
treaties. We need to be back on the field so that, again, our
children will have the kinds of jobs they can raise their
family on. I know in Texas, we have seen as a result of NAFTA,
just in 5 short years, in the area we were most likely to have
jobs competitive, manufacturing, the one that Ross Perot said
we would hear to giant sucking sound in, just in 5 years we
have created enough new manufacturing jobs, just in our State,
to fill every seat of the Astrodome twice over, just in 5
years, new manufacturing jobs.
Along the border between Mexico and Texas, which is a
terrible environmental area, just since NAFTA we now have--the
last time I checked--$2 billion of environmental projects to
clean the air and to clean the water better than it ever has
before, and we still have a long way to go, but that would have
never occurred without the free trade agreement. And from
labor's standpoint, not only are standards rising in Mexico,
but you would be hard pressed to argue that the new plants
opening there pay less or have less benefits than those that
existed before. It is a win-win situation.
I appreciate the effort you are making to focus on
enforcement. Anyone who read the report out of your office from
last week would have to be impressed with the aggressiveness of
America and this administration to aggressively enforce these
trade laws and agreements. There is no question too, that as in
any agreement, whether it is between two businesses or two
nations or more, there will be disputes. Some can be handled
through the administration. Some have to go through a court and
an appeals process, and can be very frustrating. But I think
you are right on track to enforce the trade agreements, to have
written analysis of the impact on the environment, to invite
the labor community into these assessments, to make sure that
we, indeed, as you said, are rising, not just free trade, but
freedom, environmental progress, labor progress, all at the
same time. They really are compatible and really do go
together, and I appreciate again the effort you are making to
enforce and to raise them. Thank you, Mr. Chairman.
Mr. Houghton. Thanks, Mr. Brady.
Mr. Zoellick. Can I just make a brief comment?
Mr. Houghton. Yes, sure.
Mr. Zoellick. Is that because the Congressman and I have
talked about this for a long time. In fact, we had the pleasure
of starting to dig into this, I think, before the first Seattle
meeting, and I know you have a strong interest in this.
And the point I just want to make on enforcement is that to
be fair, this is really an effort that has crossed
administrations. A number of the things in the report that you
pointed out were things that were done by my predecessors in
the Clinton administration, and it is also very much related to
this Congress, because you have given us additional 25 people.
Many people do not realize that we only have about 203 people
at USTR trying to cover the world. So that extra 25 people
makes a big difference to us. We are in the process of staffing
them up right now, so, frankly, it is the support of the
Congress on this that enables us to do a better job, and that
report that you read was a combination of my predecessors as
well as the current team.
Mr. Brady. Another example that free trade is a bipartisan
issue. Thank you, Mr. Chairman.
Mr. Houghton. Any other comments? Thanks very much, Mr.
Ambassador. Certainly appreciate your testimony.
Mr. Zoellick. Thank you.
[Questions submitted from Mr. Shaw, and Ambassador
Zoellick's response are as follow:]
Question 1: Is it possible and are you inclined to treat such
import sensitive commodities differently in the FTAA and WTO
negotiations, and maintain tariff protection as the primary means of
offsetting years of artificial foreign advantages? What other methods
exit?
Response 1: Although the U.S. objective in both the FTAA and WTO is
to open markets for agricultural products, the tariff negotiations in
the two fora will differ in many respects. The results of the FTAA
negotiations must comply with WTO rules and disciplines for free trade
agreements, including the requirement to progressively eliminate
tariffs on substantially all trade within ten years. In the WTO
agriculture negotiations, we generally seek tariff reductions rather
than tariff elimination, although we do not preclude the possibility of
zero-for-zero negotiations for certain agricultural commodities. Given
these differences in the underlying scope of the negotiations, it is
highly unlikely that import sensitive commodities would receive the
same treatment in the FTAA and WTO negotiations. We recognize the need
to work with Congress and interested representatives of our
agricultural sector to develop the most appropriate methods to address
the concerns of import sensitive industries in each of the ongoing
negotiations.
Question 2: Do you foresee a situation where you will be forced to
make choices between competing interests, trading some import sensitive
commodities against export focused commodities or other industrial
products, for the sake of reaching an agreement?
Response 2: Most negotiations require some difficult decisions.
This will no doubt be true for the FTAA and WTO negotiations. These
decisions will likely involve how to best accommodate the particular
interests of all segments of the U.S. industry, including import
sensitivities and export interests. Our objective is to get the best
deal possible for U.S. agricultural producers, processors and consumers
in both negotiations, as part of the overall package of results in each
negotiation.
Question 3: Maintaining the strength of U.S. trade remedy laws,
such as antidumping and countervailing duty procedures, is critical to
survival for many American farmers. Will you notify Congress in advance
if you foresee that negotiations require modification in the
application of the U.S. antidumping laws to dumped agricultural
imports, prior to the ratification process?
Response 3: The Administration agrees that maintaining the strength
and effectiveness of our trade remedy laws is of critical importance.
The Administration will continue to consult closely with Congress on
all aspects of the FTAA negotiations, particularly with respect to
important issues such as trade remedies.
Question 4: Since NAFTA took effect, Florida's fruit and vegetable
growers have repeatedly expressed concern about lost domestic sales to
Mexican tomatoes, bell peppers, cucumbers and other crops. They cite
any number of reasons for those lost sales--from lower U.S. tariffs, to
increased investments in Mexico, to the peso's devaluation after NAFTA
took effect, to inadequate U.S. safeguard mechanisms for import-
sensitive fruits and vegetables. How would the FTAA be more responsive
to these various concerns?
Response 4: The Administration wants to work with Congress and
Florida fruit and vegetable growers to find the most appropriate way to
address the growers' concerns regarding the FTAA. Safeguard mechanisms
are certainly one possibility that we are exploring. We would be very
interested in receiving advice from interested Members concerning the
way safeguards or other mechanisms could be structured to address the
concerns of Florida fruit and vegetable growers.
Question 5: What concrete steps do you intend to take in this trade
initiative to prevent the most import-sensitive U.S. products,
including Florida fruits and vegetables, from being harmed?
Response 5: The Administration recognizes that many Florida fruit
and vegetable growers are concerned about the potential effects of the
FTAA. Currently, FTAA negotiators are focusing on the general framework
(so-called ``modalities'' that will be used as the basis for the tariff
negotiations, as well as developing texts on specific issues such as
safeguards. Detailed product-by-product tariff negotiations are
scheduled to begin by May 15, 2002. During this year, the
administration is seeking specific advice from Congress and our private
sector concerning the types of general approaches to tariffs and other
issues, including safeguards, that might address the concerns of import
sensitive sectors.
Mr. Houghton. Now we will call the next panel. Loren Yager,
Director of the International Affairs and Trade, United States
General Accounting Office; the Honorable Richard Fisher, former
Deputy United States Trade Representative; the Honorable John
Sweeney, President of the American Federation of Labor and
Congress of Industrial Organizations; Franklin Vargo, Vice
President of the International Economic Affairs, National
Association of Manufacturers; Daniel Price, Partner, Powell
Goldstein, Frazer and Murphy, on behalf of the United States
Council for International Business; and William Gambrel,
President of the Bank of Boston, Colombia, and Vice President
of the Association of American Chambers of Commerce in Latin
America.
Chairman Crane. [Presiding.] We will proceed in the order
you were presented to the Committee, and I would ask that you
try and keep oral testimony to roughly 5 minutes, and any
printed testimony will be a part of the permanent record. And
with that, we shall commence with Mr. Yager.
STATEMENT OF LOREN YAGER, DIRECTOR, INTERNATIONAL AFFAIRS AND
TRADE, U.S. GENERAL ACCOUNTING OFFICE
Mr. Yager. Thank you, Mr. Chairman. Mr. Chairman and
Members of the Subcommittee, I am pleased to have the
opportunity today to discuss our observations on the two recent
meetings affecting the negotiations for a Free Trade Area of
the Americas, the Trade Ministerial in Buenos Aires, Argentina,
and the Presidential Level Summit in Quebec City, Canada.
We reported in March 2001 that the negotiations are at a
critical juncture, and that these two meetings offered an
opportunity to provide momentum and set an ambitious pace for
the next more difficult phase of the negotiations. In that
report we cited a number of goals that needed to be
accomplished for the meetings to be successful. The primary
message of my testimony this afternoon is that the April
meetings accomplished those goals and set the stage for the
phase of the negotiations where the hard bargaining will begin.
Specifically today, I will discuss what the Western
Hemisphere nations did on three issues. They addressed
controversial topics. They set objectives and deadlines for the
next phase, and they provided momentum for the negotiations.
Finally, I will conclude with some long-term challenges that we
discussed in our March report.
First, the ministers reached accommodations on a number of
controversial issues that had slowed progress on other topics.
These agreements, on subjects such as labor and the
environment, anti-dumping and smaller economies, enabled
countries to set forth basic principles while keeping topics on
the table for future resolution. For example, as Ambassador
Zoellick stated earlier, on labor and the environment, the
ministers defused the conflict over whether to include US text
by stating that any delegation has the right to present
proposals it deems relevant, though others may place these
proposals in brackets to indicate their disagreement. However,
the adjacent sentence in the ministerial declaration states
that most of the ministers believe non-compliance with
environment and labor rights should not result in trade
restrictions or trade sanctions. While the ministers and
leaders did not resolve these questions, the agreements did
allow them to move on and accomplish the rest of the agenda for
the meetings.
The second accomplishment was the direction provided for
refining the draft text and beginning negotiations on market
access, which reflect the hard bargaining of the negotiations.
To move toward consensus on the draft text, ministers directed
negotiating groups to refine as much as possible of the 200
plus pages of overlapping and competing text before the
Ministerial. To prepare for the beginning of market access
negotiations, the ministers instructed specific negotiating
groups to develop recommendations by April 1, 2002 on the basic
ground rules for negotiation. Ministers also established the
deadline of May 15th, 2002 for negotiating groups to initiate
the market access negotiations on tariffs and other topics.
The third accomplishment was that the trade ministers and
leaders added momentum to the process in two ways. One was the
decision, again mentioned earlier, made at the April meetings,
to publicly release the draft text of the non-negotiating
groups. In response to public pressure and recommendations by
the business community, the ministers determined that releasing
the text would help increase the transparency of the
negotiating process and build public understanding of the FTAA.
The leaders also set a firm deadline for completion of the
agreement in January 2005, accelerating the pace of the
negotiations.
Facing a critical juncture in the FTAA process, the FTAA
countries accomplished an ambitious agenda designed to start
the hard bargaining phase of the negotiations on a sound
footing. Still, as we had previously reported, the FTAA
negotiations face other long-term challenges, including
managing the scope and complexity of work required to finalize
draft rules, resolving contentious issues, and summoning the
political will in the United States and other countries to
conclude an agreement.
Mr. Chairman, this concludes my testimony. I would be happy
to answer any questions that you or other Members of the
Subcommittee have.
[The prepared statement of Mr. Yager follows:]
Statement of Loren Yager, Director, International Affairs and Trade,
U.S. General Accounting Office
Mr. Chairman and Members of the Subcommittee:
I am pleased to have the opportunity today to discuss our
observations on two recent meetings affecting the negotiations for a
Free Trade Area of the Americas agreement: a trade ministerial in
Buenos Aires, Argentina, on April 7, 2001, and the presidential-level
Summit of the Americas in Quebec City, Canada, on April 20-22. The Free
Trade Area of the Americas agreement, if completed, would eliminate
tariffs and create common trade and investment rules within the 34
democratic nations of the Western Hemisphere. As you know, these
negotiations are among the most significant ongoing multilateral trade
negotiations for the United States. President Bush has stated
repeatedly that establishing the Free Trade Area of the Americas is one
of his top trade priorities. We reported in March 2001 \1\ that the
negotiations are at a critical juncture and these two meetings offered
an opportunity to inject momentum and set an ambitious pace for the
next, more difficult phase of the negotiations. We also reported that,
going into the meetings, the ministers faced an ambitious agenda of
decisions designed to start the next phase of the negotiations on a
sound footing. At your request, we reviewed the results of the
meetings. Specifically, today I will discuss what Western Hemisphere
countries did to (1) address controversial issues, (2) set objectives
and deadlines for the next phase of the negotiations, (3) build public
support, and (4) adding needed momentum into the negotiations. My
observations are based on our past and ongoing work on the Free Trade
Area of the Americas process, including in Buenos Aires, Argentina.
Before I get into the specifics of these topics, let me provide a brief
summary.
---------------------------------------------------------------------------
\1\ See Free Trade Area of the Americas: Negotiations at Key
Juncture on Eve of April Meetings (GAO-01-552, Mar. 30, 2001).
---------------------------------------------------------------------------
SUMMARY
As we stated in our March report, the trade ministers for the Free
Trade Area of the Americas (FTAA) countries faced an ambitious agenda
in the April meetings. This was because a number of controversial and
complex issues had slowed progress on the objectives and deadlines that
had to be concluded in the April meetings. However, accommodations
reached by the ministers on topics such as labor and the environment,
antidumping, and nations with smaller economies allowed countries to
set forth basic principles while keeping topics on the table for future
resolution. For example, on labor and the environment, the ministers
stated that any delegation has the right to present negotiating
proposals it deems relevant. However, the ministers went on to announce
that most ministers believe noncompliance with environment and labor
rights should not result in trade restrictions or sanctions.
As a result of the movement on these controversial issues, the
trade ministers were able to set out clear objectives and deadlines to
promote progress during the next 18 months of the negotiations. These
negotiations will culminate at the next trade ministerial to be held in
Ecuador, in October 2002. So far, the FTAA negotiations have produced a
draft text agreement, covering nine major issue areas. The next
negotiating phase will involve hard bargaining to refine the draft text
and begin negotiations on market access concessions. To move toward
consensus on the draft text, ministers directed negotiating groups to
eliminate material that is in dispute to the maximum extent possible.
To prepare for the beginning of the market access negotiations,
ministers instructed specific negotiating groups to develop
recommendations by April 1, 2002, on the methods and modalities (basic
ground rules) for negotiation. The ministers also asked the groups to
develop, where appropriate, inventories of tariffs, nontariff barriers,
subsidies, and other practices that distort trade. Ministers directed
negotiating groups to initiate these market access negotiations no
later than May 15, 2002.
The FTAA trade ministers took several notable actions to build
public support for the FTAA process. The biggest surprise decision made
at the April meetings was the agreement to publicly release the draft
text of the nine negotiating groups. In response to public pressure for
greater openness and recommendations by the business community, the
ministers determined that releasing the text would help ensure the
transparency of the negotiating process and build broad public
understanding of and support for the FTAA. The text, which is several
hundred pages long, will be made public after its translation into the
four official languages \2\ of the negotiations. The trade ministers
also took action to enhance the role of civil society--meaning
nongovernmental groups representing business, labor, environment, and
other interests--in the FTAA process.
---------------------------------------------------------------------------
\2\ English, French, Portuguese, and Spanish.
---------------------------------------------------------------------------
The April meetings appear to have been successful in providing
high-level political leadership across the hemisphere and fresh
momentum to the FTAA negotiations. At their summit in Quebec City,
President Bush and other leaders signaled their commitment to the FTAA
and their desire to work together to attain the common goals of
expanding trade, improving economic opportunities, strengthening
democracy, and redressing social and economic inequities. The meeting
also set new deadlines for completing and implementing the agreement,
partly accomplishing the feat of setting an accelerated pace for
negotiations. Business and congressional leaders attended, underlining
interest by key U.S. stakeholders, even as protests graphically
demonstrated the opposition mobilizing against an FTAA. The outcomes at
Buenos Aires and Quebec allow the next phase of technical negotiations
to start on a sound footing. However, boosting U.S. congressional and
public support, dealing with a large and complex agenda of issues, and
accommodating the diverse needs and positions of participants are among
the challenges facing FTAA negotiators in the hard bargaining ahead.
BACKGROUND
In December 1994, the heads of state of the 34 democratic countries
in the Western Hemisphere agreed at the first Summit of the Americas in
Miami, Florida, to conclude negotiations on a Free Trade Area of the
Americas no later than 2005. The FTAA would cover a combined population
of about 800 million people, more than $11 trillion in production, and
$3.4 trillion in world trade. It would involve a diverse set of
countries, from some of the wealthiest (the United States and Canada)
to some of the poorest (Haiti) and from some of the largest (Brazil) to
some of the smallest in the world (Saint Kitts and Nevis). Proponents
of the FTAA contend that a successful negotiation could produce
important economic benefits for the United States. Business groups say
that if relatively high tariffs and other market access barriers are
removed, U.S. trade with the region could expand further. While an FTAA
may provide benefits for the United States, it may also adversely
impact certain import-competing sectors. Other groups, such as certain
unions and environmental groups, have also strongly voiced concerns
about the FTAA's impact on U.S. workers and on the U.S. government's
capacity to act in the public interest.
From a technical standpoint, ministers agreed in 1998 at the San
Jose Ministerial meeting that the FTAA would be a single undertaking,
meaning that the agreement would be completed and implemented as one
whole unit instead of in parts. They also agreed that the FTAA
agreement will be consistent with the rules and disciplines (practices)
of the World Trade Organization, and that the FTAA could coexist with
other subregional agreements, like the Common Market of the South
(Mercosur) and the North American Free Trade Agreement (NAFTA), to the
extent that the rights and obligations go beyond or are not covered by
the FTAA. An eventual FTAA agreement would contain three basic
components: (1) chapters on general issues and the overall architecture
of the FTAA and its institutions, (2) schedules for reducing tariff and
nontariff barriers, and (3) chapters on specific topics. The
chairmanship of the negotiations changes every 18 months, with
Argentina serving as chair through the April 2001 meetings, succeeded
by Ecuador for the next round of negotiations. Brazil and the United
States are set to co-chair the final round from November 2002 to
December 2004. Ministers set out the workplans for the negotiating
process and select new chairs for the negotiating groups in 18-month
increments.
The FTAA negotiations have so far met the goals and deadlines that
the trade ministers set. Since beginning the process in 1994, the 34
participating countries have succeeded in building a technical
foundation for the negotiations. As shown in figure 1, from December
1994 to March 1998, the participants developed the overall structure,
scope, and objectives for the negotiations. The participating countries
then formally initiated the negotiations at the San Jose Ministerial
and the Santiago Summit of the Americas in 1998. The negotiating
groups, illustrated in figure 2, recently produced a first draft of
chapters for specific issues, such as market access, investment, and
agriculture. According to U.S. and foreign negotiators, however, the
draft text is heavily bracketed,\3\ indicating that agreement on
specific language has not been reached. In addition, negotiations on
market access have yet to begin. Nevertheless, participants described
this draft text as an important accomplishment and stated that it will
form the basis for future negotiations. The negotiations have also
produced several business facilitation measures and improved
coordination between participating countries on trade matters.
---------------------------------------------------------------------------
\3\ The term ``bracketed'' refers to the punctuation placed around
language in the draft chapters for which agreement has not yet been
reached. For example, if two countries submitted different proposals
for language in a chapter, brackets would be placed around each
proposal until a consensus is reached on the differences between the
two.
[GRAPHIC] [TIFF OMITTED] T4222A.012
Figure 2: Organization of the FTAA Negotiations
[GRAPHIC] [TIFF OMITTED] T4222A.013
Legend:
SPS=Sanitary and phytosanitary measures (These measures are taken to
protect human, animal, or plant life or health)
Note 1: Current chairs of the various FTAA entities are listed in
parentheses. The objectives of each negotiating group and the Trade
Negotiations Committee appear in italics.
Note 2: The Tripartite Committee provides technical assistance to the
negotiations and is composed of the Organization of American States,
the Inter-American Development Bank, and the United Nations Economic
Commission for Latin America and the Caribbean.
Note 3: The FTAA ministers and negotiating groups are serviced by an
Administrative Secretariat.
Note 4: The venue for the actual negotiations was initially located in
Miami and will rotate to Panama City and Mexico City.
Source: GAO.
MINISTERS DEFUSE CONTROVERSIAL ISSUES
FTAA ministers took measures in Buenos Aires to prevent several
controversial or complex topics from blocking the progress of the
negotiations. In our March report, we noted that the trade ministers
faced an ambitious agenda in the April meetings because the
controversies had consumed considerable time in the preparatory
process. One such issue involved the right of countries to put forward
text in the negotiating groups, specifically on labor and the
environment. The United States had sought to include proposals in the
investment negotiating group obligating parties to strive to ensure
that their environmental and labor laws would not be relaxed to attract
investment. Other FTAA countries objected to this proposal, stating
that labor and the environment were outside the mandate of the
negotiating group and did not belong in an FTAA. The ministers resolved
this conflict by stating that the negotiating groups should work under
the principle that any delegation has the right to present proposals it
deems relevant, though others may place these proposals in brackets if
they do not agree. However, most ministers went on to announce their
opposition to the use of sanctions for enforcing labor and environment
provisions.\4\
---------------------------------------------------------------------------
\4\ The text of the ministerial declaration states, ``Most
Ministers recognize that the issues on environment and labour should
not be utilized as conditionalities nor subject to disciplines, the
non-compliance of which can be subject to trade restrictions or
sanctions.''
---------------------------------------------------------------------------
Another challenging issue addressed by ministers to keep the
process on track involved considering the needs of smaller economies.
As we reported, countries with smaller economies are concerned with
both technical and resource constraints that make the negotiating
process a challenge and with preventing their economies from being
overwhelmed by the larger ones once the agreement is implemented.
According to FTAA experts, their concerns about resource constraints
were met in part by assurances from the U.S. Trade Representative and
the President of the Inter-American Development Bank that they would
attempt to identify additional technical assistance. In addition, their
concerns about implementation were addressed in the ministerial
declaration, wherein the ministers in Buenos Aires reiterated their
commitment to take into account the differences in levels of
development and size of the economies among the FTAA participants. The
ministers further directed the Trade Negotiations Committee to
formulate by November 2001 some guidelines for applying treatment for
dealing with the differences in the size of the economies.
A third area in which controversy was forestalled involved
antidumping. Prior to the ministerial, a U.S. alternative proposal in
the negotiating group on antidumping created a controversy among the
FTAA participants. The Office of the U.S. Trade Representative has
stated that the FTAA agreement should ensure the right of each country
to maintain and apply trade remedies within the FTAA. According to one
of the foreign lead negotiators, the U.S. alternative proposal angered
many other participants because it was viewed as an effort on the part
of the United States to take the antidumping issue off the negotiating
table. While U.S. officials have denied that this was their intent, the
issue threatened to distract the ministers at Buenos Aires, according
to observers. The issue was defused, however, by several ministerial
directives. Specifically, the ministers placed language in the
ministerial declaration repeating their initial charge from the San
Jose Ministerial for the negotiating group on subsidies, antidumping,
and countervailing duties to intensify its efforts to reach a common
understanding and improve the rules and procedures for operation and
enforcement of trade remedy laws. The ministers further directed the
negotiating group to submit recommendations on the methodology to
achieve this objective by April 2002. In effect, the ministerial action
reminds all participants that they have previously agreed to seek
improvements in trade remedy regimes, while providing a deadline for
action toward that end.
MINISTERS PROVIDE DIRECTION FOR NEXT PHASE OF NEGOTIATIONS
As we noted in our March report, an important task for the April
meetings was setting the pace, goals, and structure for the remainder
of the FTAA process. At the Buenos Aires Ministerial, FTAA trade
ministers took a series of steps to set out the objectives and
timeframes for the next 18 months of the negotiations, which will
culminate in the next trade ministerial to be held in Ecuador in
October 2002. These steps are illustrated in figure 3.
[GRAPHIC] [TIFF OMITTED] T4222A.014
One of the important tasks of the April meetings was to prepare for
the beginning of market access negotiations. Before countries can begin
to negotiate on market access concessions, they must agree on the basic
ground rules of the negotiations, such as the type of tariff rate to
use as the starting point. Negotiators refer to these ground rules as
the ``modalities.'' \5\ Several of the specific directions ministers
provided to the negotiating groups are listed below (applicable
negotiating groups are listed in parentheses):
---------------------------------------------------------------------------
\5\ Other modality decisions include, for example, the period of
time in which the tariff reductions will occur.
---------------------------------------------------------------------------
Recommend methods and modalities for upcoming negotiations
on tariffs, nontariff barriers, rules of origin, subsidies, investment,
government procurement, services, and other practices that distort
trade in agricultural products (market access; agriculture; investment;
subsidies, antidumping, and countervailing duties; services; and
government procurement).
Create a preliminary inventory of nontariff measures
(market access, agriculture).
Recommend what types of other practices that distort
agricultural trade should be addressed (agriculture).
A related step ministers took to advance the FTAA process
was to set a date for beginning market access negotiations. As we
reported in March 2001, the FTAA participants had not set out a date to
begin the market access negotiations, where countries start to offer
tariff and nontariff concessions. In Buenos Aires, ministers directed
specific negotiating groups to begin these negotiations no later than
May 15, 2002. This pertains to tariff liberalization in the market
access and agricultural groups, and rules of origin in the market
access group. The deadline also pertains to investment, services, and
government procurement groups for market access negotiations in their
respective groups.
The ministers also instructed negotiating groups to take
steps to reach consensus on the draft text. As we reported, the draft
text generally represents a consolidation of all proposals submitted by
FTAA countries so far. FTAA participants state that the draft reflects
wide differences between the countries over substance and philosophical
approaches to key issues. The ministers specifically directed the nine
negotiating groups to intensify efforts to resolve existing differences
and reach consensus, with a view to eliminating brackets and
consolidating text to the maximum extent possible. Ministers also set
August 2002 as a deadline for negotiating groups to submit their
revised draft chapters to ministers.
In addition to setting specific objectives for the negotiating
groups, the ministers formed a new Technical Committee on Institutional
Issues to begin discussions on the FTAA's overall institutions, like
the location of a permanent secretariat and the type of mechanism that
will be used for dispute settlement. U.S. officials also expect that
this committee will act as a mechanism to deal with issues that pertain
to all negotiating groups or do not fall within a specific group. U.S.
and other officials participating in the process stated that this new
committee is comparable to the negotiating groups in that it will have
a different chair than the chair of the negotiations and will be
supervised by the Trade Negotiations Committee.
MINISTERS ATTEMPT TO BUILD PUBLIC SUPPORT FOR FTAA
In March, we noted that the April meetings represented an
opportunity to build public support for the FTAA and address concerns
about openness. The FTAA trade ministers took several notable actions
in an effort to do so. The biggest surprise of the April meetings was
the decision to publicly release the bracketed text of the nine
negotiating groups. As we previously reported, Canada, more than 50
Members of Congress, and various U.S. nongovernmental groups had called
for the release of the bracketed text, because publicly available
information on the FTAA negotiations has been limited. In addition,
recent public protests added to the groundswell of support for
releasing the text. However, given the ongoing and confidential nature
of FTAA deliberations, this proposal was expected to be controversial
at the meetings. Nevertheless, in response to public pressure and the
recommendation of the business community, the FTAA leaders determined
that releasing the text would help improve the transparency of the
negotiating process and would increase public understanding of and
support for the FTAA. The text, which is several hundred pages long,
will be made public after its translation into the four official
languages of the negotiations.
The trade ministers also took action to enhance the role of civil
society in the FTAA process. The Committee of Government
Representatives on the Participation of Civil Society \6\ has been
contentious since its creation. For example, one country had
consistently blocked the committee from preparing recommendations based
on the public input received. In part because of the disagreement over
the role of the committee, many civil society representatives we
interviewed told us they were disappointed with the committee because
there was little evidence that their input was being given serious
consideration in the negotiations. At Buenos Aires, however, the
ministers took action to strengthen and extend the role of the
committee. For example, they instructed the committee to:
---------------------------------------------------------------------------
\6\ The committee was created at the urging of the United States to
provide a vehicle for public input on business concerns, environment
and labor rights, and other issues.
---------------------------------------------------------------------------
develop a list of options by the next Trade Negotiations
Committee meeting on how to foster a process of increasing and
sustained communication with civil society,
analyze the possibility of incorporating more information
on the FTAA's web page,\7\ and
---------------------------------------------------------------------------
\7\ The English-version FTAA web page is located at www.ftaa-
alca.org/alca__e.asp.
---------------------------------------------------------------------------
forward the public input by civil society to the
appropriate negotiating groups.
Whether or not these steps will be deemed sufficient by outside
observers remains to be seen. Nevertheless, the steps, taken in
combination with the release of the bracketed text, will make the FTAA
process more open to public scrutiny and comment than it has been so
far.
LEADERS TAKE STEPS TO PROVIDE POLITICAL MOMENTUM TO THE FTAA PROCESS
As we noted in our March report, one of the most important aspects
of the April meetings was the opportunity by hemispheric leaders to
inject needed momentum into the negotiations at a key juncture, since
the phase of negotiations in which countries set out initial positions
has ended, and the coming phase is expected to narrow the many
substantive differences that remain. The leaders addressed the issue of
momentum in two ways. First, they set precise deadlines for concluding
and implementing an FTAA. Second, they provided political-level support
and direction to the process as it enters a more ambitious and
difficult phase.
In April, hemispheric leaders endorsed a more precise formulation
of the dates for the conclusion of negotiations and the entry into
force of the agreement that should accelerate technical-level progress.
As we reported, at the 1994 Miami Summit leaders set 2005 as the
original target date to conclude the negotiations but did not specify
precisely what this meant. Chile put forward a proposal last year to
move up the target date to December 31, 2003, with a final agreement
entering into effect on January 1, 2005. However, some FTAA
participants, most notably Brazil, publicly stated that these dates
were unrealistic. As a compromise, FTAA leaders approved a ministerial
recommendation at the Quebec City Summit to establish January 2005 as
the deadline for concluding FTAA negotiations and December 2005 as the
deadline for the agreement's entry into force. The U.S. Trade
Representative called this step a key development to add momentum to
the process and later noted that the United States is prepared to try
to help beat these deadlines.
On the political level, the April Summit engaged President Bush and
other heads of state in the FTAA process and provided an opportunity
for leaders to renew their countries' political commitment to the FTAA.
For the U.S.'s part, President Bush underlined the importance he
attaches to achieving progress in liberalizing trade and to solidifying
and improving relations within the Western Hemisphere as a means to
increase and spread prosperity and foster freedom and democracy. At the
same time, he said, ``Our commitment to open trade must be matched by a
strong commitment to protecting our environment and improving labor
standards.'' Calling the vision of ``a fully democratic hemisphere
bound by goodwill and free trade'' both a ``tall order'' and a ``chance
of a lifetime,'' the U.S. President pledged to seek and secure from the
Congress ``fast track'' or trade promotion authority \8\ by the end of
2001. Other FTAA participants see this authority as a litmus test of
U.S. commitment to an FTAA and view it as necessary for concluding and
passing an eventual agreement. Demonstrating commitment to continued
trade liberalization in the hemisphere, President Bush also said he
would seek to renew and expand the Andean Trade Preferences Act, which
accords unilateral U.S. tariff preferences to nations of the Andean
region, and to conclude a bilateral free trade agreement with Chile by
yearend 2001.
---------------------------------------------------------------------------
\8\ In the past, the Congress has enacted trade promotion authority
(also known as ``fast track'') to implement trade agreements with other
countries. This authority provided for a congressional vote within a
limited period of time to accept or reject the implementing legislation
for a negotiated agreement without making any changes.
---------------------------------------------------------------------------
Statements of other key regional players also underlined their
political commitment to an FTAA. For example, speaking on behalf of the
Caribbean, Barbados Prime Minister Owen Arthur expressed satisfaction
that ``arrangements for economic integration have now been so
deliberately designed to truly accommodate the special concerns of the
smallest and most vulnerable entities in our hemisphere.'' Reluctance
by Caribbean participants about accelerating the pace of negotiations
was a major factor at Buenos Aires in discussions on setting FTAA
deadlines, according to participants. Brazilian President Fernando
Henrique Cardoso urged fellow leaders to aim for a ``Community of the
Americas,'' including an FTAA that progressively eliminates barriers to
trade, opens up opportunities for growth, and does away with
inequalities. At the same time, he warned that an FTAA that failed to
provide access to more dynamic markets would be ``irrelevant or, worse,
undesirable.'' The only country taking a new stance in the Quebec City
summit declaration from the Buenos Aires Ministerial was Venezuela,
which reserved its position on the final deadline for concluding and
implementing an FTAA due to concerns about its technical ability to
meet the implementation deadline.
Generating interest in and support of the FTAA within the U.S.
Congress, the U.S. business community, and the U.S. public remains a
challenge. As we reported, many FTAA participants believe this support
will be crucial if the United States is to provide the leadership they
believe is necessary for concluding a deal. It is also required for
ultimate approval of an FTAA in the Congress and in the U.S. ``court of
public opinion.'' However, some FTAA participants believe the United
States has been distracted from pursuing trade liberalization because
it is without a domestic consensus on the benefits of trade and the way
in which to handle the overlap between trade and labor rights and the
environment. Moreover, U.S. policies on key aspects of FTAA rules, such
as investment, have yet to be announced. Support by the Congress and
the business community for the FTAA has been limited until recently,
though a sizeable number of U.S. trade associations and firms
participated in the Americas Business Forum at Buenos Aires, and a
bipartisan congressional delegation accompanied President Bush to
Quebec City. Meanwhile, the opposition by key interest groups, who
demonstrated in the streets of Buenos Aires and Quebec City, is
actively mobilizing. For example, the American Federation of Labor-
Congress of Industrial Organizations, Public Citizen, and the Sierra
Club have launched campaigns against the FTAA as it currently stands.
Longer-term Challenges
Facing a critical juncture in the FTAA process, the FTAA countries
generally accomplished that part of an ambitious agenda designed to
start the next phase of the negotiations on a sound footing. Still, as
we have previously reported, significant challenges will need to be
overcome to successfully conclude an agreement. Hard bargaining will be
required to turn the accumulation of proposals currently on the table
into a mutually agreed-upon, binding document. In addition, the FTAA
negotiations face other longer-term challenges, including
managing the sheer scope and complexity of work required
to finalize draft rules,
negotiating market access concessions,
devising an institutional structure for the implementation
of the agreement,
recognizing the diverse negotiating objectives and
economic conditions of the FTAA participants,
achieving consensus on the negotiated outcomes,
dealing with changing political and economic conditions as
the negotiations unfold, and
summoning the political will to conclude an agreement.
A number of participants told us that the FTAA can be successfully
concluded if the key Western Hemisphere leaders demonstrate that they
have the political will to conclude the agreement. The April meetings
provided a major step in this direction, as well as clear guidance and
milestones for technical-level progress. But the ultimate success or
failure of the FTAA will rest on the continued demonstration of
political commitment to the negotiation's conclusion.
Mr. Chairman and Members of the Subcommittee, this concludes my
prepared statement. I will be happy to answer any questions you or
other Members may have.
CONTACTS AND ACKNOWLEDGMENTS
For future contacts regarding this testimony, please call Loren
Yager or Kim Frankena at (202) 512-4128. Individuals making key
contributions to this testimony included Anthony Moran, Jody Woods, and
Tim Wedding.
Chairman Crane. Thank you, Mr. Yager. Mr. Fisher.
STATEMENT OF THE HON. RICHARD W. FISHER, WASHINGTON, DC, AND
FORMER DEPUTY UNITED STATES TRADE REPRESENTATIVE
Mr. Fisher. Mr. Chairman, thank you for inviting me back. I
am honored to be here. As I said in my written testimony,
remember, I am a free man. I do not have to say nice things.
But I am genuinely thrilled to be here with so many wonderful
representatives and people that do the good work of discussing
the trade issues which are so vital to our economy. So I am
honored to be back. I thank you. I thank Mr. Levin and all the
Members for inviting me here.
If you just get to the bottom line here, first, trade is a
vital part of our economy. If you take imports and you add
exports to it, and divide it by GDP, you come up with 27
percent of our GDP. The way that we distribute this around the
world is heavily emphasized in our own hemisphere, and that is
why we are here today. If you look at the numbers, about 46 to
47 percent of what we sell is within our hemisphere, and 40
percent of what we buy is from within our hemisphere (which is,
by the way, the same proportion that we buy from countries
across the Pacific).
I want to touch briefly on what I call the buy side, given
my securities background, and then I want to talk about the
sell side, which is so vital.
On the buy side, as a country, we import $1.4 trillion in
goods and services every year. Imports are good. They are not
bad. They help keep down the cost of living in this country,
and if you shop at Dollar General or Wal-Mart or Kmart or
Target or any of these stores, this is how you put clothing on
the backs of your families and how you feed your families. When
we increase our imports, we enhance consumer choice. When we
cut tariffs, essentially what we do is we cut tariffs at the
border.
Let me put that in perspective, or give you numbers to put
in perspective. In the Uruguay Round we cut tariffs from 5.8 to
2.8 percent. Without the benefit of that tax cut, those tariff
cuts, our consumers would have paid last year $25.2 billion
more for their imports from countries outside of NAFTA than
they did otherwise with those cuts. When you add Canada and
Mexico to the mix, given the cuts that we negotiated through
the NAFTA, we add another $18.2 billion in tax cuts at the
border for our consumers from what they otherwise would have
paid last year. 25.2 plus 18.2 is $43.4 billion that our
consumers and our businesses saved by virtue of the tax cuts we
negotiated in NAFTA and the Uruguay Round.
Keep that in mind when you think about the potential on the
import or buy side within our hemisphere, because, again, as I
said earlier, 40 percent of what we import comes from within
the hemisphere.
Of course, you cannot sustain a political mandate for the
buy side unless you emphasize the sell side. And as I said
earlier, almost 50 percent of what we sell to the rest of the
world is right here in our hemisphere, versus 22 percent across
the Atlantic and 27 percent across the Pacific. It's important
to bear in mind that that market share is focused on two
countries. Twenty-five percent of everything we sell goes to
Canada. My favorite old saw, that Canada used to be called
``the vichyssoise of nations'' because it was cold and half-
French and difficult to stir, no longer applies. Now it is an
exciting market for us, it is the ``salsa'' of our markets. It
is an important market. We sell more to Canada than we sell to
the entire European Union.
Fifteen percent of what we sell goes to Mexico. If we
continue to grow the rate of growth of what we sell to Mexico,
(before NAFTA it was $48\1/2\ billion, last year it was $111.7
billion), in another 3 years we will sell more to Mexico than
we sell to the entire EU-15. This is a startling statistic, and
it shows that, indeed, we can find a good market even in a
country which is poorer than we are. And it is not just for
things we send to sell and then send back into the United
States. In a typical month last year we sold to Mexico $48
million in surgical equipment, Congresswoman Dunn, 250,000 tons
of soybeans, 28,000 cars, $700 million in semiconductors, and
my favorite statistic, 200,000 golf balls and 3,200 sets of
golf clubs. They are lousy golfers. But they are great
customers. This is the kind of business that we want to have in
the rest of the world.
And very importantly, along with economic success, Mexicans
now are greater advocates of democracy and of human rights. I
speak from experience. I grew up in Mexico. The old protected
autarchic Mexican economy was riddled with corruption, was a
shield for one-party control, led to suppression of individual
liberty. It is no coincidence to me that a businessman, Vicente
Fox, has been elected 7 years into NAFTA, and it shows us that,
indeed, trade does have a political effect and a democratizing
effect if we conduct the right kind of negotiation. That is the
good news.
The bad news is that south of the Yucatan, we sell less
than 8 percent of what we sell the world, and we bring in less
than 6 percent.
Congressman Crane, you asked a very good question. I know
you know the answer to the question. Which is why should we be
interested in the rest of the hemisphere if we presently sell
so little to that part of the hemisphere? I once had an
employee that worked for me, who we wanted to send to Europe to
operate an office there--and he said, ``Why should I go to
Europe? I have never been there before.'' He did not last very
long in our firm. The point is that that is precisely why we
should be talking about what they call the ALCA or what we call
the FTAA, north of the border here. And that is that there are
403 million people that we are not penetrating and selling to.
173 million of those people live in one country, in Brazil, and
if we can sell as much as we sell to Mexico with 100 million
people, we can certainly sell a great deal more than we
currently sell to the 403 million people that live south of the
Yucatan Peninsula.
I usually like to quote Henry James, who said in a
wonderful novella that ``courtship is poetry and marriage is
hard prose.'' I was lucky. In the last administration I got to
do the courtship part. Now Ambassador Zoellick and you all have
to do the hard prose. And I want to just focus on three areas
that I think you are going to have to work on very, very hard,
draw them to your attention, and then conclude my discussion.
Congressman Levin, you asked a very critical question of
Ambassador Zoellick, and that is, how do we deal with
agriculture? With regard to agriculture last week Brazil's
Agricultural Minister put the issue right up front. He said: if
the US does not lift the protectionist barriers and open its
market to Brazilian products, we are not interested in an FTAA.
And he went on to define barriers to include not just high
import tariffs, but also government subsidies to US farmers,
and as Ambassador Zoellick said, food safety measures. Some of
this bluster is certainly for negotiating purposes or for
domestic consumption, but the Argentines and the Chileans and
the Colombians and others are also eager to access our
agricultural markets. The ``easiest'' part of that is going to
be the tariff structure, which averages 12 percent on ag.
imports, but goes up to 116.4 percent on sugar, 26.4 percent on
beef and so on.
The tough part is how you all are going to square the
corner on both sides of the aisle on this matter of how we deal
with the support systems, and there we face a conundrum that
Ambassador Zoellick referred to earlier. How do we deal with
our support payment programs solely in the context of the
Americas without handcuffing our ability to deal with the EU,
who is the single biggest violator of agricultural export
subsidies? And yet, if we cannot come to grips with this
problem in our own hemisphere, then how can we expect the
Europeans to take us seriously? If we cannot come to grips in
our biggest trading area, the most important market of the
United States, how can we expect the Japanese, the Koreans and
the Europeans to take us seriously when we go to negotiate with
them on agriculture?
The second problem area in anti-dumping. Again, that came
up just now in the discussion. It is a critical area. A week
ago Chile's lead FTAA negotiator pointed out that in what they
have proposed for the FTAA, that anti-dumping has to be on the
table. She said, ``We know this is a sensitive issue, but many
countries are concerned by what we see as, quote, `arbitrary
use of anti-dumping measures in the United States.' ''
Congressman English, this is an important subject, and I
agree with Ambassador Zoellick, that we should not be shy about
exploring how our Latin brethren implement their anti-dumping
regimes. I like to remind people that in the year to June 2000,
which is the last measurement we have, Brazil and Argentina
combined filed 40 anti-dumping actions. We filed 17. The
question is: how do we cope with the causes of dumping, the
surpluses in steel, (which is about 80 percent of our anti-
dumping cases), in chemicals, in pharmaceuticals and
agricultural products and so on? And by the way, again, we face
this issue: if we cannot deal with this issue in our own
hemisphere, how do we deal with the all-time champions of anti-
dumping measures, which are the Europeans who most actively use
that tool?
I mention these aspects of ag. and anti-dumping to politely
suggest that both the Congress and the executive branch have
some soul searching to do on these critical issues, even before
we get to the very tough issue of labor and environment,
because this negotiation is not about reducing US tariffs. We
are already down to 2.8 percent tariffs, and actually less than
that in our hemisphere. What it is about is providing market
access to the United States in return for getting access to the
goods and service markets and dismantling non-tariff barrier to
our products in the rest of the hemisphere.
As to labor and environment, I think we have to be very
frank about this. It takes two to tango. It takes two to
negotiate. Trade sanctions are out. Our Latin colleagues will
not put this on the table. And in fact, we are going to have to
struggle mightily to structure any discussion of these issues,
as Ambassador Zoellick referred to earlier, so as not to appear
protectionist. I think it is possible to construct an
architecture of limited monetary assessments applied to the
failure to enforce existing laws in the signatory countries,
but only where their alleged enforcement failure has a
demonstrable trade effect. I doubt you are going to get much
more than that, based on my experience in negotiating the
courtship phase of this effort within the hemisphere.
Let me just conclude by saying that, first of all, we know
that as far as the economy is concerned, we can benefit by
structuring a proper agreement. We also know that democracy is
sputtering in several countries, in Venezuela, in Ecuador, in
Nicaragua, Guatemala. We know the problems of Colombia as
discussed earlier, and in Peru. We know that Argentina is under
economic duress. And we know that Brazil and the entire
hemisphere is worried about the status of the financial
markets. I have a question, which is: how can denying these
countries greater access to our markets, coupled with the
disciplines that we would negotiate--the rules and efficiencies
and so on, that we would insist be embodied in FTAA along with
a pledge that we limit its benefits to democracies--help them
overcome their problems if we deny them access to our country?
And if we are not willing to think on that plane, thinking
purely selfishly, this is a big market and expanding it is good
for us. We know again from NAFTA that we can conduct freer
trade with a poor country and expand jobs on both sides of the
border.
There is one other aspect that I think is very critical
that I rarely hear people talk about in trade discussions,
which is the financial dimension. Our stock and bond markets
are under severe duress. The debt markets in the world are
under severe duress. This is not a Wall Street issue, by the
way. 88 million Americans and 50 million households now own
mutual funds, and in fact, all told households now have over
$12 trillion invested directly in corporate securities. So do
the trustees of corporate pension funds and of Taft-Hartley
moneys. And it strikes me that we send an absolutely negative
signal to the financial markets if we tell the world that we
are unable to muster the wherewithal within this country to
press the envelope on trade. In fact, we should use government
for what is useful here, and that is to engineer a constructive
international agreement to pry open new markets. If we do not
have new markets, we cannot have more sales. If we do not have
more sales, we cannot have more workers, we cannot have greater
profits, we cannot secure the retirement system that so many
millions of our citizens now individually oversee.
So I thank you very much for having me here. I am happy to
answer any questions. I submitted a longer text for the written
record. I am honored to be here. Thank you very much.
[The prepared statement of Mr. Fisher follows:]
Statement of the Hon. Richard W. Fisher, Washington, DC, and Former
Deputy United States Trade Representative
Chairman Crane, Congressman Levin, members of the Committee, it is
a pleasure and an honor for me to be invited back into this Committee
Room today.
There are some things that one does not miss about serving as
Deputy USTR. There are others that one treasures. I actually miss
working with the Trade Subcommittee. Mr. Chairman, you and I worked
very closely together on so many issues in the last Administration and
almost always saw eye-to-eye, despite being from different parties. And
Congressman Levin, you have been a faithful and constant reminder for
all of us that it is important to view trade as a means to an end--
that, as the preamble to the GATT says, the purpose of trade
liberalization is to ``raise standards of living, ensure full
employment, and develop the full use of resources of the world.''
Gentlemen, remember I am a free man. Which means I don't have to say
nice things about you as a matter of course. So when I say it, I mean
it: the members of this Committee do great service to our country with
your leadership roles in trade and, as an ordinary citizen, I thank you
for it.
AN FTAA MAKES SENSE
Let me get to the point about Quebec and the Summit of the
Americas: the United States needs to press the envelope of trade
liberalization in this hemisphere.
On the sell side, our hemisphere is already the largest market for
our exports, yet we are far from realizing our potential sales to our
Latin and Caribbean neighbors.
On the buy side, we can do more to provide market access to
countries to the south and east of the Yucatan Peninsula.
Increased two-way trade flows and the enhanced investment in the
region that will surely follow will bolster those economies and
undergird democracy, reduce poverty and enhance the rule of law,
improve human rights and encourage greater respect for the hemisphere's
ecosystem. We would be fools to let pass the opportunity for a Free
Trade Area of the Americas. It is both in our economic and our
strategic interest to make this happen.
It is also in the interest of our Latin and Caribbean neighbors.
For all of them conduct the majority of their trade within the
hemisphere. And each covets access to our market, the Big Enchilada
Economy, just as we covet access to the 400 million people that live in
their markets. Colombia, for example, which sells 50% of its exports to
the United States, has an obvious interest in lowering the cost of
doing business here. Brazil, on the other hand, sells just 19% of her
exports to the U.S.; she has a natural interest in expanding her market
share here.
The idea of a barrier free market for the entire hemisphere was
originally a Latin conception: Simon Bolivar, the Great Liberator, was
the first to champion the cause. Mexico's first native-born leader,
Benito Juarez, proposed a similar initiative in the 1860's. Here in the
North, Secretary of State James Blaine tried to promote the concept in
1906, Franklin Roosevelt spoke about it in the first days of his
presidency in 1933, and it has since been praised in concept by leaders
of both parties from Jack Kennedy to the first President Bush.
But until recently it was never taken beyond the world of oratory
and conceptual discussion.
President Clinton formally initiated the process of turning this
from an academic vision into reality at the 1994 Summit of the Americas
in Miami. The Clinton Administration further advanced the ball at a
subsequent summit in Santiago in 1998. But, truth be told, in the
second half of the Clinton Administration, I was the highest-level
voice actively campaigning for a Free Trade Area of the Americas, from
my lowly perch as Deputy U.S. Trade Representative.
Now, we once again have a President as advocate-in-chief. In
Quebec, Mr. Bush picked up the FTAA baton with impressive vigor. He
declared point blank ``the time has come to achieve a Free Trade Area
of the Americas.'' He pledged to ``put forward a set of principles that
will be the framework for more intensive consultations with Congress,''
some of which is already taking place. And he added that he was
``committed to attaining trade promotion authority before the end of
the year,'' in order to make concluding an FTAA possible.
This is good news. As the former managing partner of the Texas
Rangers baseball team might say, the FTAA has moved up from the minor
leagues to the ``bigs.'' Question is: can we channel this new found
enthusiasm to hit the ball out of the park, or will we strike out at
the plate?
I am an unabashed fan of the FTAA. I urge you to aggressively
pursue those ``intensive consultations'' with the Administration and
get on with it. Let me tell you why.
TRADE IS VITAL TO OUR ECONOMY
Trade is a driving force for our economy. In fact, the United
States is more internationally exposed than any other major economy or
trading bloc. External trade in goods and services accounts for 27% of
our GDP. That's greater than Japan at 19% and it's slightly more than
the external trade of the EU 15's collective GDP. We depend on it for
an affordable cost of living, for job creation, for the corporate
profits that secure the value of retirement investments, for our
economic vitality.
THE BUY SIDE
On the buy side, U.S. businesses who seek cheaper material inputs
and people who shop for bargains at Target, Wal-Mart, Dollar General,
K-Mart and other such vendors have benefited from trade liberalization,
just as foreign consumers have benefited from having better access to
U.S. made goods and services. We use $1.4 trillion in yearly imports to
lower the cost of living for our people and to increase choice and
purchasing power for consumers and employers.
When we increase others' market access to our economy, we enhance
consumer choice. When we cut tariffs on imports, we effectively cut
taxes on consumption. A tariff cut is a tax cut at the border. In the
Uruguay Round, for example, we dropped the average tariff on imports
into the U.S. from 5.8% to 2.8%. Last year we imported $840 billion
from countries other than our NAFTA partners. Without the Uruguay round
tariff cuts, our consumers would have paid $25.2 billion more for those
imports than they ended up paying. When you add Canada and Mexico to
the mix, we added another $18.2 billion in tax cuts at the border for
our consumers from what they would otherwise have paid last year had we
not negotiated the tariff cuts of NAFTA. Twenty five point two billion
plus 18.2 billion equals $43.4 billion in tax cuts at the border last
year alone. This is real money, even in a $10 trillion economy. The
point is: by broadening choice and reducing the tax we impose on our
citizen's consumption of imported goods, we lower the cost of living
and raise the living standards of the American people.
Forty percent of what we import comes from the Americas, about the
same volume as we import from Asia. So further liberalization of
tariffs and non-tariff barriers to imports from Latin America will
accrue great benefits to the American consumer and businesses.
THE SELL SIDE: LOOK AT NAFTA
On the sell side, almost 50% of what we export to the world is sold
within our hemisphere. We sell more to Canada than we sell to the
entire European Union. At the rate of expansion we have experienced in
the six years since NAFTA was completed, our exports to Mexico will
surpass those to Europe in another three years. In fact, we sell almost
as much to just Canada and Mexico alone--almost $300 billion a year--as
Japan sells to the entire world.
From our experience with the NAFTA, we know that free-trade
agreements work to our advantage. NAFTA has been a home run for U.S.
exporters. Since that agreement was inaugurated, our exports of goods
to the world outside of our NAFTA partners have increased 52%, which
isn't too shabby. But our exports to Canada have increased by 78% and
our sales to Mexico are up 169%. Before NAFTA, we sold $41.6 billion to
Mexico; last year we sold Mexico $112 billion in U.S. made goods. And
this is not just stuff that they sew with cheap Mexican labor and send
back across the border. In a typical month last year we sold Mexicans
$48 million in surgical equipment, 28,000 cars and trucks, $700 million
in semi-conductors, 250,000 tons of soybeans, and, my favorite
statistic, 200,000 golf balls and 3,200 sets of clubs. They may be
lousy golfers, but they are great customers, thanks to NAFTA.
IMPORTANT ANCILLARY EFFECTS
Importantly, with their economic success, Mexicans now are greater
advocates of democracy and human rights. I grew up in Mexico. The old,
protected, autarchic Mexican economy was a shield for one-party
control, for massive corruption, dramatic concentration of wealth, and
the suppression of individual liberty. It is no coincidence to me that
Vicente Fox, a businessman, became the first truly democratically-
elected president in Mexican history seven years after NAFTA. To be
sure, Mexico is far from being a perfect place. But it is a lot further
along the spectrum of raising standards of living, ensuring full
employment, and developing the full use of its resources and the human
potential of its people because of the expanded production and exchange
of goods on both sides of the border.
NOW, FOR THE REST OF THE AMERICAS
That's the good news. The bad news is that while we have done
brilliantly in NAFTA, we have under-performed in the rest of the
hemisphere. We sell less than 8% of our exports south of the Yucatan,
Mexico's southern border. We have under-penetrated the vast Latin
American and Caribbean markets, home to 403 million people. And we buy
less than 6% of our imports from those very same countries.
Therein lies the raw economics of a trade deal. We have the
potential to sell more to them, and they to us. And generating more
trade within the hemisphere will help improve the rule of law and
strengthen the potential of representative democracy in an area where,
in too many countries, these core values are at risk.
We now need to replicate Mexico's success in the rest of the
Americas. This is what Quebec and the FTAA are all about.
HARD PROSE IN THREE AREAS
In one of his charming novellas, the great writer Henry James wrote
that, ``courtship is poetry, and marriage is hard prose.'' The FTAA
team I headed in the last administration advanced the courtship phase
all the way to the drafting of a prenuptial agreement, which was
completed just weeks ago in Buenos Aires and will soon be released to
the public. In Quebec, President Bush reaffirmed the marriage proposal.
He will get down the aisle and to the altar of a free trade agreement
only if his counterparts in the Hemisphere and here at home in this
Congress are willing to say, ``I do.''
It won't be easy for them or for you to do so. There are three
areas that will be hard to crack, where the prose will be very hard,
indeed. The first is agriculture. The second involves trade remedies
and anti-dumping. The third is the vexing question of whether it is
appropriate to include provisions of one form or another to protect
workers rights or enhance environmental protection.
AGRICULTURE
With regard to agriculture, last week Brazil's Agriculture Minister
put the issue right up front. He said, ``If the U.S. doesn't lift its
protectionist barriers and open its market to Brazilian products, we
aren't interested'' in the FTAA. He went on to define ``barriers'' to
include not just high import tariffs, but also government subsidies to
U.S. farmers and food safety measures. Some of Brazil's bluster here is
undoubtedly for domestic consumption and for negotiating purposes. But
the Argentines, Chileans and Columbians are also eager to access our
agriculture markets and to somehow overcome our powerful farm support
systems, which means to accomplish an FTAA, we will have to be prepared
to put agriculture on the table.
The ``easiest'' part will be negotiating reductions in agricultural
tariffs, which currently range up to 116.4% for sugar and 26.4% for
beef, with an average 12% overall. Grappling with our support payments
will be more difficult. Here we face a conundrum: how can we deal with
our support payment programs solely in the context of the Americas
without handcuffing our ability to compete with the EU? And yet, if we
can't come to grips with this problem in our own hemisphere, and thus
cannot accomplish a true free trade agreement in our biggest market
trading area--in our very own back yard--how can the rest of the world
expect us to deliver what's necessary to launch a global round which
includes agriculture? Congress is going to have to work mighty hard to
get over this agricultural obstacle.
ANTI-DUMPING
On the trade remedy front, our anti-dumping regime is under
constant attack from our Latin colleagues. A week ago, Chile's lead
FTAA negotiator pointed out that in Chile's free trade agreement with
Canada, the parties renounced the application of anti-dumping measures.
``That,'' she said, ``is what we [Chile] have proposed for the FTAA . .
. We know this is a sensitive issue, but many countries are concerned
by what we see as arbitrary use of anti-dumping mechanisms in the
U.S.''
In the last Administration, we forbade our negotiators from even
discussing anti-dumping. Our line was that we and our trading partners
were just perfecting the implementation of the new anti-dumping regime
agreed to in the Uruguay Round and that until we had that in place and
had tested its efficacy, we shouldn't delve into the subject. I don't
think that will work here.
Indeed, I think we should consider taking advantage of this
opportunity to put this topic front and center and explore just how our
Latin brethren implement their anti-dumping regimes. How transparent
and/or ``arbitrary'' are they? How do they really work? Why is it that
in 1999, Brazil and Argentina together filed 40 anti-dumping actions
while we filed only 17? What is the real cause for concern here: is it
within the hemisphere or across the Pacific Ocean? How might we cope
with the causes of dumping--the surpluses in steel, chemicals,
pharmaceuticals, and certain agricultural products--as partners with a
common cause, rather than as adversaries?
It is important to remember that in Seattle, we were told by the EU
that if we were not willing to put our anti-dumping regime on the
table, there could be no global trade round. This was despite the fact
that the Europeans are the all-time champions of anti-dumping. (In the
year to June of 2000, the EU led the world with 49 new anti-dumping
investigations). Again, I ask: if we can't deal with this
constructively within our own hemisphere and form a common front within
our biggest trading area, how can we expect to deal with the Europeans,
the Japanese, the Chinese and the rest of the world on anti-dumping?
I mention these aspects of the FTAA to politely suggest that the
Congress and the Executive branch has some soul searching to do even
before debating the merits of so-called ``labor and environment''
issues.
This negotiation is not about reducing U.S. tariffs, though we have
some chips to play with in our agriculture tariff structure. When you
factor in various trade preferences we extend, the average U.S. applied
tariff on imports from the region is well south of 2.8%. On the other
hand, the tariff applied to our exports to Peru is 20%. Brazil slaps on
a 17% tariff; Colombia, 12%; and Chile, 8%, and Argentina is flopping
all over the map as it undergoes Minister Cavallo's exorcism of
economic demons. The trade-off here--the gist of an FTAA--calls for
these countries to remove both these high tariffs and non-tariff
barriers to our exports of goods and services, in return for our
removing our non-tariff barriers and providing better market access to
their goods. Boiled down to its essence, that is the deal in the minds
of the Latins. If we are not able to muster a consensus here for
providing greater market access to our friends in the hemisphere, then
there will be no deal.
LABOR AND ENVIRONMENT
As to ``labor and environment,'' let's be blunt. It takes two to
tango, as it does to do a trade deal, and we cannot get our Latin
partners on to the dance floor if we lead with two left feet (or, for
that matter, with two right feet). Trade sanctions are out. In fact, we
will have to struggle mightily to structure any discussion of these
issues so as not to appear protectionist. I know that Ambassador
Zoellick and others are working hard to find a workable formulation on
these issues and I wish them luck. It may be possible to construct an
architecture of limited monetary assessments applied only to the
failure to enforce existing laws in the signatory countries and only
where the alleged enforcement failure has a demonstrable trade effect.
I doubt you will get much more than that.
You will have to decide if this is sufficient. Once more I ask you
to bear in mind the message we are sending here to the rest of world:
if we cannot resolve this issue in our own neighborhood, how do we
expect to resolve this with the rest of the world, who are equally, if
not more vehemently, convinced that these are merely protectionist
foils?
CONCLUSION
Latin America is at a tender juncture in history. So is our
economy, as are the global financial markets. I view expanded trade in
the hemisphere as a vehicle for reducing risks on all three fronts.
Democracy is sputtering in Venezuela, Colombia, Peru, Paraguay,
Ecuador, Haiti, Nicaragua, and Guatemala. Argentina is under economic
duress that threatens the financial markets not only of its neighbor,
Brazil, but the entire hemisphere, including the U.S. and global debt
markets.
Question: how would denying these countries greater access to the
U.S. market (coupled with the discipline of the rules and efficiencies
we would insist be embodied in an FTAA, including limiting its benefits
to democracies), help them overcome their problems? Why would we want
to add to those problems rather than provide some measure of relief and
incentive and hope?
If our neighbors' problems are insufficient motivation for an FTAA,
then we should examine the selfish arguments for the home team. On our
side of the border, we know that exports plus imports divided by GDP is
27%. In the USA, trade exerts a big influence on consumption,
employment and profits. Our long economic expansion is running out of
wind. Unemployment is rising. We know that exports mean more jobs. We
know that cheaper imports hold down the cost of living. We know from
NAFTA that we can conduct freer trade with a poorer country and both
come out winners with job creation on both sides of the border. We know
we exchange too little trade with countries to the south and east of
Mexico and would profit from more.
The financial dimension is less clear, but none-the-less important.
Our stock and bond markets are under severe pressure. The financial
markets are no longer the exclusive purview of Wall Street; they are
the preoccupation of Main Street. Eighty-eight million Americans in 50
million households--let me repeat that--88 million Americans in 50
million households--own mutual funds for retirement and investment
purposes. All told, households have over $12 trillion invested, either
through mutual funds or directly, in corporate securities. They are
feeling a little insecure right now. So are the trustees of corporate
pension funds and of Taft-Hartley monies. Underpinning the value of the
securities that represent our citizens' retirement monies and financial
well-being is the health of the companies that issue those securities.
Those companies can't grow profits for shareholders or meet interest
payments or hire more workers unless they increase sales. They can't
grow their sales unless they grow their markets. And it is a heck of a
lot easier for them to grow their markets if we can engineer
constructive international agreements that pry open new ones for them.
I am interested in engineering an FTAA that will pry open a market
of 400 plus million people in our own backyard. This is the dream we
started working on seven years ago at the Miami Summit. It is the
promise of what came out of Quebec.
Thank you for the opportunity to offer my two cents. I am happy to
answer any questions.
Chairman Crane. Thank you, Mr. Fisher. Mr. Sweeney.
STATEMENT OF JOHN J. SWEENEY, PRESIDENT, AMERICA FEDERATION OF
LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
Mr. Sweeney. Thank you very much, Mr. Chairman, members of
the Committee. I am happy to have the opportunity to speak to
you today on behalf of the 13 million working men and women of
the AFL-CIO about the prospects for new trade agreements in the
Western Hemisphere, particularly the proposed Free Trade Area
of the Americas and the possible extension of the Andean Trade
Preference Act.
The FTAA has been under negotiation since 1998. During that
time business leaders have met annually with the trade
negotiators to present their views and make recommendations.
Business input has shaped both the negotiation process and the
content of the agreement so far. Labor and environmental
leaders from all over the hemisphere, as well as
representatives of family farm, human rights, women's and
development organizations have also met regularly with each
other during this period, to exchange views, discuss
alternative models for social and economic integration, and
communicate with the FTAA negotiators.
Unlike the business advocates, however, the views of
broadly representative civil society organizations appear to
have had no impact whatsoever on the course of FTAA
negotiations. Labor and environmental concerns are completely
absent from negotiations so far, and the investment and
services provisions appear to be based on the flawed NAFTA
model. Finally, the draft text has still not been made public
despite requests from hundreds of civil society organizations
in Latin America, the Caribbean and North America.
And yet the FTAA, if implemented, will have a profound
impact on the lives of everyone in this region and beyond. A
Free Trade Area of the Americas will affect the terms of
competition between businesses, but also between governments
angling to attract foreign investment or localities struggling
to keep jobs in their communities. And it will, of course,
affect the daily lives of workers and farmers struggling to
earn a living, often under very harsh conditions, all over the
hemisphere.
In short, if it continues along its current path, the
proposed FTAA will dramatically shift the balance of bargaining
power in this hemisphere, further protecting and strengthening
corporate rights, while leaving workers, environmental
advocates, human rights champions, and national governments,
with less leverage and less clout. Like NAFTA, this particular
model of regional economic integration will lead to growing
income inequality, environmental degradation and erosion of
workers' rights.
That is why workers and trade unions throughout the western
hemisphere are united in rejecting the current FTAA. At its
recent Congress in Washington, D.C., the Inter-American
Organization of Workers, known as ORIT, called for any
hemispheric agreement to include a social dimension, including
enforceable core workers' right, protections for the rights of
migrant workers, debt relief, guarantees that public health
concerns will take precedence over trade rules, and a truly
transparent, inclusive and democratic process, both for the
negotiation of the FTAA and for the implementation of any
regional agreement.
The failure to negotiate meaningful and enforceable
workers' rights protections in the FTAA would represent a giant
step backward for workers in the hemisphere. Currently some
workers' rights protections are included in US trade laws that
affect the hemisphere, including GSP, the Caribbean Basin Trade
Partnership Act, and the Andean Trade Preference Act. While we
believe these provisions should be strengthened and improved,
they have nonetheless provided some avenues for improving labor
laws and enforcement in the hemisphere. This minimum degree of
economic leverage will be lost if the FTAA moves forward
without any protections for workers' rights at all.
Workers rights are under attack in many countries in our
hemisphere, including our own. We need to use the leverage of
new trade agreements to strengthen and improve workers' rights
protections, not gut them, as the architects of the FTAA
propose.
The success or failure of the FTAA or an extension of the
ATPA will hinge on governments' willingness and ability to
develop an agreement that appropriately addresses all of the
social, economic and political dimensions of trade and
investment, not just those of concern to corporations. Failure
to address these concerns will produce an agreement that is
resoundingly rejected by the people and parliaments of this
hemisphere, and that produces disastrous economic results for
working people from Alaska to Argentina.
I look forward to your questions and working with you on
these important issues.
[The prepared statement of Mr. Sweeney follows:]
Statement of John J. Sweeny, President, American Federation of Labor
and Congress of Industrial Organizations
Mr. Chairman, members of the Committee, I thank you for the
opportunity to speak to you today on behalf of the thirteen
million working men and women of the AFL-CIO about the
prospects for new trade agreements in the western hemisphere,
particularly the proposed Free Trade Area of the Americas
(FTAA) and the possible extension of the Andean Trade
Preference Act (ATPA).
The FTAA has been under discussion since 1994, with formal
negotiations beginning in 1998. During that time, business
leaders have met annually with the trade negotiators to present
their views and make recommendations on the content of the
agreement. Business input has shaped both the negotiation
process and the content of the agreement so far.
Labor and environmental leaders from all over the
hemisphere, as well as representatives of family farm,
indigenous, human rights, women's and development
organizations, have also met regularly with each other during
this period to exchange views, discuss alternative models for
social and economic integration, and communicate with the FTAA
negotiators.
Unlike the business advocates, however, the views of
broadly representative civil society organizations appear to
have had no impact whatsoever on the course of FTAA
negotiations. None of the nine FTAA negotiating groups is
charged with negotiating labor and environmental protections,
and none of the groups has even agreed to discuss how to
incorporate workers' rights or environmental standards into the
FTAA. The modest U.S. proposal for a study group on workers'
rights was rejected by the other governments last year. The
investment and services provisions of the FTAA appear to be
modeled on the North American Free Trade Agreement (NAFTA),
which has utterly failed to deliver the promised benefits to
working people in the three North American countries. And,
finally, the draft text has still not been made public, despite
requests from hundreds of civil society organizations in Latin
America, the Caribbean, and North America.
And yet the FTAA, if implemented, will have a profound
impact on the lives of everyone in this region, and beyond. A
Free Trade Area of the Americas will affect the terms of
competition between businesses, but also between governments
angling to attract foreign investment, or localities struggling
to keep jobs in their communities. It will affect the criteria
national governments may or may not set to determine who is
eligible to bid for government contracts, and it will affect
the balance between public provision of essential services and
private-sector competition in these areas. And it will, of
course, affect the daily lives of workers and farmers
struggling to earn a living, often under very harsh conditions,
all over the hemisphere.
In short, if it continues along its current path, the
proposed FTAA will dramatically shift the balance of bargaining
power in this hemisphere, further protecting and strengthening
corporate rights, while leaving workers, environmental
advocates, human rights champions, and national governments
with less leverage and less clout. Like NAFTA, this particular
model of regional economic integration will lead to growing
income inequality, environmental degradation, and erosion of
workers' rights.
That is why workers and trade unions throughout the western
hemisphere are united in calling the current FTAA a failed
model of trade and development policy. At its recent Congress
in Washington, D.C., in April, the Inter-American Organization
of Workers (known by its Spanish acronym, ORIT) unanimously
rejected the current FTAA. ORIT, which includes the AFL-CIO,
along with unions representing more than 45 million workers in
the western hemisphere, called for any hemispheric agreement to
include a social dimension, including the following elements:
Enforceable protection of the core workers' rights
identified by the International Labor Organization's 1998
Declaration on Fundamental Principles and Rights at Work:
freedom of association, the right to organize and bargain
collectively, and the right to be free from child labor, forced
labor, and discrimination in employment;
Protection under national law and international
treaty obligations for the rights of migrant workers throughout
the hemisphere, regardless of their legal status;
Measures to ensure that countries retain the
ability to regulate the flow of speculative capital;
Debt relief;
Compliance with World Health Organization
guidelines, which say that public health should be paramount in
trade disputes;
Equitable and transparent market access rules that
allow for effective protection against import surges; and
A truly transparent, inclusive, and democratic
process, both for the negotiation of the FTAA and for the
implementation of any regional agreement.
In addition, if there are to be hemispheric negotiations on
investment, services, government procurement, and intellectual
property rights, ORIT and the AFL-CIO are united in insisting
that any agreement must not undermine the ability of
governments to enact and enforce legitimate regulations in the
public interest:
Investment rules should not discipline so-called
indirect expropriations, should rely on government-to-
government rather than investor-to-state dispute resolution,
and should preserve the ability of governments to regulate
corporate behavior to protect the economic, social, and health
and safety interests of their citizens;
Services rules must be negotiated sector by sector
and must not undercut government provision or regulation of
services in the public interest;
Government procurement rules must give governments
scope to serve important public policy aims such as
environmental protection, economic development and social
justice, and respect for human and workers' rights; and
Intellectual property provisions must allow
governments to limit patent protection in order to protect
public health and safety, especially patents on life-saving
medicines and life forms.
The failure to negotiate meaningful and enforceable
workers' rights protections in the FTAA would represent a giant
step backwards for workers in this hemisphere. Currently, some
workers' rights protections are included in U.S. trade laws
that affect the hemisphere: the Generalized System of
Preferences (GSP), which grants additional trade benefits to
developing countries, the Caribbean Basin Trade Preference Act
(CBTPA), which grants some NAFTA benefits to the Caribbean and
Central American countries; and the Andean Trade Preference Act
(ATPA), which grants benefits to Colombia, Peru, Bolivia, and
Ecuador. While the precise formulation varies, all of these
agreements provide for the withdrawal of trade benefits from
countries that are not at least ``taking steps'' to afford
internationally recognized workers' rights.
The AFL-CIO has called for the strengthening of these
provisions and for more consistent and transparent enforcement.
Despite the room for improvement, however, these trade-related
workers' rights protections have been responsible for improving
labor laws in some countries and for enhancing enforcement in
others. In many cases, the threat of withdrawing benefits has
been sufficient to motivate compliance, and no trade sanctions
were actually applied.
The Dominican Republic, for example, reformed its labor
code to meet ILO standards in 1992 in response to a workers'
rights petition filed by Human Rights Watch. After the filing
of an additional petition in 1993 by the AFL-CIO (when the
government had failed to enforce the new code), the government
took concrete action against an apparel company accused of
numerous illegal anti-union actions. As a result of the
improved labor code and improved enforcement efforts, workers
were eventually able to win their first collective bargaining
contract in the history of Dominican free trade zones. After
this breakthrough, three other collective bargaining agreements
were signed in the zones before the end of the year, according
to USTR GSP documents and a Labor Department report. Because of
these GSP petitions, there are now independent unions in the
Dominican free trade zones where there were none before.
The threat of losing GSP privileges has also motivated
labor law improvements in El Salvador. After the AFL-CIO filed
several GSP workers' rights petitions in the early 1990s, El
Salvador accepted ILO assistance to draft a labor code that
conforms more closely to international standards on freedom of
association and the right to organize and bargain collectively.
This minimum degree of economic leverage will be lost if
the FTAA moves forward without any protections for workers'
rights at all. Workers' rights are under attack in many
countries in our hemisphere, including our own.
Over 1,500 union members and leaders have been murdered in
Colombia since 1991--35 more this year alone--with no effective
action by the government to identify and hold responsible the
perpetrators. An ILO investigative mission, which visited
Colombia in February 2000, reported that: ``Cases where the
instigators and perpetrators of the murders of trade union
leaders are identified are practically nonexistent, as is the
handing down of guilty verdicts.''
This very grave situation in Colombia clearly deserves both
attention and resources. We do not believe that simply
extending the ATPA will eliminate these egregious abuses. We
believe any new ATPA legislation must ensure effective
prosecution of persons responsible for physical attacks and
other illegal acts perpetrated against trade unionists and
others seeking to exercise their rights to freedom of
association and assembly. We support appropriations for
technical assistance through the International Labor
Organization (ILO), to bring labor laws and enforcement into
compliance with ILO standards, especially in the areas of
freedom of association and collective bargaining. And any
extension of ATPA must provide for regular reporting to
Congress on progress in these areas, with the elimination of
benefits for cases of persistent and serious non-compliance.
We need to use the leverage of new trade agreements to
strengthen and improve workers' rights protections, not gut
them, as the architects of the FTAA propose.
Some people have expressed concerns that such workers'
rights provisions would constitute disguised protectionism and
become an excuse for closing markets and denying the benefits
of trade to poorer countries. Nothing could be more wrong.
First, the record shows that the AFL-CIO has consistently
used existing workers' rights provisions (in GSP and other
trade laws) to support the struggles of workers in developing
countries and not to protect American jobs.
Second, the trade unions of the hemisphere are united in
insisting that enforceable workers' rights be included in any
hemispheric trade agreement. The absence of such protections,
Latin American trade unionists have found, allows--and even
encourages--governments to compete for scarce foreign
investment by overtly or implicitly agreeing to keep wages
artificially low by repressing independent trade unions. This
repression may start with union organizers, but inevitably
spreads to include repression of free speech and assembly.
Respecting freedom of association is absolutely essential
to building a vibrant democracy, and allowing workers to
bargain fairly with employers and to raise their voices
effectively in the political process is absolutely essential to
building a strong middle class.
The charge of protectionism is invariably applied to labor and
environmental standards, but not to corporate concerns like market
access or intellectual property rights. The plain fact is that
withdrawing trade benefits is the most effective way of enforcing
provisions of a trade agreement. This is the method now used under
NAFTA, the World Trade Organization (WTO), and other U.S. trade laws.
So the charge that protecting labor standards through trade measures is
somehow uniquely protectionist rings false.
An acceptable hemispheric agreement must not simply replicate the
failed trade policies of the past, but must incorporate what we have
learned about the problems and weaknesses of the current rules. The
success or failure of any hemispheric trade and investment agreement
will hinge on governments' willingness and ability to develop an
integration agreement that appropriately addresses all of the social,
economic, and political dimensions of trade and investment, not just
those of concern to corporations.
Failure to address these concerns will produce an agreement that is
resoundingly rejected by the people and parliaments of this hemisphere
and that produces disastrous economic results for working people from
Alaska to Argentina.
Any discussion about granting fast track negotiating authority must
first address these important issues. Before we send our negotiators
into four more years of negotiations toward the FTAA, we should have an
open domestic debate about how best to protect the interests of workers
and the environment in the context of new trade agreements.
We believe that any fast track legislation must require the
inclusion of enforceable workers' rights and environmental standards in
the core of all new trade agreements. New trade agreements must ensure
that all workers can freely exercise their fundamental rights and
require governments to respect and promote the core labor standards
laid out by the ILO. Workers' rights and environmental standards must
be covered by the same dispute resolution and enforcement provisions as
the rest of the agreement, and these provisions must provide
economically meaningful remedies for violations. An agreement that does
not meet these principles must not be considered under Fast Track
procedures. Monetary fines modeled on the NAFTA labor side agreement or
the Canada-Chile agreement are inadequate and have proven an
ineffective means of enforcement.
It is not sufficient simply to revise the list of negotiating
objectives to include workers' rights and environmental protections.
Workers' rights have been among our negotiating objectives for more
than 25 years, with very little progress being made.
Congress must also ensure that ordinary citizens have access to
negotiating texts on a timely basis, and that negotiators are
accountable to both Congress and the public as to whether mandatory
negotiating targets are being met.
Trade agreements must not undermine public services or public
health, nor allow individual investors to challenge state laws in
secret. Trade authority must delineate responsibilities for investors,
not just rights, and must not require privatization and deregulation as
a condition of market access.
Trade negotiating authority must also instruct U.S. negotiators
that a top priority is to defend and strengthen U.S. trade laws. Fast-
tracked trade agreements must not prevent governments from implementing
national policies to promote a strong manufacturing sector.
I look forward to your questions and to working with you on these
important issues in the months to come.
Chairman Crane. Thank you, Mr. Sweeney. Mr. Vargo.
STATEMENT OF FRANKLIN J. VARGO, VICE PRESIDENT, INTERNATIONAL
ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS
Mr. Vargo. Thank you very much, Mr. Chairman, and let me
say it is a great honor to be on the same panel with and to
follow Mr. John Sweeney, who is truly a great American.
The National Association of Manufacturers has the Free
Trade Area of the Americas as its very top trade priority. It
is extremely important to American manufacturing and to
American manufacturing workers that the FTAA proceed forward.
It is also important to raising living standards throughout the
hemisphere, and contributing toward democracy.
Now, Latin America is one of two areas of the world that
still has the highest trade barriers, the other being Southeast
Asia. Despite this, we already export 60 billion a year to
Central and South America. That is four times what we export to
China. But with the removal of trade barriers in the
hemisphere, our projection is that that 60 billion of exports
today, within the decade will more than triple, to $200
billion. It will be subject to the NAFTA effect, and if you
look at what has happened to our exports to NAFTA, for example,
Exhibit 3 in my prepared statement has a graph showing that our
exports to Mexico and our exports to Central and South America,
up until 1994, moved very closely together. They were almost
identical. But in the years since NAFTA started, we now export
twice as much to Mexico, twice as much as we do to all of
Central and South America. We want that same effect to apply
throughout the hemisphere.
Now, the United States is already a very open market.
Perhaps, though the Committee is very well informed, you may
not be aware of just how open we are. Last year, average US
tariffs were 1.6 percent. 1.6 percent is not a trade barrier,
it is a speed bump. Two-thirds of all of our imports came in
absolutely duty free. Now, in Central and South America,
American exporters face duties that average in major markets 14
percent or more, and it is not uncommon for American
manufacturers to face duties of 20 to 30 percent, and on top of
that, we have standards barriers and other barriers. These have
to come down.
Now, the matter is urgent because we are not the only ones
who are talking about negotiating or actually negotiating with
Central and South America. So are the Europeans. And if the
Europeans manage to get duty-free access to these markets while
we still have to pay those 20 and 30 percent duties, that is
going to shut a lot of exports out and put a lot of our present
$60 billion at risk.
Now, NAM had a delegation in South America, in Chile, and
we went to Buenos Aires to talk with other business communities
and the American Business Forum. And we believe the FTAA is
very feasible to negotiate. We also believe it is feasible to
negotiate quickly a trade agreement with Chile, and we say why
should we wait until 2005 if Chile is ready to open up its
market now?
But another thing was very clear, Mr. Chairman, and that is
that both the Latin American business communities and the
governments, without trade promotion authority, these
negotiations are not going to go forward, no TPA, no
negotiations, and we will be stuck with the status quo, and we
will lose under the status quo. The time has come to stop
negotiating with ourselves and start negotiating with our
trading partners, because the cost of inaction is about to get
very high. It would be very ironic if we were to continue to
debate labor rights in other countries, while thousands of
American workers lost their jobs if our foreign competitors
were able to cut trade deals with Central and South America
while we were not, and we lost those exports.
Now, we are prepared to view labor and environmental
concerns in a very flexible manner. We support good labor and
environmental practices. We oppose trade sanctions. But if the
objective is genuine concern for labor and environmental
standards, we believe there are positive steps that reasonable
people could agree on and move forward on, and we are ready to
look at alternatives, and we are ready to look for creative
solutions.
But if we do not negotiate the FTAA, and if we keep the
status quo, we lose. You know, keeping our 1.6 percent duties
and allowing them to keep their 20 to 30 percent duties, and
letting the EU into South America duty free, is not a winning
solution for American manufacturers or for America's factory
workers.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Vargo follows:]
Statement of Franklin J. Vargo, Vice President, International Economic
Affairs, National Association of Manufacturers
Mr. Chairman and Members of the Committee:
I am pleased to be here this afternoon on behalf of the National
Association of Manufacturers in this important discussion of the
outcome of the Quebec Summit of the Americas and the prospects for free
trade in the hemisphere. The National Association of Manufacturers
represents 14,000 American firms producing about 80 percent of all U.S.
manufacturing output. Manufacturing comprises approximately one-fifth
of all the goods and services produced by the U.S. economy, and
directly supports 56 million Americans--the 18 million American men and
women who make things in America and their families.
Trade is of great importance to the NAM, for almost nine out of
every ten dollars of U.S. merchandise exports are manufactured goods.
Last year, U.S. exports of manufactured goods were $690 billion, 88
percent of total U.S. merchandise exports. The $52 billion of
agricultural goods exported last year accounted for 7 percent of U.S.
merchandise exports, and mining and all other industries accounted for
the remaining 5 percent. Similarly, manufactured goods dominate our
imports, where last year they accounted for 83 percent of the total.
About one-sixth of our total manufacturing output is exported, and
for many important industries the ratio is much higher. For example,
exports account for 54 percent of U.S. aircraft production, 49 percent
of machine tools, 46 percent of turbine and generator output, 45
percent of printing machinery, and the list goes on.
FTAA--NAM'S TOP TRADE PRIORITY
Earlier this year, the NAM identified and prioritized its top trade
objectives. This process, which included final review at this spring's
NAM Board meeting, concluded that the NAM's top trade priority is the
creation of the Free Trade Area of the Americas (the FTAA). The reason
for this is that the FTAA would strongly affect the bottom line for
American industry. It is of major significance to U.S. manufacturing
production and employment, it is achievable in a near-term time frame,
and it is of urgent importance.
There are two areas of the world where barriers are still high
South America and Southeast Asia. The FTAA would eliminate barriers
throughout the Western Hemisphere, creating the world's largest free
trade area--a market of 34 countries and 800 million people. The
Western Hemisphere already accounts for nearly one out of every two
dollars of all our exports. Most of this goes to Canada and Mexico, for
the North American Free Trade Area (NAFTA) has generated a huge trade
boom. We believe the FTAA will do the same for trade with Central and
South America.
Last year U.S. firms exported $60 billion to Central and South
America, an amount four times as much as we exported to China. But the
market is only a fraction of what it could be. Trade barriers have been
holding back both our exports and the region's economic growth. This
does not just affect large firms. In fact, of the 46 thousand U.S.
companies that export to Central or South America, 42 thousand--91
percent of the total--are small and medium-sized firms.
Based on our experience with NAFTA, the NAM predicts that with the
successful negotiation and implementation of the FTAA, our present $60
billion of annual merchandise exports to Central and South America
would more than triple within a decade to nearly $200 billion. That
would represent a very considerable increase in U.S. industrial
production generating more high-paying jobs in America's factories.
America's agricultural and services exports would also grow
proportionately.
U.S. imports would grow as well probably by close to the same
amount. The U.S. economy needs imports as well as exports. We benefit
both by creating more high-paying export-related jobs and by being able
to purchase imported goods more cheaply. America's living standard has
benefited very strongly.
It is important to recognize that the industries that trade the
most pay the highest wages. In fact, as seen in Exhibit 1, while trade-
intensive industries paid an average annual compensation last year of
$60 thousand per worker, industries that are moderately engaged in
trade paid $48 thousand, and those that are not trade-engaged paid $44
thousand.
The Need for the FTAA
America is already a very open market. The FTAA would open markets
for U.S. products in the rest of the hemisphere. Last year, the average
import duty paid on all imports into the United States was only 1.6
percent. That is not a trade barrier; it is barely a speed bump.
Moreover, two thirds of all our merchandise imports from the world last
year paid no duty at all. They entered the United States totally duty-
free.
American exporters to South America, unfortunately, face a
different situation. There, duties in major markets average 14 percent
or more, and it is not uncommon for U.S. manufactured goods to face
duties of 20-30 percent or higher. For example, as one of our members,
the 3M company recently testified, Colombia assesses a 20 percent duty
on their U.S.-made electrical tape. Ecuador charges their filter
products a 30 percent duty. And so it goes. Those are serious barriers.
Exhibit 2 depicts average tariffs in the United States and South
America.
Moreover, a recent World Trade Organization (WTO) report shows that
Latin America has the highest bound duty rates in the world averaging
35 percent. Southeast Asia comes in second, with a 28 percent average
bound duty. These are "bound" duties, the legal duty limits that
countries are not allowed to exceed. While bound rates tend to be much
higher than the rates countries actually charge, they are important
because they are the basis for WTO negotiations and because countries
are permitted to raise duties up to their bound levels if they choose.
Tariff barriers, furthermore, are augmented by costly customs
clearance procedures, standards that can be used as entry barriers,
expensive and redundant testing and certification procedures, and other
obstacles to trade. Eliminating these tariff and non-tariff barriers
would lower the cost of U.S. products in Central and South America and
would significantly increase U.S. exports. Faster economic growth in
Central and South America would occur as well, for their economic
growth has been held back by their trade barriers. Removing trade
barriers will enable production within these countries to become more
efficient, allowing producers to focus on the goods and services they
can produce most effectively, and lowering the costs of what they buy.
The best example is Chile, a country that for a decade has
determined it can only increase its living standard by reducing trade
barriers, focusing its production on what it does best, and importing
the rest. The result? Chile's economic growth over the past decade has
been the fastest in South America--and has been double the average for
all of South America. In fact, over the past decade Chile has been the
third fastest-growing economy in the world.
There is a real urgency to negotiating the FTAA, for the European
Union (EU) is also negotiating free trade agreements with key South
American countries. This is no trivial matter, for the European Union
currently sells about as much to South America as we do. The
consequences for U.S. exports would be severe if the EU were to obtain
duty-free access to these markets while U.S. exports continued to face
duties that could be 20 or 30 percent. A huge shift away from U.S.
products to European products would result. The latest development is
that Japan is now exploring the possibility of free trade agreements
with South American countries.
Opposition to the FTAA
Some very vocal groups are opposed to the FTAA. They would rather
keep the status quo. Looking at the status quo--1.6 percent duties in
the United States vs. duties ranging up to 20-30 percent in South
America--it is difficult to understand why anyone would believe we are
better off by not reducing our duties and their duties down to zero.
Under the status quo, especially if the EU obtains preferential access
to South America, U.S. factories and the American workforce would be
the big losers.
Much of the opposition to an FTAA is due to a belief that the North
American Free Trade Area (NAFTA) has not been beneficial to the United
States, and that the FTAA would compound this. Individuals taking this
position have simply not looked at the facts. Far from being
disadvantageous to the United States, NAFTA has been an enormous
success.
For starters, NAFTA has resulted in an astonishing U.S. export
boom. U.S. exports to Mexico have more than doubled since the
initiation of NAFTA. The $111 billion we exported to Mexico last year
exceeded our exports to Japan, Germany, and France combined--the three
largest economies in the world outside the United States. Last year
Mexico accounted for close to one-third of all U.S. export growth
worldwide. That is quite an achievement.
To see how strong an effect NAFTA has had on our export growth,
consider the fact that U.S. exports to Mexico have historically tended
to be about the same size as our exports to Central and South America,
about $30 billion to each in 1994, for example. But since NAFTA, U.S.
exports to Mexico have soared to nearly twice the level of our exports
to Central and South America. This is dramatically visible in Exhibit
3. The FTAA will have the same effect on our exports to Central and
South America as NAFTA did for our exports to Mexico.
But what about the import side? It is certainly true that our
imports from Mexico rose even faster than our exports, and what was a
U.S. trade surplus in 1993 has become a large deficit. This is a key
reason why many view NAFTA as a failure for the United States. In fact,
one organization claims this trade deficit has cost the United States
700,000 manufacturing jobs. The reasoning is that if exports create
jobs, imports must destroy them.
There are two problems with this logic. The first is conceptual,
for many imports simply don't compete with U.S.-made products or they
fill gaps where the U.S. just can't produce enough to meet demand. For
example, one-third of our deficit with Mexico stems from oil imports
necessary to meet our energy needs. Additionally, the exceptional
growth of the U.S. economy pulled in imports from Mexico along with
imports from the rest of the world.
The second problem is that the facts just don't support an argument
that the trade deficit with Mexico has cost manufacturing jobs. A close
examination of the data shows that indeed there is a $17 billion
deficit in our manufactures trade with Mexico. But one industry
predominates: motor vehicles. In fact, we have a $24 billion deficit in
our automotive trade with Mexico.
Note that the deficit in automotive trade with Mexico exceeds our
total manufactures goods deficit with Mexico. What that means is that
our trade with Mexico in all other manufactures is in surplus by $7
billion. Let me stress that point: U.S. non-automotive manufactures
trade with Mexico had a $7 billion surplus last year. Moreover, that
surplus has been growing in recent years--an almost unique phenomenon
in our trade with the world. Thus, in the logic of those who equate
deficits with job losses--since there is no deficit here, there is no
net job loss.
If there has been a NAFTA job loss, it must have been in autos,
where the trade deficit grew $20 billion since the initiation of NAFTA.
However, this is not borne out by the facts either. In fact, employment
in the U.S. auto industry, even after the recent decline in the U.S.
economy, stands at over 100 thousand jobs higher than before NAFTA
began. While total manufacturing jobs in the United States grew 2
percent from 1993 to 2000, auto sector jobs grew 20 percent ten times
as fast. There has been no net job loss in the auto sector, and the
reason is that the integrated North American auto industry really
works, and it works for all three countries.
So where is the job loss? In the non-automotive manufactured goods
trade surplus we have with Mexico? Or in the auto industry that has
gained more than 100,000 jobs since NAFTA? The answer is that the facts
simply do not support claims that NAFTA has led to a significant net
loss in manufacturing jobs.
What about the ``sucking sound'' of a wholesale movement of U.S.
factories closing their doors and moving to Mexico? Certainly some
factories have moved to Mexico, but there has not been the flood that
many seem to take for granted. Furthermore, many more U.S. factories
have stayed right where they are and have expanded their payrolls to
produce that $111 billion we are now exporting to Mexico.
U.S. balance of payments data show that there has been only a
modest increase in U.S. investment in Mexico. Prior to NAFTA, U.S.
companies invested $3 billion in Mexico (3 percent of global U.S.
foreign direct investment). In 1999 (latest year available), they
invested $5 billion (4 percent of global U.S. foreign direct
investment).
Moreover, most of this investment increase has been in finance,
wholesaling, retailing, etc.--not in manufacturing. U.S. manufactured
goods investment in Mexico has been fairly steady at about $2.5 billion
per year since NAFTA began. This is only a fraction of the $35 billion
invested last year by U.S. manufacturers abroad, mainly in high-wage
developed countries. Three- fourths of U.S. manufacturing investment
goes to the industrial countries. And in 1999, 40 percent of the
manufacturing investment to the developing world went to one country--
not Mexico and not China but high-wage Singapore.
Thus it is clear that when one looks at what has really been
happening, NAFTA is actually a great success. Rather than trying to
avoid another NAFTA, we should seek to emulate it and expand free trade
to the rest of the hemisphere, particularly in Central and South
America.
THE PROSPECTS FOR HEMISPHERIC FREE TRADE
Let me now turn to the prospects for actually being able to obtain
free trade in the hemisphere. An NAM business delegation visited Chile
and Argentina last month to discuss the FTAA and the bilateral
negotiations with Chile. After consultations with business executives
and government officials we concluded that the chances for successful
negotiation of both agreements are excellent. We found a lot of
agreement on the negotiating agenda and an ample amount of common
ground.
This is not to say the negotiations will be easy. We have high
expectations and major goals to be achieved in the negotiations, and we
will continue to press U.S. negotiators to obtain the best possible
package of trade liberalization. Other business communities left no
doubt that they will do the same. The negotiations will have to be
balanced, with all parties seeing benefits. This is why everything must
be put on the table for negotiation.
Considerable groundwork has already been done. Nine negotiating
groups have worked over the past couple of years to lay out the
framework for the negotiations. Notably, the trade ministers of the 34
nations met their goal of producing an initial bracketed text at the
last month's FTAA ministerial meeting in Buenos Aires, Argentina. The
U.S. leadership, Ambassador Zoellick and Secretary Evans, did an
excellent job of defusing questions of timing, and obtaining agreement
that actual negotiations would start next May.
Importantly, the Summit of the Americas in Quebec last month
provided the final necessary ingredient--the political agreement and
commitment to move ahead. President Bush did what we had hoped. He laid
out the FTAA as a key trade priority and stressed the U.S. would devote
all necessary resources to the negotiations. The other ministers agreed
and charged their trade officials to move ahead. The significance of
the Quebec Summit is that it marked the end of phase one--the planning
and the groundwork, and the beginning of the next phase--the actual
negotiations.
Business not only strongly supports these negotiations, but is also
helping pull them forward. Representatives of the U.S. business
community and the 33 other business communities participated in the
Americas Business Forum in Buenos Aires immediately prior to the FTAA
Ministerial meeting. The purpose of the forum was to exchange views,
find common ground, and make recommendations to governments. Clearly
evident at the business forum was that business communities throughout
the hemisphere want to move ahead. They recognize that Latin America's
economic future can only be assured through the removal of trade
barriers and the creation of a free trade area.
Also true, however, is that most Latin business communities are
concerned about their ability to compete and survive in an open market.
They are cautious, particularly about the period of time over which
tariffs would be eliminated. The U.S. business community would like to
eliminate as many tariffs as possible as soon as implementation of the
FTAA begins. Few Latin business communities agree at this point. They
argue that some sensitive industries will require more time to adjust.
This will be an important part of the negotiations.
The NAM will continue to work with Latin American industries to
maintain forward movement. For example, last week the NAM signed a
memorandum of understanding with the Venezuelan industry association,
CONINDUSTRIA, to begin a process of communication and cooperation--
particularly with respect to the FTAA. In signing that document, the
Venezuelan industry leadership stated its strong support for
implementing the FTAA by the end of 2005--or even earlier if that is
feasible.
Bilateral Negotiations
In addition to the FTAA, the U.S. is currently negotiating a
bilateral trade agreement with Chile. The NAM applauds this negotiation
and wants to see it concluded by the end of this year. We seek a
robust, world-class agreement that would quickly eliminate trade
barriers and would provide full investment coverage. Based on our
meetings in Chile last month with government leaders, key legislators,
and business executives, we are convinced this is feasible.
There are two reasons for our strong support of this bilateral
negotiation. First, the agreement will help expand bilateral trade with
Chile. Chile is the most free trade-oriented country in South America,
and is ready now to enter into free trade with the United States. Why
should we wait until 2005 to begin obtaining improved market access
through the FTAA if we can begin obtaining this access next year
through a bilateral agreement? Of course, compatibility with the FTAA
must be ensured.
The second reason is that conclusion of the agreement with Chile
will reinforce the FTAA negotiations and serve to set high standards.
Having an agreement with Chile will maintain the momentum of the FTAA
negotiations. In fact, the NAM has urged USTR to commence bilateral FTA
negotiations with other countries in South America. We understand that
the Central American countries (accounting for over $12 billion of U.S.
exports, four times as much as to Chile) have indicated their interest,
as have other countries including Uruguay and Argentina. So long as the
U.S. government has the capacity to engage in these negotiations, they
should proceed as soon as possible. Like the Chile negotiations,
additional bilateral negotiations will help ensure success for the
larger FTAA negotiations.
NEEDED: TRADE PROMOTION AUTHORITY
In concluding my statement, I want to stress there is one
absolutely essential prerequisite to these negotiations B providing the
President with Trade Promotion Authority (TPA). Our trading partners
insist on having the assurance that what they negotiate with the United
States will be voted on as a single package. They will not negotiate
under circumstances in which the final deal turns out not to be final,
but is one which Congress modifies.
It must be stated bluntly: without Trade Promotion Authority, the
FTAA negotiations simply will not move forward. I believe the same can
be said for prospective negotiations on a new round in the WTO. The
Latin business communities and government officials with whom we have
met were all unanimous on that point: no TPA . . . no negotiations.
Regrettably, some would applaud if there were to be no
negotiations; but, as I stated earlier in my testimony, maintenance of
the status quo means that we lose. Allowing Latin nations to keep their
duties of 20-30 percent on major U.S. exports while we keep our 1.6
percent tariff speed bump against theirs is not a winning solution for
the United States.
The time has come to stop negotiating with ourselves and to start
negotiating with our trading partners. In particular, the issue of how
to handle labor and environmental concerns has stalled us for too long.
We must find a way to move forward, for the cost of continued inaction
is about to get very expensive. How ironic it would be if we continued
to debate labor rights in other countries while thousands of American
workers began to lose their jobs as our foreign competitors completed
trade deals with Latin America and took our export business away.
Business has already stated that it is prepared to view labor and
environmental concerns in a flexible manner. Business is not opposed to
good labor and environmental practices. U.S. business standards are the
highest in the world, and we tend to carry them with us through our
investments in foreign countries--as is illustrated in a joint
Manufacturers Alliance--NAM study of U.S. company practices in
developing countries that will be released shortly.
We believe that if the objective genuinely is to advance labor and
environmental standards in the world, then there are positive steps
that can be taken. We remain opposed to trade sanctions, but we are
ready to discuss alternatives and to look for creative solutions.
Neither business, nor workers, nor environmentalists would benefit
from continuing the status quo in our trade relations with Central and
South America. We will all do better with the FTAA. I believe it was
Jean Monnet, one of the founders of the European Community, who said,
``Let us all put ourselves on one side of the table, and the problem on
the other side. Working together, we can move ahead.''
Thank you, Mr. Chairman.
[GRAPHIC] [TIFF OMITTED] T4222A.015
[GRAPHIC] [TIFF OMITTED] T4222A.016
[GRAPHIC] [TIFF OMITTED] T4222A.017
Chairman Crane. Thank you, Mr. Vargo. Mr. Price.
STATEMENT OF DANIEL M. PRICE, MEMBER, UNITED STATES COUNCIL FOR
INTERNATIONAL BUSINESS
Mr. Price. Thank you, Mr. Chairman and members of the
Committee. I am pleased to be here on behalf of the US Council
for International Business. And I would like to focus on the
issue of investment in the FTAA.
Time permitting, I would like to address three points.
First, the importance of investment flows, inbound and outbound
to the US economy; second, the importance of including an
investment chapter in the FTAA and what that chapter should
address; and finally, I would like to respond to some of the
concerns that have been raised about the investor-State dispute
settlement mechanism that appears both in NAFTA and in US
bilateral investment treaties.
First, it is important we recognize that the world economy
is no longer characterized by companies that simply sit within
national borders and either export or sell locally. Companies
are investing abroad in increasing numbers. They do so to get
closer to their markets, acquire new technologies, form
strategic alliances, or otherwise enhance their
competitiveness, including by integrating production and
distribution.
Now, the United States has been a principal beneficiary of
this dramatic increase in investment flows. On the inbound
side, the United States is host to the largest amount of
foreign investment. Foreign investment in the year 2000 reached
almost $317 billion. As of 1998, foreign companies in total had
invested $3.5 trillion in the United States. Foreign companies
employ 5.6 million people in the United States, and pay average
annual salaries of over $46,000 per year, which is well above
the average salary for US workers as a whole. Likewise, US
subsidiaries of non-US companies accounted for 13\1/2\ percent
of all US manufacturing jobs. Finally, as of 1998, foreign
company affiliates in the United States accounted for
approximately 22 percent of US exports.
On the outbound side the picture is equally bright. As of
1998, US companies had invested over $4 trillion abroad. In
terms of sales, foreign affiliates of US companies had sales of
approximately $2.4 trillion. That is nearly 2\1/2\ times the
amount of US exports. And exports by United States companies
that have affiliates abroad were $438 billion in 1998. That
amount equals some two-thirds of all US exports. And of those
exports, 50 percent went to US affiliates abroad. As
Congressman Brady noted in his earlier statement, investment
pulls exports. It is a fact.
Now, some have suggested that investment liberalization
leads to a race to the bottom. I suggest the evidence is to the
contrary. If lax environmental standards, low wages, and the
absence of worker rights were the principal determinants of
investment flows, one would expect the least developed
countries to be the host to the majority of foreign investment.
Yet the reverse is true. More investment flows between
developed countries. More than 75 percent of all foreign direct
investment is in the developed world. The United States itself
is host to more than 30 percent. China, by contrast, received
$40 billion in FDI in 1999. That is less than 5 percent of
global flows.
The wage picture is equally compelling. The average
compensation paid to workers at majority-owned US companies
throughout the world in 1998 was $33,100. In Canada and Europe,
which received two-thirds of all US outbound investment, the
average compensation at US majority owned affiliates was
$41,200. This is hardly a race to the bottom.
I suggest that the critics of investment flows are
confusing cause and cure. The problems of environmental
protection and labor standards are problems of economic
development. Inadequate standards do not attract and are not
the result of increased investment flows. Rather, they are in
part the consequences of the absence of investment capital
necessary to alleviate poverty and raise living standards.
Now let me say a word about what goes in these agreements.
And I think you will find that in addition to securing economic
benefits, these agreements achieve broader US policy goals.
Investment agreements negotiated by the United States typically
incorporate US constitutional protections against the taking of
property without just compensation, and against arbitrary and
discriminatory government action. Just as they have done in the
United States, these principles foster the development of the
rule of law, respect for private property, and a market-based
free enterprise system that are the essential hallmarks of a
democratic society.
But what are these elements? I will address them very
briefly. The first point I would like to make is that these
elements are not new. The principal protections found in NAFTA
and that ought to be included in an FTAA, have been in US
investment agreements since at least World War II. All of these
protections are traditional protections of US investment
policy. The one innovation in 1980, when the US started
negotiating bilateral investment treaties, was the inclusion of
investor-State dispute settlement.
Well, what are these protections? First, national treatment
and most favored nation treatment. That is, the creation of a
non-discriminatory environment within which US investors can
compete. Second, international law protections that the United
States has long fought for, including fair and equitable
treatment and full protection and security, and otherwise
treatment in accordance with international law. The fair and
equitable treatment standard is particularly important and a
safeguard against arbitrary, unreasonable or other
unjustifiable government actions. The third element has to do
with financial transfers, and it safeguards the free movement
of capital associated with an investment. The fourth element is
the prohibition of so-called performance requirements, export
requirements, local content requirements, trade balancing
requirements, similar to those the United States succeeded in
prohibiting in the negotiation of the WTO Agreement on Trade-
Related Investment Measures. The final element of these
investment treaties and of an investment chapter, is the
investor-State dispute settlement mechanism. That is the right
of the investor to seek money damages from a host government
that causes economic injury when it violates a provision of the
agreement.
Let me say just a few things about investor-State. First,
an investor-State tribunal, under NAFTA, is empowered to award
only money damages. Tribunals do not have the authority to
order a party to change its laws or to nullify a party's laws
as some have suggested. Second, it is US investors that have
the most capital at risk abroad, and thus, have the most to
gain from an effective dispute settlement mechanism. I would
note that if one reviews the actual decisions of NAFTA
tribunals and not the hype about the bringing of the cases, one
will find that these tribunals have acted with great care, and
there is no evidence to suggest that these tribunals have or
will jeopardize public welfare to uphold economic interest. The
track record to date demonstrates that these tribunals have
been quite judicious.
Now, critics have raised concerns about cases that have yet
to be decided. Critics have raised a concern about the mere
fact that cases have been brought against the United States. I
suggest to you that part of the price of living in an
international system governed by the rule of law is that cases
will be brought against the United States. If those cases are
not meritorious, they will not prevail. If they are meritorious
and the United States is required to pay damages, that is part
of the price of being in the system. I would note that the
United States has enjoyed enormous benefits from these
provisions. Of the 16 claims that have been brought under
NAFTA, 11 have been brought by US investors.
This is not to say that the system cannot be improved. I
think one should take a serious look at transparency provisions
for investor-State, for making the filings available to the
public, and making the proceedings open to the public. One
might also consider an amicus or friend-of-the-court procedure.
Finally, I think consideration should be given to
developing an appellate mechanism. Right now the only available
review is through national courts, and we have recently seen
that in Canada. As we consider an agreement with 34 countries,
it may be useful to think about a self-contained appeal
mechanism that would address concerns of consistency and would
also address the concern of some critics about the possibility
of wild or aberrant decision.
Let me conclude by saying that the US has the most at stake
in hemispheric integration, and that a comprehensive and strong
investment chapter will be a crucial part of that agreement.
Thank you very much.
[The prepared statement of Mr. Price follows:]
Statement of Daniel M. Price,\1\ Member, United States Council for
International Business \2\
---------------------------------------------------------------------------
\1\ Mr. Price is a partner at Powell, Goldstein, Frazer & Murphy
LLP in Washington, DC where he advises clients on international trade
investment matters. While Deputy General Counsel in the Office of the
U.S. Trade Representative he served as a negotiator of Chapter 11 of
NAFTA and numerous bilateral investment treaties. He was also U.S.
Deputy Agent to the Iran-U.S. Claims Tribunal in The Hague. He received
his B.A. from Haverford College, a Diploma in Legal Studies from
Cambridge University, and J.D. from Harvard Law School.
\2\ The United States Council for International Business is a trade
association of some 300 companies active in the global marketplace.
Founded in 1945, the Council is dedicated to promoting an open system
of world trade, investment, and finance. The Council advances the
global interests of American business both a home and abroad. It is he
American affiliate of the International Chamber of Commerce (ICC), the
Business and Industry Advisory Committee (BIAC) to the OECD, and the
International Organization of Employers (IOE). As such, it officially
represents U.S. business positions both in the main intergovernmental
bodies and vis-a-vis foreign business communities and their
governments.
---------------------------------------------------------------------------
I. Introduction
Thank you for inviting me here today to present the views of the
United States Council for International Business on the importance of
including investment protections in the agreement establishing the Free
Trade Area of the Americas (FTAA).
Trade and investment are interdependent. To achieve the benefits of
economic liberalization, investment barriers must be addressed as
comprehensively as trade barriers. And the rules protecting U.S.
investment abroad must be both rigorous and enforceable.
Taken together, the expansion of trade and investment flows has
spurred economic growth, created jobs for millions of people in the
United States and abroad, raised global living standards, and has
helped forge bonds of mutual interest and economic opportunity among
countries around the world.
International investment flows are rapidly becoming as important as
trade in goods and services. The world economy is no longer
characterized by companies that remain parked within national borders
and that simply export or sell locally. Companies are investing abroad
in ever-increasing numbers. They do so to get closer to their markets,
acquire new technologies, form strategic alliances and enhance
competitiveness by integrating production and distribution. The
activities of their affiliates are impressive and make an enormous
contribution to economic welfare worldwide. According to the United
Nations World Investment Report 2000, sales by foreign affiliates of
corporations totaled $14 trillion in 1999, over four times the figure
for 1980 and twice the value of global exports. Foreign affiliates
accounted for over $3 trillion in exports in 1999. The production of
foreign affiliates now accounts for approximately 10% of global GDP,
and foreign affiliates now employ over 40 million people.
II. Responding to Criticisms of Investment Protection and
Liberalization
In spite of the economic significance of investment flows, some
critics have suggested that promoting stable investment regimes abroad
will lead to an export of American jobs. Some have also argued that
investment liberalization will lead to a ``race to the bottom'' with
investment flowing principally to countries with minimal or no
protections for the environment or worker rights. The facts do not
support these claims.
A. International Investment Flows--Inbound and Outbound--Contribute to
the Economic Prosperity of the United States
The United States has been, perhaps, the greatest beneficiary of
the explosion in international investment over the past decade. The
United States receives more than 30% of worldwide investment. According
to the U.S. Bureau of Economic Analysis (BEA), foreign investment in
the United States grew seven-fold between 1994 and 2000, reaching
almost $317 billion last year. As of 1998, foreign companies had
invested over $3.5 trillion in the United States. They employed 5.6
million people and paid average annual salaries of over $46,000, well
above the average salary for U.S. workers as a whole. U.S. subsidiaries
of non-U.S. companies accounted for 13.5% of all U.S. manufacturing
jobs. In 1998, foreign companies' affiliates in the United States
accounted for approximately 22% of total U.S. exports. Inbound
investment is critical to the health of the U.S. economy.
Outbound investment is equally important. According to the BEA,
between 1994 and 2000, U.S. outbound investment doubled from $73
billion to $148 billion. As of 1998, the assets of non-bank foreign
affiliates of U.S. companies exceeded $4 trillion. In 1998, non-bank
foreign affiliates of U.S. companies had over $2.4 trillion in sales--
that is nearly two and one-half times the amount of U.S. exports of
goods and services. According to the Survey of Current Business,
exports by U.S. multinationals were $438 billion in 1998, an amount
equal to some two-thirds of all U.S. exports. Approximately 50% of
these exports were to the majority-owned affiliates of those U.S.
companies. Thus, agreements promoting stable investment regimes abroad
do not export jobs, but rather lead to increased exports of goods and
services and contribute broadly to the economic well-being of the
United States.
B. Investment Liberalization does not Lead to a Race to the Bottom
If lax environmental standards, low wages and the absence of worker
rights were the principal determinants of investment flows, one would
expect the least developed countries to be the host of the vast
majority of foreign investment. Yet the reverse is true.
More than 75% of all foreign direct investment is in the developed
world. As noted, the United States itself is host to more than 30% of
all such investment. The United Kingdom runs a distant second with a
little more than one-fourth the total of the United States or $82
billion as of 1999. China, by contrast, received $40 billion in 1999,
less than 5% of global flows. Thus, investment has, in fact, raced to
the top, flowing in overwhelming proportion to stable democracies that
are characterized by high living standards, well-developed regulatory
regimes and transparent legal systems.
The wage statistics are equally telling. In 1998, the average
compensation paid to workers at majority-owned U.S. affiliates
throughout the world was $33,100. In Canada and Europe, which receive
two-thirds of all U.S. outbound investment, the average compensation at
U.S. majority-owned affiliates was $41,200. Investment has not
``raced'' to the lowest wage levels.
The critics confuse the cause and the cure: problems of
environmental protection and labor standards are preeminently problems
of economic development. Inadequate environmental standards and worker
rights do not attract, and are not the result of, increased investment
flows; rather they are in part the consequences of the absence of
investment capital necessary to alleviate poverty and raise living
standards--the root cause of the problem.
III. The Importance of an Investment Chapter in the FTAA
Our Latin American and Caribbean partners in the FTAA have
experienced a dramatic surge in foreign investment over the past
decade. The enormous opportunities that have opened up in the region--
in large part as a result of massive privatization efforts--have made
Latin American and Caribbean countries a primary destination for
foreign investment among the developing countries of the world. The
region now accounts for approximately 10% of global FDI inflows.
According to the United Nations, FDI in the top 10 recipient countries
in the region grew almost 23% between 1998 and 1999 alone, and as of
1999 stood at $27 billion in 1999.
While the U.S. is the largest investor in the region, it has not
kept pace with growth of investment opportunities there. According to
the BEA, U.S. companies invested $17.71 billion in Latin America and
the Caribbean in 1994. U.S. investment in the region in 2000 was
virtually the same, at approximately $17.8 billion. The United States
is clearly not taking advantage of the investment boom in the region.
In fact, most of the investment flows are between countries within the
region, as they have already begun the process of economic integration
without us. In addition, our major competitors, particularly from
Europe, have stepped in to fill the vacuum.
An FTAA that both opens borders to trade and provides strong
investment protections would create enormous commercial opportunities
for U.S. industry and would unleash synergies in production and
distribution operations. Trade liberalization without investment
liberalization will prevent companies from achieving these synergies
and rationalizing their supplier networks. Conversely, investment
liberalization without trade liberalization will lead to the creation
of duplicative production operations as producers are forced to build
manufacturing facilities behind the ``tariff walls'' protecting each
market. Investment protection and liberalization is thus a crucial part
of a free trade agreement.
In addition to these economic benefits, an investment chapter would
promote broader U.S. policy goals. Investment agreements negotiated by
the United States essentially incorporate U.S. constitutional
protections against the taking of property without just compensation
and against arbitrary or discriminatory government actions. As they
have done in the United States, these principles foster development of
the rule of law, respect for private property and a market-based free
enterprise system that are essential hallmarks of a democratic society.
Recognizing these important dynamics, some thirty leading U.S.
companies and trade associations wrote to Ambassador Zoellick on April
19 affirming their support for inclusion of an investment chapter in
the FTAA modeled on the strong and comprehensive provisions found in
NAFTA (letter attached).
IV. The Need for Strong Legal Protection of Foreign Investment: Core
Elements of an Investment Chapter
The explosive growth in cross-border investment is attributable to
several factors, not the least of which is the development of strong,
stable legal regimes to protect property rights. Over the past decade,
we have witnessed a sea change in the way countries--particularly
developing countries--have treated foreign investment. Whereas before
they pursued economic growth through state control of the private
sector and import substitution policies, they have come to realize that
growth is best promoted through free trade and liberal investment
regimes. Countries in Latin America in particular have undertaken vast
privatization efforts and have revamped their legal systems to attract
foreign investment.
According to the United Nations, of 1,035 changes worldwide in laws
governing foreign direct investment between 1991 and 1999, 94% were
more favorable to foreign investment. The number of bilateral
investment treaties (BITs) has risen from 181 at the end of 1980 to
1,856 at the end of 1999. Countries in Latin America and the Caribbean
have signed approximately 300 BITs, virtually all of which were
negotiated in the 1980s and 1990s. As of December 31, 1996, the
countries of Latin America and the Caribbean had negotiated 37 BITs
among themselves, all in the 1990s. It is no coincidence that these
changes to the legal landscape have occurred at the same time as cross-
border investment has expanded over the past decade.
It should be noted, however, that the United States has signed
investment agreements with only three of the top 10 Latin American
recipient countries of foreign investment. The FTAA would include six
of the remaining seven markets.
Including an investment chapter in the FTAA would help lock in
these advances in creating a regulatory environment hospitable to
international investment. While strong investment laws are not
themselves sufficient to attract foreign investment, they are a
necessary prerequisite for such investment. A recent study by
economists at the Inter-American Development Bank found that strong
investment laws, particularly laws protecting foreign investors from
expropriation and preserving contract rights, play central roles in
attracting FDI. It also found that free trade agreements significantly
increase investment among the members of the free trade area.
In order to establish a strong investment regime throughout the
Hemisphere, the FTAA should include all of the fundamental protections
that have been codified in United States bilateral investment treaties
and in Chapter 11 of the NAFTA. The United States has sought the
inclusion of these principal protections in bilateral and multilateral
investment agreements since World War II when it began negotiating a
series of modern treaties of friendship, commerce and navigation (FCN).
The investor-state dispute settlement mechanism was included in the
first U.S. bilateral investment treaty (on which all subsequent U.S.
BITs have been based) in 1980.
What are these fundamental protections?
First, the investment chapter should guarantee foreign investors
the better of national treatment or MFN treatment, both with respect to
the establishment of investments and treatment thereafter. This will
ensure nondiscriminatory treatment and the removal of barriers to
entry.
Second, the FTAA should protect investors against expropriation
without payment of compensation. This protection should extend both to
direct expropriation--for example, the physical taking or
nationalization of property--and to indirect expropriation such as may
occur through regulation or other forms of so-called creeping
expropriation. The inclusion of indirect expropriation is crucial.
Government action may impair or destroy the value of an investment even
if there is no physical seizure or destruction of the property.
Third, the investment chapter should guarantee investment fair and
equitable treatment, full protection and security, and protection in
accordance with international law. These provisions have long been
included by the United States in bilateral and multilateral investment
instruments. The fair and equitable treatment standard, in particular,
protects against lawless, arbitrary, unreasonable, bad faith or other
unjustifiable government actions. These protections help promote the
rule of law and are meant to safeguard the interests of U.S. investors
where government action or inaction, while not rising to the level of
expropriation per se or outright discrimination on nationality grounds,
nonetheless subjects the investor to adverse and injurious treatment.
Fourth, the investment chapter should guarantee the free movement
of capital associated with the investment, including the repatriation
of profits. Without this protection, investors will not commit the
resources necessary to undertake large-scale investments.
Fifth, the investment chapter should prohibit performance
requirements such as local content and export requirements, and other
trade-related investment measures. Such measures distort trade flows
and create economic inefficiencies, thereby offsetting the benefits of
the agreement.
Finally, the investment chapter should include a mechanism to allow
investors to arbitrate investment disputes with host governments and
obtain monetary compensation for damages resulting from violations of
the agreement. Access to an arbitration procedure of this sort is the
only effective way to guarantee enforcement and obtain appropriate
redress. Limiting investment dispute settlement to a state-to-state
procedure will politicize disputes, leaving investors, particularly
small- and medium-sized enterprises, with little recourse save what
their government cares to give them after weighing the diplomatic pros
and cons of bringing any particular claim. Furthermore, a state-to-
state dispute settlement procedure based on the WTO model, which
provides only prospective relief, will not remedy most violations of
the agreement. If, for example, a government expropriates an investor's
property, prospective relief without providing compensation to the
investor will not redress the injury done to the investor.
V. Responding to Criticism of NAFTA's Investor-State Dispute Settlement
Mechanism
The investor-state dispute settlement mechanism has been perhaps
the most controversial aspect of the investment chapter of the NAFTA.
Critics have alleged that it undermines a nation's sovereign right to
regulate. The evidence simply does not support these claims.
At the outset, two facts should be recognized. First, under NAFTA
an investor-state arbitral tribunal can only award the payment of
compensatory money damages to an injured investor; tribunals have no
authority to order a party to change its laws. Second, it is U.S.
investors that have more capital at risk than investors from any other
country, and thus have the most to gain from an effective mechanism for
enforcing investor protections.
In any case, there is no evidence that arbitration tribunals will
jeopardize public welfare to uphold the economic interests of foreign
investors. A careful examination of the NAFTA arbitration decisions to
date reveals that the tribunals have acted with great care. In two
cases where an arbitration tribunal ruled in favor of a U.S. foreign
investor--SD Myers and Metalclad--the tribunal found that the
government authorities were acting arbitrarily or targeting a specific
foreign investor with unfair or discriminatory measures. It should be
noted that Mexico brought suit in a Canadian court to set aside the
Metalclad award, and the court recently upheld the tribunal's decision
that the U.S. investor's property had been expropriated. In two other
cases--Azinian and Waste Management--the U.S. investor lost outright,
one on the merits, the other on jurisdiction.
In the recently released decision in Pope & Talbot, the tribunal
rejected all but one of the U.S. investor's claims. The one claim that
was upheld was based on a finding that the Canadian authorities had
acted unfairly in imposing extremely burdensome, and arguably illegal,
administrative requirements on the investor. While the tribunal was
careful to avoid questioning the motives of the Canadian Government in
that case, it appeared from the facts that the Government's actions
were motivated by a desire to punish the investor for bringing the
NAFTA claim.
In Ethyl--which is often cited by critics as an example of a case
where a foreign investor forced a government to withdraw a bona fide
environmental measure--Canada settled a NAFTA case brought by a U.S.
investor. However, the settlement was spurred by a holding by a
Canadian panel, not the NAFTA arbitration tribunal, that the particular
measures imposed by Canada violated an internal Canadian arrangement
called the Agreement on Internal Trade.
This track record hardly demonstrates that arbitration tribunals
have overstepped their bounds in protecting the rights of investors. To
the contrary, the evidence to date shows that tribunals have taken a
reasonable, balanced and judicious approach in interpreting and
applying the NAFTA investment provisions.
Nevertheless, critics of the NAFTA investment chapter point to
cases against the United States that have not yet been decided--such as
the Methanex or Loewen cases--and have speculated about how tribunals
in those cases might rule. Indeed, those critics find troubling the
very initiation of these claims. I do not express a view on the merits
of these pending cases. However, the mere fact that cases have been
brought against the United States in no way undermines the legitimacy
or integrity of the dispute settlement process. Indeed even frivolous
cases may be brought before a NAFTA panel just as they are brought in
United States courts every day, but this does not mean that either the
court system or the arbitration mechanism is flawed. If claims are
found to be frivolous, then they will be rejected. If claims are
justified, then the respondent, including the United States as the case
may be, should pay compensation. This is the price of living in an
international system governed by the rule of law.
The United States has long been the champion of international
investment rules. It has fought hard for recognition of the
international rule of law and for respect for international dispute
resolution bodies. The United States has enjoyed enormous benefits from
invoking dispute settlement provisions to break down trade barriers or
redress injuries to investors. Indeed, of the approximately 30 claims
under BITs that have come before the International Centre for
Settlement of Investment Disputes (``ICSID''), about one-third have
been brought by U.S. investors. And of the 16 claims that have been
brought under NAFTA's investment provisions, 11 have been brought by
U.S. investors. It would be ironic if the United States, long the
advocate for subjecting sovereign actions to scrutiny under
international law, were now to retreat from the very international
principles it worked so hard to enshrine.
Concerns about investor-state arbitration--and agitation over its
compatibility with sovereignty--are without foundation. Fears about
overreaching arbitral panels are likewise unfounded given the record of
decisions.
None of this should be taken to imply that the system could not be
improved. The process would benefit from two important changes. First,
the FTAA parties should consider increasing the transparency of the
process by ensuring that the briefs and arbitration proceedings are
open to public view, subject to reasonable protections for confidential
business information. An amicus, or ``friend of the court,'' procedure
might also be developed whereby interested members of the public could
express their views on the issues before the tribunals.
Second, the parties to the FTAA might consider the desirability of
creating an appellate body that would review arbitral awards for errors
of law. Such an appellate mechanism would accomplish three salutary
goals: (1) it would address the risk of an aberrant or wildly erroneous
decision that seems to have captured the imagination of critics; (2) it
would contribute to the development of a coherent body of jurisprudence
on the interpretation of the FTAA; and (3) it would eliminate the
possibility of having the court systems in each of the 34 FTAA parties
become involved in the review of FTAA awards and hence the
interpretation of FTAA, a possibility left open by NAFTA.
The Hemisphere stands at the threshold of comprehensive free trade
agreement talks in which investment rules should figure prominently.
Investor-state dispute settlement will be essential to ensuring the
effectiveness of those rules. Now is not the time to depart from
longstanding United States investment policy and time-tested methods
for the resolution of investment disputes.
As the largest economy in the region, the United States has the
most at stake in hemispheric integration. By leading the negotiation of
an agreement that removes trade and investment barriers and promotes
democratic values, the United States can secure for itself and its
neighbors the benefits of economic growth and prosperity. An investment
chapter is an essential component of any agreement seeking to achieve
these goals.
[The attachment is being retained in the Committee files.]
Chairman Crane. Thank you, Mr. Price.
Mr. Gambrel.
STATEMENT OF WILLIAM GAMBREL, PRESIDENT, BANKBOSTON COLOMBIA,
AND VICE PRESIDENT, ASSOCIATION OF AMERICAN CHAMBERS OF
COMMERCE IN LATIN AMERICA, BOGOTA, COLOMBIA, ON BEHALF OF U.S.
CHAMBER OF COMMERCE
Mr. Gambrel. Mr. Chairman and Members of the Committee,
thank you for inviting me to appear before this distinguished
panel today. I am pleased to represent the Association of
American Chambers of Commerce in Latin America, known as
AACCLA.
The AACCLA is a leading advocate of increased trade and
investment between the United States and Latin America. The
association's 20,000 member companies manage over 80 percent of
all U.S. investigation in Latin America through 23 American
Chambers of Commerce in 21 countries.
I am also pleased to represent the U.S. Chamber of
Commerce, which is the largest business federation in the
world.
I could easily spend my allotted time today describing the
boom in trade and investment between the democratic nations of
the Americas in the past decade. In this sense, the business
community has taken the lead in pushing for an integrated
hemispheric marketplace. Nonetheless, we in the business sector
are very pleased to see the hemispheric governments working to
bring down barriers to trade and investment.
I applaud the commitment announced in Quebec City to
complete the Free Trade Agreement of the Americas by January
2005. Also in Quebec, President Bush declared that he is
committed to obtaining trade promotion authority before the end
of this year. This is absolutely critical, and we in the
business community are prepared to help the President make the
case for trade promotion authority.
There are many reasons why trade expansion is such a
priority today, but I would like to focus on just one. With the
exception of the United States, nations around the world spent
the nineties weaving a spider web of free trade agreements.
Over 133 regional trade agreements are currently in force
worldwide. The European Union has signed 27 free trade
agreements, and Mexico alone has signed 32. However, the United
States is a party to just two trade agreements: NAFTA and the
Free Trade Agreement with Israel. This pattern of diminished
U.S. participation in trade expansion must not continue.
The spider web of free trade agreements that we have seen
emerging threatens to put U.S. companies at a competitive
disadvantage. How? Chile is a perfect example. Today, companies
from Canada, Mexico, and a number of other countries enjoy
duty-free access to the Chilean market. But U.S. exporters
still pay Chile's highest duty of 8 percent. The result is that
American companies are losing millions of dollars in potential
sales every year.
I would like to flag one potential obstacle to the FTAA:
the ongoing dispute over efforts to link trade agreements to
labor and environmental rules. We have heard some about that in
this distinguished panel today.
AACCLA and the U.S. Chamber strongly support efforts to
protect the environment and to improve working conditions for
all employees. But these concerns we think should be dealt with
separately. Our hemispheric partners have made it very clear
that they will oppose a final FTAA agreement if it makes market
access contingent upon labor and environmental rules. AACCLA
and the U.S. Chamber share this view.
Before concluding, I would like to urge the Congress to
renew and enhance the Andean Trade Preference Act. Since the
Andean Trade Preference Act was passed in 1991, a wide range of
export-oriented businesses have been established in the Andean
countries, generating jobs, boosting tax revenues, and
strengthening civil society. During my 6 years that I have
lived in Colombia, I have witnessed firsthand how these trade
benefits foster social stability and provide a legitimate
alternative to the illegal drug business. Failure to renew the
ATPA would undermine the new business ventures that have
prospered through legitimate trade with the United States.
In addition to the renewal of ATPA, I urge Congress to
expand the list of Andean goods that qualify for duty-free
access to the U.S. market.
Finally, Congress should also consider making Venezuela a
beneficiary of the ATPA. We have seen that efforts to oppose
the narcotics trade in one country are undermined if production
can be easily shifted to somewhere else. By granting these
simple trade benefits to all the Andean countries, we can
support the thousands of small--and medium-sized businesses
that are the bedrock of democracy and peace in the Andean
region.
Trade expansion is an essential ingredient in any recipe
for economic success in the 21st century. Chairman Crane, I
would like to thank you and your colleagues on the Subcommittee
for your leadership on trade. AACCLA and the U.S. Chamber of
Commerce stand prepared to support your efforts on trade
expansion in any way that we can.
Thank you very much.
[The prepared statement of Mr. Gambrel follows:]
Statement of William Gambrel, President, BankBoston Columbia, and Vice
President, Association of American Chambers of Commerce in Latin
America, Bogota, Colombia, on behalf of U.S. Chamber of Commerce
Mr. Chairman, thank you for inviting me to appear before this panel
today. I am Bill Gambrel, President of BankBoston Colombia, and Vice
President of the Association of American Chambers of Commerce in Latin
America, known as AACCLA.
AACCLA is a leading advocate of increased trade and investment
between the United States and Latin America. Representing 23 American
Chambers of Commerce in 21 Latin American and Caribbean nations, the
association's 20,000 member companies manage over 80 percent of all
U.S. investment in the region.
I am also pleased to submit this testimony on behalf of the U.S.
Chamber of Commerce, which is the largest business federation in the
world. Representing nearly three million companies of every size,
sector, and region, the Chamber has supported the business community in
the United States for more than 80 years.
I appreciate this opportunity to testify on the outcome of the
Third Summit of the Americas in Quebec City last month and on the
prospects for free trade in the hemisphere. I will also comment briefly
on the need to renew and enhance the Andean Trade Preference Act.
Commerce in the Americas
As background, it is worth noting that the commercial relationship
between the United States, Canada, and Latin America has progressed
admirably in recent years. The flow of trade and investment throughout
the hemisphere has never been greater. The day is not far distant when
the United States will trade more with our neighbors here in the
Western Hemisphere than with Asia and Europe--combined.
The numbers tell quite a story. The United States trades more with
Canada than with the entire European Union. This is true even though
the European Union has a population ten times that of Canada. Mexico is
our second largest trading partner, and two-way trade surpassed $250
billion last year.
Brazil has received more direct investment from the United States
than any other emerging market in the world. The total stock of U.S.
investment in Brazil--roughly $35 billion--is four times the amount
American companies have invested in China. The Caribbean Basin is
emerging as a vital trading partner to the United States. In 1999, the
24 countries in the Caribbean and Central America purchased more U.S.
goods and services than China, India, and Russia--combined.
Business Sets the Pace
The business community has been moving toward an integrated
hemispheric market for decades, and now our governments are
running to catch up. At the First Summit of the Americas in
1994, the leaders of 34 Western Hemisphere nations set the goal
of free trade in the Americas. Now, as we evaluate the outcome
of the Third Summit of the Americas, it's clear that we have
moved closer to this objective than we might have thought
possible.
The Summit and the Buenos Aires Trade Ministerial held
three weeks earlier produced tangible progress on a number of
fronts. In Argentina, the hemisphere's trade ministers endorsed
a draft, bracketed text for the Free Trade Area of the Americas
(FTAA) agreement. They also agreed to start negotiations on
market access in May 2002, and they set a deadline to complete
the text of the FTAA by January 1, 2005. The ministers also
surprised observers by agreeing ``to release the current draft
consolidated text to the public soon after the conclusion of
the Third Summit of the Americas in Quebec City.''
In perhaps the most important announcement made in Quebec,
President Bush declared to the assembled heads of state and
government that he is ``committed to attaining Trade Promotion
Authority before the end of the year.'' This is absolutely
critical, and we in the business community stand prepared to
support the effort to win Congressional approval of
Presidential Trade Promotion Authority in any way we can.
Rationale for the FTAA
I believe we are seeing this progress because the basic
rationale for the FTAA is stronger than ever. Hemispheric free
trade will boost economic growth and reduce poverty throughout
the hemisphere. The FTAA will also provide an opportunity to
re-energize economic reform throughout the Americas. It will
confirm a shared commitment to the market-opening policies that
create the conditions for growth.
The FTAA will encompass 34 nations with over 800 million
citizens. Its collective GDP will exceed $13 trillion. The FTAA
will:
Eliminate existing tariff and non-tariff barriers
and bar the creation of new ones;
Remove other restrictions on trade in goods and
services as well as investment unless specifically exempted;
Harmonize technical and government rule-making
standards;
Exceed World Trade Organization disciplines, where
possible;
Provide national treatment and investor safeguards
against expropriation;
Establish a viable dispute settlement mechanism;
and
Improve intellectual property rights protection.
The Case for Renewed U.S. Leadership on Trade
However, the FTAA is not simply going to fall into our
laps. Without renewed U.S. leadership on trade, this ambitious
and complex trade agreement simply will not happen.
As you know, special interests in the United States spent a
great deal of time in the 1990s arguing about trade. While this
was going on, other nations around the world have been busy
weaving a spiderweb of free trade agreements. Over 130 regional
trade agreements are currently in force worldwide. The European
Union has signed 27 free trade agreements, and Mexico alone has
signed over 30. However, the United States is a party to just
two free trade agreements: the North American Free Trade
Agreement (NAFTA), and the U.S.-Israel free trade agreement.
This pattern of diminished U.S. participation in trade
liberalization must not continue. The spiderweb of free trade
agreements that we've seen emerging in the Americas and
elsewhere threatens to put U.S. companies at a competitive
disadvantage. Basically, other nations are negotiating trade
agreements that provide preferences for their firms over our
own.
Chile is a perfect example. Today, companies from Canada,
Mexico, and a number of other countries enjoy duty-free access
to the Chilean market. But because U.S. exporters still pay
Chile's highest duty of eight percent, American companies are
losing hundreds of millions of dollars in potential sales every
year. As many people have observed, this is like starting a
basketball game eight points behind.
Benefits of the FTAA
The NAFTA offers an excellent preview of the benefits
promised by the FTAA. Since the NAFTA came into force, trade
between the United States and Mexico has tripled, surpassing
$250 billion last year. Trade between the United States and
Canada reached $400 billion in 2000--a figure double the pre-
NAFTA level. This explosion in trade has allowed companies in
all three NAFTA countries to generate millions of new jobs. The
NAFTA is one of the main reasons why some 12 million U.S. jobs
rely on exports.
While enhanced competition in the marketplace has led to
job losses in some industries, the new, trade-related jobs that
have been created tend to provide better pay than the jobs that
were lost. Studies show that export-related jobs pay 13 to 18
percent more than other jobs.
As Ambassador Zoellick has pointed out, the combined
effects of the NAFTA and the Uruguay Round trade agreement that
created the World Trade Organization (WTO) have increased U.S.
national income by $40 billion to $60 billion a year. Thanks to
the lower prices that these agreements have generated for such
imported items as clothing, the average American family of four
has gained between $1,000 to $1,300 from these two pacts.
The NAFTA has proven to be a foreign policy masterpiece,
transforming Mexico's economic prospects and arguably paving
the way for the democratic breakthrough witnessed in last
year's elections. From a national security perspective, the
possibility of reproducing these results on a hemispheric scale
is enticing.
Potential Obstacles to Hemispheric Free Trade
Some believe that protectionism in the United States is the
biggest obstacle to hemispheric free trade. They point out that
Congress voted down ``fast-track'' trade negotiating authority
in 1998, and President Clinton never saw it renewed.
However, the American people continue to embrace free
trade. The highly respected Pew Center for the People and the
Press found recently that over 60 percent of Americans support
free trade and reject protectionism.
More recently, Congress has shown that it will support
trade liberalization when business makes the case for it. The
approval of permanent normal trade relations for China and the
Trade and Development Act of 2000 give eloquent testimony to
the fact that Congress will pass major trade legislation by
solid majorities when the business community pushes the
argument for expanded trade.
A more serious obstacle to the FTAA is the ongoing dispute
over efforts to link trade agreements to labor and
environmental standards. When the Clinton Administration pushed
for trade-linked rules to enforce labor and environmental
standards at the Seattle WTO meeting in December 1999, the vast
majority of countries were strongly opposed.
AACCLA and the U.S. Chamber strongly support efforts to
protect the environment and ensure improvement in the quality
and conditions of workers, but these concerns should be
addressed separately. There are other avenues for the United
States to discuss labor and environmental issues with other
nations. For instance, President Bush already has the authority
to address labor issues through the International Labor
Organization.
In the final declaration issued at their April meeting, the
hemisphere's 34 trade ministers indicated that most ministers
are firmly opposed to the use of trade sanctions in connection
with rules on labor or the environment. Our hemispheric
partners have made very clear that they will oppose a final
FTAA agreement if it makes market access contingent upon labor
and environmental standards. AACCLA and the U.S. Chamber share
this view, and we will oppose any trade agreement that includes
labor and environmental provisions and accompanying sanctions
in the agreement.
We need to remember that trade is part of the solution--not
the problem--when it comes to protecting the environment and
improving working conditions.
The Andean Trade Preference Act
Before concluding, I would like to urge the Congress to
renew and enhance the Andean Trade Preference Act (ATPA). As
you know, the ATPA grants duty-free access to the U.S. market
for selected exports from the Andean countries, but it will
expire in December. AACCLA, the American Chambers of Commerce
in Bolivia, Colombia, Ecuador, and Peru, and the U.S. Chamber
of Commerce all strongly support ATPA renewal.
Taking advantage of the market access granted by the ATPA
in 1991, a wide range of export-oriented businesses have been
established in the Andean countries, generating jobs, boosting
tax revenues, and strengthening civil society. Renewal of the
ATPA will ensure that these economic benefits endure, thereby
fostering social stability and deterring the illegal narcotics
trade. By the same token, failure to renew the ATPA would
undermine the new business ventures that have prospered through
legitimate trade with the United States.
In addition to renewal of the ATPA, Congress should
consider expanding the list of Andean goods that qualify for
duty-free access to the U.S. market. The Act's success over the
past decade can be leveraged in the years to come by making its
provisions more generous.
Finally, Congress should also consider making Venezuela a
beneficiary of the ATPA. Recent history shows that efforts to
oppose the narcotics trade in one country are undermined if
production can be easily shifted elsewhere. By granting these
simple trade benefits to all the Andean countries, we can
support the thousands of small and medium-sized businesses that
must be the bedrock of economic progress, democracy, and peace
in the Andean region.
Conclusion
Trade expansion is an essential ingredient in any recipe
for economic success in the 21st century. If U.S. companies,
workers, and consumers are to thrive amidst rising competition,
completing the FTAA and renewing the ATPA must be top
priorities.
In the end, U.S. business is quite capable of competing and
winning against anyone in the world when markets are open and
the playing field is level. All we are asking for is the chance
to get in the game.
This concludes my testimony. I will be happy to try to
answer any questions.
Chairman Crane. Thank you.
Mr. Vargo, you point out that South American duties average
14 percent while U.S. duties average less than 1.6 percent and
that the EU is currently negotiating free trade agreements with
several Latin American countries that will significantly
undercut American exports.
How damaging do you think the status quo is to the health
of the U.S. economy over the long term?
Mr. Vargo. Well, I think over the long term, Mr. Chairman,
that it could be quite damaging because Latin America has the
prospects for being a rapidly growing market. A WTO analysis
that came out a couple of weeks ago shows that South America
has the world's highest average level of bound tariffs, and if
we do not get those down, not only would we not share in the
growth if the Europeans had duty-free access, but we would lose
a lot of what we already have.
We have, frankly, not made an estimate of just exactly what
would happen if Europe had duty-free access while we continue
to pay 20 and 30 percent, but it would be a substantial amount
of that $60 billion. So this is very important. We lose under
the status quo. Nobody gains. I am convinced that the
environmentalists do not gain, Mr. Sweeney's members do not
gain. We have got to find a way to move ahead. You know, by
engaging the Latins, I think that we can help raise
environmental standards, by raising their living standards, we
help raise living standards. We need to move ahead.
Chairman Crane. Mr. Sweeney, do you have Mr. Vargo's text
in front of you?
Mr. Sweeney. No, I do not.
Chairman Crane. Mr. Vargo, could you show him your Exhibit
1?
That Exhibit 1 in Mr. Vargo's written testimony compares
the level of wages paid by companies that are most trade-
intensive versus those that are least trade-engaged, and I was
wondering what your commentary was on that. The figure here, if
I am not mistaken, this is 60,000 a year for the most trade-
intensive, and for the least trade-intensive in this chart, it
is a little over 40,000 a year. Is that correct, Mr. Vargo?
Mr. Vargo. Yes, sir, it is.
Mr. Sweeney. Well, I am not sure, with all due respect,
what the source of Mr. Vargo's information is, and I would have
to take a closer look at it.
Chairman Crane. All right. Mr. Gambrel, Mr. Sweeney
testified that the NAFTA has utterly failed to deliver the
promised benefits to working people in the three North American
countries. Would you please comment on that statement?
Mr. Gambrel. Certainly. The figures that we are looking at
in terms of the benefits of the NAFTA show a different story.
We have seen and we have heard comments in terms of exports
increasing by more than 60 percent in some cases. That has
actually created more jobs in the United States and more jobs
in the countries, both Canada and Mexico.
We have seen the case of a Mexico that in the past has
struggled with democracy, where it had a one-party system. We
have recently seen the effects of a democratic change of power
from one party to another, and we think that that has something
to do with the trade benefits and the linkages with the United
States of the market such as Mexico.
We also saw a financial crisis in Mexico, which in the past
has had a multiple effect on other countries in Latin America,
last a very, very short period of time. We think that also has
a direct relationship to its contacts with trade through NAFTA.
So we think that there have been many more benefits of the
NAFTA than not benefits.
Chairman Crane. Mr. Rangel.
Mr. Rangel. Thank you. Well, Ambassador Fisher, now that
you are a free man, you do not have to be nice to us.
[Laughter.]
As a free man, could you tell us why, as we seek to do
business with these communist nations--Red China and North
Korea and North Vietnam--as a free man, why could we not try to
break down the communist regime in Cuba by using the same
tactics as we have used, using trade as a method for
encouraging democracy?
Mr. Fisher. Well, we have made an effort in Vietnam. As you
know, we negotiated a bilateral commercial agreement with
Vietnam.
Mr. Rangel. I guess I did not make my question clear. Why
do we exclude Cuba while we make these efforts in these other
countries? And I ask you this as a free man.
Mr. Fisher. As a free man, I would tell you that the
politics of that situation are so complicated; that, as you
know, USTR was never allowed to delve into Cuba. This is the
nature of a political equation. Whether it is right or wrong,
it does not seem to square the corner with what we have tried
to do with WTO accession for China, what we are trying to do
elsewhere in the world. But that is a political reality, and,
Congressman Rangel, as a free man, I know you know a lot more
about politics than I do, but that is the nature of the
situation.
Mr. Rangel. Well, the politics of Florida seem to be more
important than the international politics.
Why did you say, a man that is as genteel as you, that you
wanted to be blunt and it takes two to tango and we cannot get
our Latin partners to the dance floor if we talk about labor
and environment? That seemed like really rough language for a
diplomat.
Mr. Fisher. My point was that I do not believe sanctions as
a remedy--that that dog will not hunt. In other words, just to
mix my metaphors--neither will that dog dance. The point is if
we are going to insist on sanctions, unless we are willing to
focus all of our effort to capture that, I do not believe that
our Latin partners will come to the dance floor.
Mr. Rangel. Do you feel as strongly----
Mr. Fisher. I am not saying we abandon the effort, but I am
just saying my point was simply on sanctions. They will not
agree to sanctions as remedies.
Mr. Rangel. Do you feel as strongly about sanction as it
relates to violation of our intellectual property laws?
Mr. Fisher. Do I personally feel about this?
Mr. Rangel. That is all we are talking about.
Mr. Fisher. Well, we currently have in place remedies for
violation of our intellectual property laws. All I am saying is
that in order to do a deal, in terms of this very vexing and
important question of labor and environment, from the
standpoint of what we can expect our partners to be able to
come to the table for----
Mr. Rangel. Well, sanctions----
Mr. Fisher. If we make sanctions part of the deal, they are
not going to come to the table, so we have no deal.
Mr. Rangel. So you are saying that----
Mr. Fisher. I am not saying it is right or wrong. That is a
fact.
Mr. Rangel. So they are willing to come to the table when
we protect our pharmaceuticals by having sanctions against them
if they violate their intellectual property rights or with
electronic trade, and somehow they dance, they tango. And, of
course, if our Ambassadors do not put it on the table, nobody
wants to be put in the position that sanctions are going to be
made against them. I think it violates a nation's pride. But we
do not have a problem with it when it works. You do not have a
problem with sanctions. You just have a problem with sanctions
as it relates to labor and environment, because you do not
believe--and you are the professional--that it reached the same
level as intellectual property rights when it comes to trade
negotiations.
Mr. Fisher. I could tell you from my experiencing of 3
years of teeing up the Free Trade Area of the Americas that
this subject, whether we want it or not, is not the point. The
point is that our partners--and it takes two to do a deal, two
sides--our Latin partners will not come to the table. They have
made that very clear, if on this subject of environmental and
labor the remedies result in sanctions.
Mr. Rangel. Did our Jordanian partners come to the table
and tango with us with the treaty that was negotiated with
them?
Mr. Fisher. They did. They did come to the table, but I am
simply making a point that from my experience our Latin
partners will not. But you can ask the Ministers who are here.
That is the reality. From the standpoint of intellectual
property rights, again, that has already been negotiated in
previous agreements globally. And it is a WTO area of activity,
and we do have our disputes and differences on that front, as
they are very clear right now with Brazil.
But, Congressman, I am just trying to sort of define the
parameters here on these three very difficult areas. These are
the realities, no matter how we feel. I do not think they will
play with us--again, unless we want to focus all of our
attention on this area. They are attracted by the strength of
our market--this is a $10 trillion economy. We are the biggest
consumer in the world. That would be part of the trade. I just
do not think they are going to accept it, and I wanted to be
frank and point out to you that I think that is a non-starter.
Mr. Rangel. Well, Mr. Ambassador, I do not blame them for
not accepting it, if our former trade negotiator is saying that
they are not going to accept it. It is really to me a question
of what you believe is good for our country. And I know that
you would believe that a part of the history and improvement in
the quality of life, that the trade unions have played a true
part in making us a more productive country. Everyone. No one
challenges that, not even the Chamber of Commerce. And, you
know, the extreme of not being concerned about the conditions
of the worker could be slavery in this country, which worked
for us. It did not work for the slaves, but it did work for us.
And, of course, we would want other nations to know that
you do not have to be labeled a protectionist when you are
saying there should be some basic human labor rights that
America--this is what we stand for. When we see super-stars
that are investors in overseas garments that are made under
conditions that make Americans cringe, America responds to it,
whether it is child labor, slave labor, prison labor. And all
we are saying to our partners is you have got to have some--you
do not have AFL-CIO contracts. You do not reach the standards
of an industrialized nation overnight. But you got to have
something locked in place that is enforceable because that is
the kind of country we are. We want you to have disposable
income. We want you to be healthy. We want you to be productive
so that you can be our trading partner.
It is so American--it is so American that I wonder why
people would refuse to tango with us.
Mr. Fisher. Well, again, I do not disagree with your point
of view, and, in fact, let me remind you, as Congressman Levin
reminded me the other day in a good speech he gave at the
Center for Strategic and International Studies, CSIS, trade is
a means to an end. In the preamble of the GATT, it talks about
raising living standards, about engendering full employment and
developing the full use of the resources of any country,
including its people. We do not dispute that. That is not the
purpose of my statement. I do not disagree with you,
Congressman. But I do feel that if we are not careful in this
area, given the way that this thing has proceeded over the last
few years, given the reality of Seattle, we have to be
extremely careful to deal with this issue that does not send
protectionist signals, whether it is truly protectionist or
just being interpreted as such.
And I simply wanted to make the statement that from the
standpoint of this particular exercise, Free Trade Area of the
Americas, I do not believe that the remedy of sanctions is
workable in this case.
Now, on the subject area in general, I did point out that I
do believe that it is possible to figure out a way or engineer
a system or an architecture, as I put it, that has monetary
assessments for violations of domestic laws as long as they
impact trade. I think that is the most we will be able to get
in this discussion, if we can get that much. And I simply, out
of respect for you, want to give you my opinion based on my 3
and a half years of experience of negotiating this particular
issue.
This is not a personal judgment. Do not interpret it that
way. It is simply a matter of what I think can work and what is
a non-starter. And, by the way, I say that very respectfully,
Congressman, as you know.
Mr. Rangel. Oh, no, I understand that. It is just that I
really do not think you can understand how powerful your
statement might appear to those people that we are negotiating
with, because if I belong to one of these countries and heard a
former trade representative such as you say that, do not even
think about it because it is going to be unacceptable and it is
supported by protectionists, then I would hang up, too. It is
almost--like Mr. Pickle once said, it is like going to a wife-
swapping party and someone does not bring their wife.
[Laughter.]
We do not have anything to negotiate with because our
people already said it is not going to work.
Mr. Fisher. Congressman, that is just one individual
citizen's opinion.
Mr. Rangel. Well, you are a very powerful man, and other
people can call--you know, there was a time that you said you
were talking about Cuba, you must be pro-Castro or pro-
communist, except when you are talking about China. And now if
you are saying that you would like to have some rights for
labor and human rights, you are protectionist.
I think that if we want to move forward toward having the
bipartisanship that we used to enjoy on this Committee and in
the Congress, we really ought to give up the labels and to rely
some more on dance instruction and see whether or not we can
make this thing fit, because trade policy, like foreign policy,
should be bipartisan. And we are trying desperately hard to
talk with people, even those that say that it may not work. We
are trying to make it work.
Thank you for coming back and giving us guidance. Next
time, whisper. [Laughter.]
Mr. Fisher. Thank you, Congressman.
Chairman Crane. Thank you. Mr. Houghton.
Mr. Houghton. Thanks, Mr. Chairman.
I would like to ask you gentlemen, but particularly Mr.
Vargo and Mr. Price, about the Jordanian agreement. I have
never really been sure what is negotiable and what is not. Is
it the dispute settlement? Is it the sanctions versus the fine?
Is it the labor standard? What is it?
But when you take a look, as I have here, at the Jordanian
agreement, there are some things that sort of make some sense
here. Now, what are the things that bother you about it, or do
you agree that this is a good concept?
Mr. Vargo. Well, I assume you are talking about the labor
and environmental provisions in the Jordan agreement.
Mr. Houghton. Yes, right.
Mr. Vargo. Well, the NAM has not taken a position on that
yet. I have to say that we candidly do not like the fact that
embodied within the agreement is the possibility of taking
trade actions to enforce labor and environmental provisions. We
have not taken a position on it, however, because we have----
Mr. Houghton. Sanctions, you mean?
Mr. Vargo. That is right.
Mr. Houghton. Right.
Mr. Vargo. We have not taken a position because, in the
spirit Mr. Rangel mentioned, we look forward to working on a
bipartisan basis to seeing an overall solution to the question
of labor and environment, which, as I indicated in my
testimony, has stalled us for too long and we cannot afford it
anymore.
Mr. Houghton. I do not want to put words in your mouth, but
in taking a look at some of these articles here, in terms of
labor laws, the right of association, to organize and bargain,
prohibition of any form of forced labor, compulsory labor,
minimum age for employment, things like that, if the sanctions
were out, this would not be a problem for you?
Mr. Vargo. It would not be a problem for us.
Mr. Houghton. All right. So how do you feel, Mr. Price?
Mr. Price. Congressman, I am afraid I will not be able to
give you a very satisfactory answer as I am here on behalf of
the USCIB on the issue of investment only and cannot really
express the views of the association on that point. I could
offer a personal view, but I do not know how satisfactory that
would be.
Mr. Houghton. Okay. Well, you know, Mr. Sweeney, it always
seems to come down to, to me, although the environment
obviously is very important, it is the whole conditions of the
labor market and are we dealing with our labor force fairly
when we are trying to encourage international trade. And I do
not know whether this sanction issue is critical for you or
there are other things, the dispute settlements or whatever.
What are the things which are really critical for you here?
Mr. Sweeney. Well, the labor movement really feels that
labor provisions of trade agreements must be enforced through
the same means as commercial provisions. We feel also that
fines themselves----
Mr. Houghton. Can I just ask, so, in other words, if----
Mr. Sweeney. We are looking for parity.
Mr. Houghton. If a country says that we will abide and
enforce our labor laws, that is not good enough for you.
Mr. Sweeney. We would have to see the details. I mean, the
Jordanian agreement is an example of an agreement with a
country that basically has good labor laws. The Jordanian labor
movement and the Chamber of Commerce in Jordan support the
agreement. Those are really some major steps for a good
agreement. But we would have to see the details in terms of
sanctions and fines and how enforceable they were.
Mr. Houghton. But let me just press this thing further.
Unless a country has an egregious set of labor laws and an
inability to enforce them, you would think that with reasonable
conditions in their country and enforcing those laws, similar
to those of Jordan, that these would be acceptable for you?
Mr. Sweeney. There would definitely have to be some
enforceable provisions.
Mr. Houghton. Okay. Now, Mr. Fisher, could I ask you a
question? What are those non-negotiable issues on the part of
our Latin American neighbors that are critical in any
negotiation?
Mr. Fisher. What are the non-negotiable issues? Across the
board, or are you just talking about this area of----
Mr. Houghton. What are the critical ones?
Mr. Fisher. I think this comes down to, from a Latin
standpoint, a very simple issue, again, which is market access
in the United States, in return for which not only--again, it
was mentioned earlier. Our applied tariff here is about 1.5
percent, 1.6, whatever it is, as far as these trading partners
are concerned. So the tariff issue is not the issue.
The issues are other aspects of market access, with the
exception of the high tariffs imposed in agriculture, but then
the non-tariff barriers to agriculture and to other exports,
especially goods, because the rest of the hemisphere,
particularly south of Mexico, although they are growing their
production of services, are not huge service producers.
From our standpoint, of course, we want to have access to
their markets. And, again, we talked earlier, some of the
tariffs there are awfully high, so it is meaningful to reduce
the tariff barriers. But then it is the non-tariff barriers,
the procedures, the efficiencies in the economy, the rules, the
way laws are enforced and so on, that is the trade.
And I think, again, listening to my former counterparts and
Mr. Zoellick's current counterparts in the hemisphere, the key
issues come down to these very tough issues. Agriculture is a
big production area for the southern cone in particular. To get
Brazil to play ball here--and it is the largest country south
of Mexico; it is 173 million people--they have said pointblank
that we have to have agriculture on the table. Very tough for
us to do as we are crafting a farm bill. Very tough for us to
do to take on these very important constituencies for us, the
farmers and ranchers of this country.
Similarly, in terms of antidumping activity, as I mentioned
earlier, they want that on the table. And that is what they are
looking for.
So are they non-negotiable? Everything is negotiable. I do
not believe, however, again, just to go back to this point
earlier, that certain remedies in terms of sanctions are not
negotiable. I think that would basically throw this trade out
the window.
We may decide, Congressman, that we do not want to do an
FTAA, by the way, that we cannot get it.
One, that certain countries do not want to participate in
this thing, that we cannot move Brazil, that we are limited in
what we are able to spend politically. And we may decide, as
Ambassador Zoellick said earlier, that we will just proceed
with bilateral after bilateral or with smaller groupings. The
purpose of my testimony was simply to point out that there are
certain tough areas for us that we are going to have to look
into our hearts to see if we can deal with them, and those are
the ones I mentioned.
Mr. Houghton. Well, thanks. My time is up. Mr. Chairman,
thank you.
Chairman Crane. Let's see. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman.
Let me first thank all of the gentlemen for their testimony
and their comments with regard to the issues that we face in
trying to negotiate these agreements with our Latin American
partners.
Let me just go through a list of objectives and standards
and ask if any of you object to or disagree with any of these.
First would be the freedom to associate. Does anyone here
object to or disagree with the right of people to freely
associate in their country? And just chime in if you think no.
What about the right to organize? Anyone disagree or object to
that right?
Mr. Sweeney. I am in favor.
Mr. Becerra. Duly noted. The right to collectively bargain,
does anyone disagree with the right or object to the right to
collectively bargain? What about do you object to or disagree
with the elimination of child labor? What about do the
elimination of forced labor, slave labor? Does anyone object to
or disagree with the elimination of discrimination in
employment?
Those are, for the most part--I may have missed one or two,
but those are the core labor standards in the ILO's Declaration
of Fundamental Principles and Rights to Work.
If no one disagrees with them, is there any reason why
anyone would disagree with including those within any trade
agreement that we have with any country, whether it is Latin
America or otherwise? Mr. Vargo?
Mr. Vargo. Mr. Becerra, we certainly do not disagree with
those core labor standards. We do not disagree with the idea
that nations should do more to bring them about. We do
disagree, though, that one can take a trade agreement and say
the purpose of the trade agreement is to bring about compliance
with these objectives. The purpose of a trade agreement to us
is a simple one. It is to remove trade barriers, and that first
and foremost is what we want.
We do not think that this is necessarily incompatible with
taking steps to bring about greater adherence to labor rights
around the world, or environmental standards. We do definitely
object to the possibility of creating a new trade barrier or an
opportunity to restrict trade in the future from it. That is
the only thing we are objecting to.
Mr. Becerra. Wouldn't it be considered a trade barrier if a
country were to use much less expensive labor to manufacture or
produce a product that we ourselves could produce here and as a
result create, in effect, a better bargaining position for that
trade?
Mr. Vargo. No, that is not a trade barrier. It affects
trade. It may affect competitiveness. It may not be fair trade.
But it is not a trade barrier.
Mr. Becerra. So, Mr. Vargo, are you implying that you would
support unfair trade?
Mr. Vargo. No. I am saying that there are many things that
can affect trade. Competition policy can affect trade.
Mr. Becerra. So how are we to compete with other countries
if we do not require in our agreements that they not engage in,
for example, forced labor or child labor? How will our
industries compete domestically?
Mr. Vargo. Well, Mr. Becerra, we are competing with them
now. The question is: Are we going to get them to lower the
trade barriers that are now keeping out our products? To us
that is the issue. It is not are we going to trade with them or
not. We do trade with them. But we trade with them under
circumstances under which, for many reasons, our trade barriers
are very low. And that is a fact, sir. They are very low. And
theirs are high. And we want to get them down.
Mr. Becerra. And as a result, we are saying to them we are
going to open up our markets completely to you if you do
certain things. And it seems to me that we would want them to
do the right things.
Now, we cannot force them necessarily to have our wage
standards because we are working on different planes. But
certainly we would want them to at least function and operate
under at least core labor standards, which do not ask for a
great deal beyond what most people think are humane policies.
Mr. Price, let me ask you a question. In response to Mr.
Houghton, you said you really could not give him a direct
response to the question about the issue of labor standards.
And yet in your testimony, you talked about how investors do
not necessarily go to the cheapest countries or the countries
with the cheapest labor because if that were the case, you
would see a lot of investment going into the poorest countries,
and you mentioned that it really would be a race to the bottom.
I think you did comment on labor standards, so I hope you could
give us a more complete answer to Mr. Houghton's question.
But let me ask you to comment. I agree with you. You are
not going to see investment going to the countries that are
poorest simply because the atmosphere there is not the best for
investments. But I think last week's reaction by the stock
market to the news in this country that unemployment had shot
up dramatically and how the stock market was jubilant and went
up is clearly a sign that investment does operate on what is a
lower-cost market. And, therefore, I think it would be
difficult, I think, to argue--and I would hope you are not
arguing--that indeed investors look for the highest-cost
markets. And to me it seems that labor is one of the components
of the production of any particular good, and, therefore, you
are going to as an investor take into account what a country
has with regard to wages in its country, would you not?
Mr. Price. Let me try and answer that. Congressman Houghton
asked me to comment specifically----
Mr. Becerra. You have to get closer to the microphone.
Mr. Price. I am sorry. Let me try and answer your
questions. Congressman Houghton asked me to comment
specifically on the provisions of the Jordan FTA, and I said I
was not in a position to do that on behalf of the organization
that sent me here since I am talking about investment.
Let me respond to your question now. I think it is true
that investment flows--and it is demonstrable--to high-wage
jurisdictions with a high standard of living. The point that I
was making in my testimony is that if wages were the principal
determinant of the location of investment, you would expect the
majority of investment to be in low-wage jurisdictions----
Mr. Becerra. But no one has ever argued that wages are the
sole determinant of where investment goes. And providing wage
or environmental standards within a trade agreement would not
in and of themselves affect investment decisions by people
throughout the world in a country with a core labor standard
within a trade agreement, would it?
Mr. Price. Well, I think we are talking about two different
things. One is the question of whether wages or labor costs are
a factor in investment decisions. I think that was your first
question. And I think the answer is they are. They are among
the factors that are taken into account. Again, it depends on
what the purpose of the investment is, and it depends how the
other factors are weighted.
What I think you have just asked me now is whether
investment decisions would be affected if labor and
environmental provisions were included in trade agreements. And
I think the answer to that is it would depend on what those
provisions said and whether the provisions create new risks to
foreign investment or not.
Chairman Crane. The gentleman's time has expired.
Mr. Becerra. Thank you, Mr. Chairman.
Chairman Crane. Let me alert everybody on the Committee
that we have only one more hour to go, and we have our Foreign
Ministers coming up in the next panel. And so if you will all
please adhere to the lights and remember that when the green
light goes off and the red light goes on, your time has
expired. And I am talking to Members of the Committee. With
that, I recognize Mr. English.
Mr. English. Thank you, Mr. Chairman. I will keep my
questioning disciplined.
Ambassador Fisher, it is a pleasure to have you here. May I
say, I think you have an expertise that is particularly useful
in this discussion, and commenting, as I imagine you guessed I
would, about your testimony with regard to antidumping and
countervailing duty issues being put on the table, I think that
you have made a case that there is a good basis for having a
discussion worldwide about the sorts of standards that are
applied to 201- and 301-like processes, and encouraging other
countries to adhere to our standards when it comes to those
laws.
We do, though, have a WTO antidumping code in place, and
given that--and I presume you agree with me on this--I believe
that having strong trade protections, strong methods of
policing our market against unfair trade practices, is critical
to maintaining support for free trade within our country.
Do you think that an FTAA is really an appropriate place to
have a negotiation? This is, after all, a negotiation for a
regional trading pact. Would this not be better handled either
under the WTO or would it not be better handled as a side
agreement separate from any FTAA that might be developed? Since
we like, some of us like side agreements, as it applies to
labor and the environment, would not a side agreement be a more
appropriate place to deal with an antidumping or countervailing
duty understanding?
Mr. Fisher. First, I am certainly not advocating changing
our laws, Congressman.
Mr. English. Very good.
Mr. Fisher. Secondly, I'm not advocating abandoning our
right to take action against people that dump into our market.
I think I heard Ambassador Zoellick say earlier what we
always said, that this new anti-dumping regime has just been
put in place, and our arguments were that, until we saw how
this worked and what its efficacy was, we did not want to put
it back on the table. That makes a lot of sense.
Frankly, what I'm saying is I'm tired of hearing from our
Brazilian and other friends that we're unfair. Look at how many
anti-dumping cases Argentina and Brazil combined filed when we
only 17--they filed 40. Let's call their bluff on this. In
other words, let's say, ``you say that our system is arbitrary,
let's examine, with a fine-tooth comb, how you apply these in
your own country,'' let's achieve a common understanding of how
we're putting this new regime in place----
Mr. English. Would it not be easier, though, to move
forward--I don't mean to interrupt, but I'm under strict time
here.
Would it not be easier to conduct this discussion outside
of an FTAA? Wouldn't it be easier to conduct this discussion in
a way that doesn't increase how controversial the FTAA already
is domestically?
Mr. Fisher. Well, again, this is one of the--remember, we
have nine negotiating groups within this structure, already
carved out by common agreement amongst the 34 countries that
this will be discussed. I'm not sure you can remove it,
Congressman, at this stage.
Mr. English. Your point is well-taken.
Mr. Fisher. But we shouldn't be afraid to talk about it,
because I think we're going to find that we might have some
common cause here if we're careful.
Mr. English. Mr. Sweeney, I agree with many of the things
that you have included in your testimony, and I would encourage
you to look at House Resolution 1446, which I have introduced,
that would provide for a standard trade negotiating authority.
But you say in your testimony, ``We believe that any fast
track legislation must require--your emphasis--the inclusion of
enforceable workers' rights and environmental standards in the
core of all new trade agreements.''
I guess my question in view of that is, what would be the
appropriate core labor and environmental standards to be
included in a specialized trade agreement, like financial
services, competition policy, or intellectual property rights?
Are there not some trade agreements we may want to have with
our hemispheric partners, or our partners world-wide, that are
so specialized they don't naturally have a labor and
environmental component to them?
Mr. Sweeney. We would have to say that we think the core
labor standards and environmental concerns have to be addressed
in all trade agreements.
Mr. English. Okay. Mr. Gambrel, from your perspective, what
is the appropriate core labor or environmental standards to be
included in a financial services treaty?
Mr. Gambrel. I can't think of any, Congressman.
Mr. English. Ambassador Fisher.
Mr. Fisher. The financial services is just part of a total
trade agreement. I don't think that's what Mr. Sweeney was
saying, in terms of specifically financial services itself. I
believe what he was saying is that it's part of the total
agreement, and he feels it should be part of----
Mr. English. I'm out of time. My point is that there are
some things that we may want to negotiate that don't include
labor and environment, and I think my bill addresses it. Thank
you, gentlemen. Excellent testimony.
Chairman Crane. Mr. Levin.
Mr. Levin. Thank you, Mr. Chairman.
We regret that the ministers and others on the next panel
have been delayed. But I think, though, this has been an
especially useful panel, and I think it's good that we have all
heard it.
Some of you I know well, and that should not detract from
my commenting directly.
First of all, let me suggest, in terms of our discussion of
core labor standards, I hope the ministers here and others not
only listen to the former Deputy USTR and others, but those who
are presently in the U.S. Congress.
I think it is a mistake to have the total focus on exactly
what remedy and to forget--for example, in the GSP, sanctions
have been available to the U.S. for many, many years. Most of
the Latin American countries have operated within a GSP system
that allowed the U.S. to utilize what are called trade
sanctions. We have done that responsibly, and there has been
the threat--and Mr. Sweeney spells this out rather at length,
and I think interestingly--there has been the threat they
haven't been utilized. But GSP has moved the issue of core
labor standards along.
So the notion that countries will not, under any
circumstances, negotiate, I hope isn't misread. If that had
been the standard 15 years ago on intellectual property, we
never would have done anything, because countries were saying
to us ``never''. We were saying let's move ahead and let's
discuss it, and eventually we came up with that kind of a
structure.
Secondly, let me say to you, Mr. Vargo, we have had a lot
of discussion about these issues. If I might say so, I think
the purpose of trade agreements isn't simply to remove trade
barriers. The WTO talks about a standard of living being
uplifted, and I think you agree with that. Anti-dumping laws
are there not to remove trade barriers, competition policy,
safeguard mechanisms that are permitted under WTO. It's because
the feeling is you have to have rules of trade, terms of trade,
and that the only issue isn't only opening up trade barriers of
other countries. I hope we will think about that.
Thirdly, if I might just pick up briefly on Mr. Becerra's
point, Mr. Price, I just want to go back to this because you
say, ``If lax environmental standards, low wages and the
absence of worker rights were the principal determinants of
investment flows, one would expect the least developed
countries to be the host of the vast majority of foreign
investment.'' You also say, ``The critics confuse the cause and
cure: problems of environmental protection and labor standards
are preeminently problems of economic development.''
No one is saying that labor standards and environmental
standards are ``the'' principal determinant of investment
flows. Really, in your back and forth, you acknowledge the
relevance of environmental and labor standards to decisions in
many cases of investment. There is no single principal
determinant of investment. I think you'll agree.
The question is, is it part of the mix. I think the answer
clearly is--and as evidence, I referred earlier to the
Equadorian situation--is that it's relevant in many situations.
For example--and I'll say this bluntly--if Brazil feels that we
won't discuss environmental issues in the FTAA, and that will
be part of the bargain, that's a non-starter. No agreement will
pass this institution if there isn't a consideration of
environmental issues. I see Mr. Fisher shaking his head, I
think in agreement.
Last, I just want to make clear, Mr. Sweeney, and I think
others of you have said this, the issue of labor standards and
environmental standards, the thrust does not come basically
from any effort at protectionism, any form of it. It comes from
a number of us who want expanded trade. It's an essential
ingredient of that. Thank you.
Chairman Crane. Thank you.
With that, I want to express our appreciation to all of the
members of this panel. I will excuse you after your outstanding
presentations.
Now it's a delight to introduce the next distinguished
panel to discuss the renewal of the Andean Trade Preference
Program. I especially welcome Colombian Minister of Foreign
Trade, Marta Lucia Ramirez, and the Bolivian Vice Minister of
Trade, Ana Maria Solares. And because the Andean Trade
Preference Program is part of a close partnership effort
between the United States and the Andean countries that
strongly impacts national security interests of the United
States, I have elected to waive normal Committee rules so that
we may hear your testimony today.
I want to thank both of you and the other Andean Ministers
in the audience for taking time out of your business schedules
to be here today.
Due to Committee time constraints, we have included you on
a panel with representatives from U.S. industry. I recognize
that this is unusual and I appreciate your patience and
understanding in graciously accommodating our time constraints.
If you folks could take your seats, please. We have to
conclude today's hearing at 6:00 o'clock sharp, and as a
result, I want to remind colleagues on the Committee here to
watch the lights with regard to their questions, and also all
of our witnesses who will be testifying today, if you can keep
your oral testimony to 5 minutes or less, please do so. Any
written testimony will be made a part of the permanent record.
With that, I now welcome Minister Ramirez to begin.
STATEMENT OF THE HON. MARTA LUCIA RAMIREZ RINCON, MINISTER OF
FOREIGN TRADE, GOVERNMENT OF COLOMBIA
Ms. Ramirez. Thank you very much, Mr. Chairman.
Mr. Chairman and Members of the Subcommittee, thank you for
inviting me to appear before this panel today. If you allow me,
I am going to read the short version of my statement, but I am
going to leave both for your records.
I am Marta Lucia Ramirez, Minister of Foreign Trade for the
government of Colombia. I appear here today on behalf of the
Andean community countries not only to express our strong
commitment for a Free Trade Area of the Americas, but also to
ask your support for the early enactment of legislation to
renew, expand and enhance the Andean Trade Preference Act.
As you know, the ATPA expires in December of this year. It
is appropriate that this Committee today looks at both the FTAA
and the ATPA. These two important trading initiatives are
interrelated. A hemispheric free trade area will increase
economic growth and employment and create new opportunities for
all of our countries. That is why we are pleased with the
outcome of last month's summit in Quebec City. We look forward
to advancing negotiations toward the implementation of the FTAA
by no later than year 2005.
More immediately, the issue of ATPA renewal, expansion and
enhancement must be addressed by the U.S. Congress. ATPA was
designed to promote export diversity and strengthen legal
activities in our country through new exports and through the
generation of new legal jobs in order to confront the
destabilizing threats to our democracies posed by illegal
narcotics production and trafficking.
ATPA is also about saving lives. It's about the strength of
our democracy, both in Andean countries and in the United
States, because it reinforces our common goal, which is the
fight against illegal drugs and the corruption it generates.
USTR stated in their last report that the ATPA is
strengthening the legitimate economies of the countries in the
region and is an important component in the U.S. effort to
contain the spread of the illegal drug trade.
Moreover, both the Andean countries and the United States
have benefited economically from the ATPA. Over the last 9
years, the ATPA has created 140,000 new jobs in the Andean
Region. In dollar terms, U.S. exports to ATPA countries have
risen 75 percent between 1991 and the year 2000.
The United States serves as the leading source of raw
materials, capital goods and technology imports for each of the
ATPA countries, as well as our leading export market. As a
result, ATPA benefits have generated employment in both the
United States as well as in the Andean Region.
Colombian flowers are an excellent example of why ATPA is
working, and of the social and economic benefits that ATPA
promotes. The $439 million in cut flowers that ATPA shipped to
the United States last year resulted in some $9 billion in
retail sales in America, generating jobs and income for many
Americans. But equally important, the Colombian flower industry
is a world-recognized leader in the war on drugs, maintaining
state-of-the-art drug interception technology and collaborating
closely with the United States Customs Service on interdiction.
In addition, due directly to the benefits ATPA provides,
the Colombian flower industry initiated major labor and
environmental programs that are models not only in Colombia but
also in so many other countries.
We are well aware of the suggestions that ATPA could be
rewritten to match the benefits provided to the Caribbean and
Central American countries last year. Indeed, Senator Graham of
Florida has already introduced such a bill in the Senate, S.
525. We appreciate that first step. However, the Andean Region
and the CBI region are very different. The structure of our
productive sector is so different. We in the Andean Region have
more vertically integrated industries and the purposes of the
CBI are very different from what the ATPA must accomplish.
Therefore, we believe that the ATPA must reflect those
differences.
One of the sectors offering the greatest opportunities for
the generation of new jobs in our region is textiles and
apparel chain. The ATPA countries are currently a minor player
in the U.S. apparel market, accounting for less than one
percent of the total U.S. apparel imports, and that is all we
have accounted for every year since 1992.
By contrast, the CBI countries account for almost 23
percent of total U.S. apparel imports. These numbers
demonstrate that, with respect to textiles and apparel, the
ATPA countries are more like the sub Saharan African countries
than we are like the CBI countries. Therefore, we believe that
an enhanced ATPA should be based more on the model established
in the African Growth and Opportunity Act rather than the one
in the CBI.
The Andean countries also need to promote new foreign
investment in key business sectors to achieve economic recovery
and effectively fight the drug war. While the original ATPA,
with its 10-year term, initially brought new investment into
the region, recently new investment has declined considerably,
mainly because of the uncertainty of the medium- and long-term
market access conditions to the North American market.
To generate new interest in the region, we need ATPA to be
extended for a term sufficient to ensure that the FTAA has come
into force before the ATPA completes another term.
Additionally, we would like you to consider that, of the five
Members of the Andean community who have benefited from the
ATPA, these preferences do not cover Venezuela. Our trading
block, as well as the United States, will benefit if ATPA were
expanded to include all the Members of the Andean community.
Mr. Chairman, members of the Subcommittee, the Andean
countries greatly appreciate your support in holding this
hearing today to discuss renewal of the ATPA. We are very
hopeful that you will act quickly to enact a new ATPA before
the current program expires. Time is of the essence. It is
absolutely essential that we create jobs to assist those who
are displaced by illegal crop eradication and to lure workers
back to those areas where legitimate employment can be
developed.
In particular, we ask that this Subcommittee take up and
pass ATPA legislation preferably before the July 4th recess, in
order to generate momentum for this legislation. Such momentum
is needed if a new, expanded and enhanced ATPA is to be enacted
before the current ATPA expires in December.
We welcome the opportunity to work with you, and with the
Bush administration, which has been very supportive, to achieve
both an enhanced ATPA and an FTAA as quickly as possible.
Mr. Chairman, I thank you for this opportunity and honor to
be here sharing with you such an important Subcommittee.
Thank you very much.
[The prepared statement of Ms. Rincon follows:]
Statement of the Hon. Marta Lucia Ramirez Rincon, Minister of Foreign
Trade, Government of Columbia
I. Introduction
Mr. Chairman, members of the Subcommittee, I am Marta Lucia
Ramirez, Minister of Foreign Trade for the Government of Colombia. I
appear here today on behalf of the Andean Community countries to
express our strong support for a Free Trade Area of the Americas (FTAA)
and for early enactment of legislation to renew and enhance the Andean
Trade Preferences Act (ATPA). As you know, the ATPA expires in December
of this year.
It is appropriate that this committee today looks at both the FTAA
and the ATPA, as these two important trade initiatives are integrally
related. A hemispheric free trade area will increase economic growth
and employment and create new opportunities for all our countries. It
will also provide direction for the Andean countries to establish a
firm schedule for liberalization and to achieve consistency in the
breadth of our liberalization schemes. In this respect, we were pleased
with the outcome of last month's Summit in Quebec City. We look forward
to advancing negotiations toward creation of the FTAA by no later than
2005.
More immediately, the issue of ATPA renewal and enhancement must be
addressed by the U.S. Congress, and soon since the current ATPA will
expire in December. ATPA was designed to promote export diversity and
to create new legal employment in our countries, and thus help to
confront the destabilizing threats to our democracies posed by illegal
narcotics production and trafficking. But ATPA is also about saving
lives both in Andean countries and the United States because it
reinforces our fight against illegal drugs.
II. Renewal and Enhancement of ATPA
The current ATPA has been meaningful for both the Andean countries
and the United States. The report of the Office of the U.S. Trade
Representative (USTR) on the operation of the ATPA makes clear that
ATPA is working. The report states explicitly that the ATPA is
strengthening the legitimate economies of the countries in the region
and is an important component in the U.S. effort to contain the spread
of the illegal drug trade. USTR has concluded that the ATPA has
resulted in export diversification for our countries and that net coca
cultivation has declined.
The Andean countries are firmly united in their quest for prompt
enactment of legislation to renew and enhance the ATPA. A renewed and
enhanced ATPA will serve as a stepping stone toward completion of the
FTAA. Moreover, expanded trade offers the most effective means for the
Andean countries and the United States to work together to make
progress against illegal narcotics production and trafficking.
An unintended impact of the Caribbean Basin Trade Partnership Act
is that the ATPA countries have lost competitiveness against the
Caribbean and Central American nations. In Colombia alone, almost 2,000
jobs already have been lost because U.S. importers have moved orders to
the CBI region in order to obtain the duty savings. Many more jobs
remain threatened. To prevent job losses, some Colombian companies have
been forced to reduce their prices in order to keep the business, but
obviously they cannot sustain this practice.
Expanded trade will complement the investments we have made
together to combat drugs. Indeed, our partnership to fight drug
production and trafficking will not succeed without economic growth
spurred by expanded trade between our countries. It is absolutely
essential that Colombia and other Andean countries create jobs to
assist those who are displaced by illegal crop eradication and to lure
workers back to those areas where legitimate employment can develop.
No country has had to incur more sacrifices to stop drug production
and trafficking than Colombia. We count our dead by the thousands and
our material losses by the billions of dollars. Currently, with
unemployment at 20%--the worst level in our history--it is absolutely
essential to generate more jobs. President Pastrana has implemented
tough reforms and austerity measures to address the economic downturn
in Colombia. These reforms have resulted in a fragile economic
recovery.
A renewed and enhanced ATPA will help Colombia fortify its economy
and lay the foundation for sustainable long-term economic growth. We
therefore believe it is imperative to renew the ATPA before it expires
on December 4, and to enhance it to include the products currently
excluded from the legislation.
III. ATPA Benefits the Andean Region and the United States
Andean industries benefiting from ATPA--including cut flowers, non-
traditional fruits and vegetables, jewelry and electronic components--
have generated $3.2 billion in new output since ATPA's inception in
1991, and $1.7 billion in new exports. Over the last nine years ATPA
has created 140,000 new jobs in the region.
U.S. General Imports From ATPA, Top Ten ATPA Items for the Year of 2000
----------------------------------------------------------------------------------------------------------------
4-digit HTS Description ATPA Value (US$)
----------------------------------------------------------------------------------------------------------------
7403........................................ Refined Copper And Copper Alloys (Other Than 565,169,004
Master Alloys Of Heading 7405), Unwrought.
0603........................................ Cut Flowers And Buds Suitable For Bouquets Or 439,531,768
Ornamental Purposes, Fresh, Dried, Dyed,
Bleached, Impregnated Or Otherwise Prepared.
3212........................................ Pigments Dispersed In Nonaqueous Media, In 199,392,893
Liquid Or Paste Form, For Paint Manufacture;
Stamping Foils; Dyes And Other Colors Packaged
For Retail Sale.
7113........................................ Articles Of Jewelry And Parts Thereof, Of 155,196,411
Precious Metal Or Of Metal Clad With Precious
Metal.
1604........................................ Prepared Or Preserved Fish; Caviar And Caviar 80,220,426
Substitutes Prepared From Fish Eggs.
7901........................................ Zinc, Unwrought................................. 58,373,185
2843........................................ Colloidal Precious Metals; Inorganic Or Organic 50,117,850
Compounds Of Precious Metals, Chemically
Defined Or Not; Amalgams Of Precious Metals.
0709........................................ Vegetables Nesoi, Fresh Or Chilled.............. 43,557,681
3921........................................ Plates, Sheets, Film, Foil And Strip Nesoi, Of 28,869,065
Plastics.
4202........................................ Travel Goods, Vanity Cases, Binocular And Camera 26,744,716
Cases, Handbags, Wallets, Cutlery Cases And
Similar Containers, Of Various Specified
Materials.
1701........................................ Cane Or Beet Sugar And Chemically Pure Sucrose, 22,595,104
In SolidForm.
----------------------------------------------------------------------------------------------------------------
But it is important to note that there has been a two-way benefit.
The United States is an extremely important trading partner for the
Andean countries, with the United States serving as the leading source
of imports for each of the ATPA countries as well as our leading export
market. In dollar terms, U.S. exports to ATPA countries have risen 75
percent between 1991 and 2000, with two-way trade increasing
dramatically from $9.2 billion in 1992 to $17.9 billion in 2000. As a
result, ATPA benefits have generated employment in the U.S. as well as
in the Andean region. A review of the trade data indicates that many of
the items shipped by the United States to the Andean region are used to
generate ATPA qualifying goods. These items include, among others,
fertilizers, paperboard and plastics, which are used in our flower
industry, including for the greenhouses in which these flowers are
grown.
U.S. Exports to ATPA Countries for the Year of 2000--Intermediate Products and Raw Materials
----------------------------------------------------------------------------------------------------------------
4-digit HTS Description Export Value
----------------------------------------------------------------------------------------------------------------
4804........................................ Kraft Paper & Paperboard, Uncoat Nesoi, Rolls 156,213,581
Etc.
2903........................................ Halogenated Derivatives Of Hydrocarbons......... 130,800,177
3901........................................ Polymers Of Ethylene, In Primary Forms.......... 107,340,801
3100........................................ Fertilizers, Exports Only Incl Other Crude 84,282,265
Mat'Ls.
7108........................................ Gold (Incl Plat Plated), Unwr, Semimfr Or Powder 74,911,310
8474........................................ Machinery For Sorting Screening Etc Minerals, 72,573,269
Pts.
5201........................................ Cotton, Not Carded Or Combed.................... 71,113,180
2902........................................ Cyclic Hydrocarbons............................. 62,371,090
8413........................................ Pumps For Liquids; Liquid Elevators; Parts 52,716,305
Thereof.
3907........................................ Polyethers, Expoxides & Polyesters, Primary 51,615,093
Forms.
2304........................................ Soybean Oilcake & Oth Solid Residue, Wh/Not 45,487,152
Ground.
3808........................................ Insecticides, Rodenticides; Fungicides Etc, 36,993,530
Retail.
2905........................................ Acyclic Alcohols & Halogenat, Sulfonatd Etc 33,283,418
Derivs.
3920........................................ Plates, Sheets, Film Etc No Ad, Non-Cel Etc, 31,925,844
Plast.
8406........................................ Steam Turbines & Other Vapor Turbines, Parts.... 31,032,456
2901........................................ Acyclic Hydrocarbons............................ 28,491,214
3902........................................ Polymers Of Propylene Or Other Olefins, Prim 27,926,250
Forms.
4002........................................ Synth Rubber & Factice, Inc Nat-Syn Mix, Pr Fm 24,640,263
Etc.
3906........................................ Acrylic Polymers In Primary Forms............... 22,977,269
2915........................................ Sat Acyclic Nonocarbox Acid & Anhyd, Halogon Etc 22,815,228
2926........................................ Nitrile-Function Compounds...................... 22,387,343
5402........................................ Synthetic Filament Yarn (No Sew Thread), No 22,383,281
Retail.
4810........................................ Paper & Paperboard, Coated With Kaolin Etc, Rl 20,435,308
Etc.
3824........................................ Binders For Found Molds; Chemical Prod Etc Nesoi 20,103,857
2933........................................ Heterocyclic Comp, Nit Hetero-Atoms Only........ 18,908,820
2836........................................ Carbonates; Peroxocarbonates; Comm Amm Carbonate 18,420,841
4703........................................ Chemical Woodpulp, Soda Or Sulfate, Not Dissoly 17,733,992
Gr.
4802........................................ Paper, Uncoat, For Writing Etc, Rolls; Hndmd 17,295,361
Paper.
----------------------------------------------------------------------------------------------------------------
The Colombian flower industry is an excellent example of how trade
between our countries is mutually beneficial. In Colombia last year,
one percent of total household income came from the cut flower
industry, with Colombia shipping $400 million worth of flowers to the
U.S. Approximately two thirds of $14 billion worth of cut flowers sold
in the U.S. last year came from Colombia. Importantly, that means that
the $400 million in cut flowers Colombia shipped to the U.S. resulted
in some $9 billion in retail sales in America. Clearly, we are bringing
profit to U.S. companies.
Colombia's flowers are not simply generating economic rewards for
the U.S. market. They also are a prominent example of how our two
countries' trade, national security and social policy objectives are
intertwined. The Colombian flower industry is a world-recognized leader
in the War on Drugs, maintaining perhaps the most state-of-the-art drug
interception technology in our region and has long collaborated with
the US Customs Service on interdiction. In addition, since ATPA was
inaugurated, and due directly to the benefits ATPA provides, the
Colombian flower industry has been able to initiate major labor and
environmental programs that stand out as models in Colombia. Among
other things, the Colombian flower sector has initiated anti-violence
training programs for its 75,000 workers; established an aggressive
anti-pesticide program for Colombia's many flower farms to help promote
a greener Colombia; launched a new program to build better homes for
the workers of the Colombian flower industry; and established strong
child care and nutrition programs for the tens of thousands of working
mothers who are critical to the flower industry.
This is positive news, but the fact remains that last year only
about 10 percent of all Andean exports to the United States were
eligible for ATPA benefits, according to a Congressional Research
Service study. ATPA must be expanded to cover all products, not just
selected goods. Strengthening the legal economies in our countries is
absolutely vital to stabilizing the region economically and
politically. Only through such enhancement of the ATPA will we generate
the level of new employment opportunities needed to help those workers
whose jobs are eliminated as a result of crop eradication as well as
the many skilled workers who are currently unemployed. Even USTR's
report notes that the ATPA has just ``begun to show important
successes.'' Beginning, after almost ten years, is not enough. To
achieve full success, ATPA must be both extended and enhanced.
An enhanced ATPA that provides duty-free access to the U.S. market
for a maximum variety of labor-intensive goods would offer great
support for democratic institutions in the region. This program would
also attract new investment and economic development, thereby
redirecting the unemployed and underemployed away from the coca and
poppy fields and providing alternative employment for those displaced
by the eradication of illegal crop production. Moreover, an enhanced
program that undermines the economic power of insurgents and credits
our democratic leaders with achieving that program would inevitably
strengthen the hand of democratic institutions in the region. Key to
such success, however, is an ATPA renewal that is sufficiently broad in
scope, without being overly complicated, and of a duration that is
adequate to ensure that investors believe there is sufficient time to
reap a return.
IV. Crafting Textile and Apparel Provisions in the ATPA
We are well aware of suggestions that ATPA could be rewritten to
match the benefits provided to the Caribbean and Central American
countries last year, under the Caribbean Basin Trade Preferences Act.
Indeed, Senator Graham of Florida already has introduced such an ATPA
renewal bill in the Senate, S. 525, and we appreciate that first step.
However, the Andean region and the CBI region are very different and
the purposes of the CBTPA were very different from what the ATPA must
accomplish. Therefore, we believe that the ATPA must reflect those
differences.
One of the sectors offering the greatest opportunities for the
generation of employment is textiles and apparel. The ATPA countries
are currently a minor player in the U.S. apparel market. The ATPA
countries account for only one percent of total apparel imports--and
that is all we have accounted for every year since 1992. The CBI
countries account for almost 23 percent of total U.S. apparel imports,
and their share of the U.S. market has been growing over the past
decade. Those numbers demonstrate that, with respect to textile and
apparel exports to the United States, the ATPA countries are more like
the sub-Saharan African countries than we are like the CBI countries.
Therefore, we believe that an enhanced ATPA should be based on the
model established in the African Growth and Opportunity Act rather than
the one in the CBTPA.
Apparel Imports to the United States
[GRAPHIC] [TIFF OMITTED] T4222A.018
CBI versus NAFTA versus Andean Region (% of total apparel imports to
the U.S.)
Unlike the CBI region, the Andean region is not dominated by so-
called 807 assembly operations. The apparel industry in the ATPA
countries is highly vertical, meaning that we manufacture yarns,
fabrics, and finished garments and textile goods, offering our
customers a ``full package'' of services. To do this, we import a great
deal of inputs from the United States. We would import even more if
there were benefits for our textile and apparel exports to the U.S.
under ATPA.
The fact is that today the Andean countries already import far more
raw cotton from the United States than the CBI countries, even though
there are only 4 ATPA countries and there are two dozen CBI countries
($72 million versus $58 million worth of raw cotton). The United States
is by far Colombia's top supplier of raw cotton, accounting for 50
percent of our imports. The ATPA countries also import a significant
quantity of manmade fibers and manmade fiber yarns from the United
States--a total of $57 million worth in 2000. (The U.S. exported $32
million worth to the CBI region during the same period.) These inputs
provide some indication of the extent to which enhanced ATPA offers
real export opportunities for the U.S. cotton, manmade fibers and yarn
industries.
U.S. Exports to the ATPA Countries for the Year of 2000--Value of Wool, Cotton and MMF Inputs
----------------------------------------------------------------------------------------------------------------
APTA export
4-digit HTS Description value % Share
----------------------------------------------------------------------------------------------------------------
Raw Wool:
5101..................................... Wool, Not Carded Or Combed.............. 3,895 0.1
Total raw wool.......................... 3,895 0.1
Wool Yarn:
5106..................................... Yarn Of Carded Wool, Not Put Up For 8,979 0.5
Retail Sale.
5107..................................... Yarn Of Combed Wool, Not Put Up For 478,977 8.5
Retail Sale.
5109..................................... Yarn Of Wool Or Fine Animal Hair, For 35,144 2.0
Retail Sale.
Total wool yarn......................... 523,100 5.8
Wool Fabric:
5111..................................... Woven Fabrics Of Carded Wool Or Fine 1,003,721 4.1
Animal Hair.
5112..................................... Woven Fabrics Of Combed Wool Or Fine 1,114,008 2.2
Animal Hair.
5113..................................... Woven Fabrics Of Coarse Animal Hair Or 3,645 1.0
Horsehair.
Total wool fabric........................ ...................................... 2,121,374 2.8
Total Wool Products...................... ...................................... 2,648,369 3.0
Raw Cotton:
5201..................................... Cotton, Not Carded Or Combed............ 71,113,180 3.8
5202..................................... Cotton Waste (Including Yarn Waste Etc.) 402,883 1.2
5203..................................... Cotton, Carded Or Combed................ 744,673 8.1
Total raw cotton........................ 72,260,736 3.8
Cotton Yarn:
5205..................................... Cotton Yarn (Not Sewing Thread) Nu85% 1,197,918 0.5
Cot No Retail.
5206..................................... Cotton Yarn (Not Sewing Thread) Un85% 1,626,213 6.0
Cot No Retail.
5207..................................... Cotton Yarn (Not Sewing Thread) Retail 91,772 1.0
Packed.
Total cotton yarn........................ ...................................... 2,915,903 1.0
Cotton Fabrics:
5208..................................... Woven Cotton Fabrics, Nu 85% Cot, Wt Nov 12,083,580 3.8
200 G/M2.
5209..................................... Woven Cotton Fabrics, Nu 85% Cot, Wt Ov 9,217,064 1.3
200 G/M2.
5210..................................... Woven Cotton Fabrics, Un85% Cot, Mmfmix, 3,859,125 2.6
Nov200G/M2.
5211..................................... Woven Cotton Fabrics, Un85% Cot, Mmfmix, 1,019,031 0.9
Ov200G/M2.
5212..................................... Woven Cotton Fabrics Nesoi.............. 1,133,715 3.3
6002..................................... Knitted Or Crocheted Fabrics, Nesoi..... 4,037,827 0.7
Total cotton fabrics..................... ...................................... 31,350,342 1.6
Total Cotton Products.................... ...................................... 106,526,981 2.6
Manmade Fibers:
5501..................................... Synthetic Filament Tow.................. 9,595,901 18.6
5502..................................... Artificial Filament Tow................. 1,384,611 0.4
5503..................................... Synthetic Staple Fibers, Not Carded, 12,881,397 3.5
Combed Etc.
5504..................................... Artificial Staple Fibers, Not Carded, 953,370 1.3
Combed Etc.
5506..................................... Synthetic Staple Fibers, Carded, Combed 472,318 3.9
Etc.
Total manmade fibers..................... ...................................... 25,287,597 3.0
Manmade Fiber Yarns:
5402..................................... Synthetic Filament Yarn (No Sew Thread), 22,383,281 2.8
No Retail.
5403..................................... Artificial Filament Yarn (No Sew 492,416 0.7
Thread), No Retail.
5404..................................... Syn Monofil Not Un 67 Dec, Cr-Sect 7,703,640 4.2
Nov1Mm, Stno5Mm.
5406..................................... Manmade Filament Yarn (No Sew Thread), 346,773 3.5
Retail Pack.
5509..................................... Yarn (No Sew Thread), Syn Staple Fib, 669,603 0.7
Not Retail.
5510..................................... Yarn (No Sew Thread), Art Staple Fib, 548,361 20.0
Not Retail.
5511..................................... Yarn (No Sew Thread), Manmade Staple 144,748 0.7
Fiber, Retail.
Total manmade fiber yarns................ ...................................... 32,288,822 2.7
Manmade Fiber Fabrics:
5407..................................... Woven Fab Of Syn Fil Yn, Incl Monofil 67 4,309,513 0.4
Dec Etc.
5408..................................... Woven Fab Of Art Fil Yn, Incl Monofil 67 765,996 0.4
Dec Etc.
5512..................................... Wov Fabric, Synth Staple Fib Nu 85% 770,603 0.1
Synth St Fiber.
5513..................................... Wov Fabric, Syn St Fib Un85%, Cot Mix, 560,543 0.6
Nov17Og/M2.
5514..................................... Wov Fabric, Syn St Fib Un85%, Cot Mix, 1,172,606 1.6
Ov 170 G/M2.
5515..................................... Woven Fabrics Of Synthetic Staple Fibers 537,033 0.6
Nesoi.
5516..................................... Woven Fabrics Of Artificial Staple 411,983 1.0
Fibers.
Total Manmade fiber fabrics ........................................ 8,528,277 0.5
Total Manmade Fiber Inputs ........................................ 66,104,696 1.8
Parts of Clothing (All fibers) ........................................ 15,529,867 3.0
========================
Total Wool, Cotton, Manmade Fiber Inputs ........................................ 190,809,913 2.3
----------------------------------------------------------------------------------------------------------------
V. Greater Incentives for the Andean Region
It also must be acknowledged that simply providing the ATPA
countries with the same benefits as the CBI countries will not
necessarily induce investors or U.S. importers to do business with the
Andean countries. We need a greater incentive to overcome the higher
cost of labor in our countries and to overcome the security concerns of
American business.
We therefore sincerely hope that the U.S. Congress will craft an
ATPA enhancement law that is simple and uncomplicated, providing
unlimited duty-free access for all textile products made from either
U.S. or Andean origin inputs. It is also essential to provide duty-free
access for garments made in the region from third country inputs so
long as the most important manufacturing operations occur in the Andean
region. We hasten to note that the jobs generated by these benefits
will in no way take away jobs from the United States. The duty-free
access will instead permit the ATPA countries to compete with suppliers
in Asia.
The Andean countries need duty-free access for all other products
as well. We urge Congress to eliminate all of the exclusions that are
part of the current ATPA. In our view, just as in the African Growth &
Opportunity Act, duty-free access should be provided to all footwear,
leather goods, watches, canned tuna, petroleum products, and any other
product eligible for GSP treatment, if the GSP rules of origin are met.
For example, the labor intensive fishing industries of the ATPA
beneficiary countries have developed significantly during the last
years, but have been precluded from becoming competitive in the U.S.
market because of the high duties and restrictive access rules that
apply. Thus, ATPA countries account for only $10 million of the $600
million worth of tuna imported into the U.S. each year. Additionally,
90 percent of the capital goods and inputs necessary to produce canned
tuna reflects U.S. investment in the ATPA countries. Improved access to
the U.S. market would serve the interests of this U.S. investment in
tuna processing plants and also provide new employment opportunities.
Additionally, we would like the Subcommittee to consider that while
four of the five members of the Andean Community have benefited from
ATPA, these preferences do not cover Venezuela. Our trading bloc, as
well as the United States, would benefit if ATPA were expanded to
include all the members of the Andean Community.
Conclusion
Mr. Chairman, members of the Subcommittee, the Andean countries
greatly appreciate your support in holding this hearing today to
discuss renewal of the ATPA. We are very hopeful that you will act
quickly to enact a new ATPA before the current program expires. Time is
of the essence. Colombia needs to promote new foreign investment in key
economic sectors to achieve an economic recovery and effectively fight
the drug war. While the original ATPA, with its 10-year term, initially
brought new investment into the region, new investment has declined
considerably. In order to generate new interest in the region, we need
ATPA to be extended for a term sufficient to ensure that the FTAA has
come into force before the ATPA completes another term. Only then will
investors trust that they will have sufficient time to see a real
return on that investment.
In particular, we ask that this subcommittee take up and pass ATPA
legislation rapidly, preferably before the July 4th recess, in order to
generate momentum for this legislation. Such momentum is needed if a
law to renew and enhance ATPA is to be enacted before the current ATPA
expires in December.
We welcome the opportunity to work with you, and with the Bush
Administration, which has been very supportive, to achieve both an
enhanced ATPA and a FTAA as quickly as possible. Thank you.
Chairman Crane. Thank you, Minister Ramirez. Minister
Solares.
STATEMENT OF THE HON. ANA MARIA SOLARES, VICE-MINISTER OF TRADE
AND ECONOMICS, MINISTRY OF FOREIGN AFFAIRS, REPUBLIC OF BOLIVIA
[The following testimony was interpreted from Spanish:]
Ms. Solares. Thank you, Mr. Chairman. First of all, I would
like to thank you very much for taking the initiative to invite
us to participate in this panel to deal with a subject that is
so important for the Andean Group countries.
Thank you, also, for your personal interest in this
subject.
I have provided a document in writing explaining in detail
my presentation, and I'm aware that I have a short amount of
time right now.
I will be going directly to the point on the subjects that
I want to mention to you, but I hope you will give me a little
bit of consideration with regard to time because I need
interpreting.
Chairman Crane. If you will yield, we will, indeed. All of
the written testimony will be a part of the permanent record as
well.
Ms. Solares. Thank you.
First of all, I would like to indicate that the countries
of the Andean Region are here in this room and in this country
to encourage a reaffirmation and breathing new life to the
terms of the strategic alliance that was agreed on ten years
ago between our countries.
This alliance was formed because of a common problem that
we have, and because of a common goal that we share. This
alliance was conceived with a holistic approach that would
create actions to confront the problem of drug trafficking and
its levels of demand, consumption and distribution. This would
create a type of cooperation. The goal was to have cooperation
that in economic terms would result in trade and investment.
This Andean Trade Preferences Act has been an expression of
this strategic alliance, which has been as very effective means
for encouraging trade in both directions between our countries.
Indeed, we have seen that, as a result of this agreement of
ATPA, there has been an increase in exports to the United
States. There has also been a generation of imports to the
Andean countries from the United States in machinery products
and imports and, to be honest, this results in a greater amount
of imports than Israel and Brazil.
We can also see this Andean Trade Preference Act as a way
to--as an instrument to lead to free trade, which is something
that we all desire. Nevertheless, we must return to the
original concept that led to the agreement. It was originally
conceived in order to create alternative forms of work so that
people who would be involved in illicit drug production would
be able to have other types of work that would be legitimate
jobs.
Something else that we must recognize as the goals of this
agreement is to lead to national security, the health of our
people, and stability in the Andean countries. Mr. Chairman, we
have made tremendous strides over the past ten years, but as
you know, drug trafficking never sleeps. We must preserve our
accomplishments, but also deepen our efforts.
So what we must do at this time with regard to the Andean
Trade Preferences Act is renew the terms, broaden them, and
also incorporate Venezuela in the Andean Group countries of
this Act.
In order to do this, we would like to propose a new
modality. We would suggest a general opening up of the U.S.
markets, excluding some of the sensitive sectors to the United
States. We would hope in this regard to see a priority given to
the textile sector. We would hope that in this production we
would be able to contribute to all aspects of the chain of
production, using inputs from the U.S. as well as those from
our own region.
Mr. Chairman, please allow me to refer to my country's
case. As you know, my country has accomplished tremendous
progress with a lot of difficult effort. By applying the
dignity plan, we have almost completely eradicated or removed
our country from the vicious circle of drug trafficking.
We have been able to withdraw from international markets
240 tons of cocaine. Obviously, these tons would have
multiplied tremendously on the streets of large cities
throughout the world. Mr. Chairman, we need to preserve this
progress. So one way to do this would be to open up alternative
employment sources for people to be able to reduce the terrible
effects of unemployment that we're seeing these days. The only
way to do this is to produce more and export more, because we
have a very small market in our country. Thus, we have a
tremendous need to be able to participate in international
markets and, of course, principally that of the U.S.
We must also see textiles as a priority sector, but not in
the form of assembly plants. If we were to stick to that
modality, then Bolivia would not be able to take advantage of
this opportunity. With regard to the purchases that you make in
this sector, our purchases are very small in number.
Mr. Chairman, we trust that, through the opening up of U.S.
markets, you will show to our Andean community your solidarity
in struggling against the common problem that we share.
Thank you very much.
[The prepared statement of Ms. Solares follows:]
Statement of the Hon. Ana Maria Solares, Vice-Minister of Trade and
Economics, Ministry of Foreign Affairs, Republic of Bolivia
Thank you very much Mr. Chairman for calling this important hearing
on an issue so vital to the Andean countries, in such a timely matter.
Mr. Chairman: In the last decade, the Andean countries have engaged
in a serious effort to combat the scourge of drugs that was destroying
the youth and the social fabric of our nations. We committed ourselves
to fight vigorously and relentlessly in the elimination of all
production of illegal coca plantations, to destroy drug laboratories,
to seize drug shipments and to arrest individuals engaged in this
illicit business. Our countries even created laws and government
institutions to better address the problem. In no uncertain terms, Mr.
Chairman, I would like to start my presentation by assuring you that
the countries represented here, have invested all the human and
economic resources available to us in this fight.
But as you know very well, the global nature of the problem
surpasses the capacity of individual action by any nation. The fight
against drugs, from the beginning, has demanded a global alliance
between producing and consuming countries, based on the principle of
shared responsibility. With this in mind, ten years ago, the United
States of America and the countries of the Andean region established a
strategic partnership, developing an integral vision of the problem. We
all committed to confront the different aspects of the illicit drug
trade--supply, demand, and consumption--through a combination of
programs in the interdiction, prevention, and economic development
areas.
The Andean Trade Preference Act (ATPA) was conceived a decade ago
within this context. The United States and the nations of the Andean
region would use trade as part of our mutual effort to strengthen our
economies, which in turn, would help us in the war against drugs. Trade
and the economic prosperity that accompanies it, we, and are seen, as
the right way to push back against the drug cartels.
The good news is we have had some success. In 10 years of
existence, ATPA has become an essential tool for the commercial
interchange between the United States and the Andean region.
Approximately 140.000 new jobs have been created in the region. In
addition it has created important flows of investment and has doubled
the two way trade between the United States and the nations of the
region. During this period, the Andean countries have also made
important strides in the war against drugs. More than three hundred
sixty six hectares of coca were eliminated preventing the availability
of hundred tons of drugs in the U.S. streets; important drug cartels
were disbanded; and hundreds of cocaine labs were destroyed.
Our fight has been aggressive, but our social and economic costs
have also been extremely high. There have been thousands of lives lost,
unemployment grew to unprecedented levels, and in the process, our
democratic institutions have been under permanent threat.
Today, the Andean region face a very critical moment, and in
accordance with the concept of shared responsibility that inspires our
cooperation, we see the renewal and expansion of ATPA as critical to
guarantee sustainability of our achievements and our ability to make
further progress. Further, ATPA renewal and expansion is needed even
more because of the competitiveness of the Andean nations in the U.S.
market has been diminished due to the establishment of NAFTA and the
preferential trade mechanisms granted to Caribbean and Sub-Saharan
countries.
We, the Andean countries, are fully committed to the idea of and
the process for negotiating the Free Trade Area of the Americas. But
until the FTAA becomes a reality, we need a robust ATPA that would
remain in place until the FTAA becomes a reality.
THE SITUATION OF BOLIVIA
Mr. Chairman let me address for a minute the specific situation of
my country, Bolivia.
As you know, in 1997, President Hugo Banzer made the historic
commitment to eliminate all production of illegal coca/cocaine in our
territory in only 5 years. When his plan was presented, many, including
people in the United States were skeptical. At the time, Bolivia was
the second major producer of coca/cocaine in the world. We had 45.800
hectares of coca plants in our territory. We were the second poorest
nation in the Hemisphere after Haiti.
In three years, my government has eliminated 100% of coca
production in the Chapare region, the largest area of coca cultivation
for illicit purposes, with only 2000 hectares of illegal plantations
remaining in the Yungas area. We have conducted more than 16.900 drug
interdiction operations, have destroyed more than 4.000 labs of
cocaine, have arrested more than 14.400 people implicated in
narcotrafficking, have seized more that 50.000 kilos of cocaine, but
most importantly, our anti-drug strategy has resulted in preventing the
availability of some 240 tons of cocaine in the U.S. streets.
The social, economic and political cost of this fight, Mr.
Chairman, has been extremely high in my country. We have lost in this
process thousands of jobs, elevating the unemployment and
underemployment levels to more than 24%. The coca/cocaine sub-economy
in Bolivia, albeit illegal, went much beyond generating important
levels of direct employment, it also fostered related economic
activities in transportation, trade and industry. It is calculated that
in the last 3 years, since the implementation of our anti-drug Dignity
Plan, Bolivia lost $370 million dollars due to the reduction of the
gross value of the coca, and $230 million dollars due to the concept of
value added given to it. This means a loss of $600 million U.S.
dollars, which comparatively amounts to 60% of our total exports.
This deep deactivation of our economy has also been aggravated by
the impact of other necessary economic reforms taken by the Government
of Bolivia. For example, Bolivian Customs reform, designed to eliminate
corruption fueled by money laundering, and discourage informal trade,
has also taken away another $300 million dollars, which contributed to
increased unemployment levels. In addition, the strict compliance of
Bolivia in abiding agreements in the area of intellectual property, and
the fight against piracy, has meant another negative impact. In could
go on mentioning other examples, but the bottom line is that all those
factors have helped to create an economic downturn and very serious
social unrest.
Because of all this, we face an urgent need to further develop our
economy and to generate new sources of income. Our traditional exports
have been agricultural commodities. If we are to use trade as an engine
of growth for the Bolivian economy, we must diversify our export base.
We believe that the textile and garment industry offers great potential
for additional export income, which in turn, will also generate much
needed new jobs.
Currently, the manufacturing sector in Bolivia represents 15% of
our total exports, which last year grew to 1 billion dollars. The
textile and garment industry represents 4% of that amount. Our
objective for the coming years would be to foster the growth of the
textile and garment industry to 20%, equivalent to $200 million
dollars. Even if we manage to grow to that level, the total exports of
textiles and garments from Bolivia to the United States will represent
a mere 0.3% of the total U.S. imports of textile and garment from
abroad.
Within this context, Bolivia, united with all the Andean countries
beneficiaries of ATPA, would like to see a renewal and expansion of the
law that would be as wide and as simple as possible. Listing, only if
needed, the products that would not be included for the preferential
treatment. Bolivia would not be benefited if in the new law, regional
inputs in the whole chain of production are conditioned or limited. The
practice of ``maquila'' can be highly beneficial to other countries,
but not to ours given its great distance form the U.S. market, its land
locked condition and the high costs of transportation. Bolivia also
hopes that in granting trade preferences to the Andean countries, the
United States will consider the particular needs of Bolivia and the
other nations of the region with regard regards to the raw material and
the finished products made from llama, alpaca, and vicuna.
In conclusion, Mr. Chairman, I would like to thank you for the
interest you have put in this very important matter to the Andean
region, and request that the cooperation of the United States be
expressed, fundamentally, in opportunities of market access to as wide
range of products as possible.
Thank you very much, and I am prepared to answer any questions you
might have on this topic.
Chairman Crane. Thank you. Mr. Moore.
STATEMENT OF CARLOS MOORE, EXECUTIVE VICE PRESIDENT, AMERICAN
TEXTILE MANUFACTURERS INSTITUTE
Mr. Moore. Mr. Chairman and Members of the Committee, my
name is Carlos Moore. I am Executive Vice President of the
American Textile Manufacturers Institute, the national trade
association of the U.S. textile industry. Our member companies
operate in more than 30 States and process approximately two-
thirds of all textile fibers consumed by mills in the U.S.
With respect to the subject of a Free Trade Agreement of
the Americas, ATMI believes that the details will prove
critical as to whether an FTAA will help the U.S. textile
industry establish beneficial trading partnerships in this
hemisphere. We believe the goal of an FTAA, from a textile
perspective, must be to establish measures that will benefit
our industry. We believe the same to be the case of an Andean
Trade Preference Act.
This has become even more crucial in the past year. The
U.S. textile industry is being seriously injured by low-priced
imports, primarily from Asia, and also by the economic slowdown
in our economy. In 1999, our industry earned $690 million from
total shipments of $78.6 billion. Last year, our industry lost
$529 million, on sales of $76 billion. Employment dropped by
25,000 over the past calendar year, and many thousand more jobs
have been lost already this year.
As imports continue to take away domestic business from our
members, we are working hard to find markets outside the U.S.
However, many markets, primarily those in Asia and especially
India, are closed to imports. That is why NAFTA has become
increasingly important to us and why we believe that an
effectively implemented Caribbean Basin law can contribute to
our industry's growth.
Let me address a few key concerns about the FTAA. As ATMI
stated in its March 7th statement to this Subcommittee, it is
important that the FTAA governments create a sub-group within
the market access negotiating group that is dedicated to
textile and apparel access issues. These market access issues
include safeguards, customs enforcement, verification, and
negotiation of over 1,500 tariff lines, and they are technical
and detailed. To date, no such sub-group has been established.
We also believe that an FTAA, like NAFTA, should include a
basic yarn-forward rule of origin, but without the large tariff
preference levels included in NAFTA that granted benefits to
countries outside the agreement.
On the matter of renewal and expansion of the ATPA, we have
serious concerns regarding the inclusion of textiles and
apparel, particularly coming so close on the heels of last
year's Trade and Development Act of 2000. This law, which went
into effect only seven months ago, has not been given the
opportunity to achieve its desired results. Moreover, there are
still a number of outstanding issues which must be resolved
before the new Caribbean Basin trade partnership's potential
benefits and impact can be properly determined and evaluated.
While ATMI endorsed and supported the CBI portion of the
law, we are still concerned about U.S. Customs' interpretation
of key provisions of the Act, especially with respect to
texturing of U.S. yarn and the dyeing and finishing of U.S.
fabrics which we believe should be carried out only within the
United States.
The sub Saharan Africa portion is also troubling to our
members, including our concerns about a surge mechanism, the
size, structure, and growth rate of quotas on apparel made of
non-U.S. components, and generally its weak anti-transshipment
measures.
Senator Bob Graham, who was helpful in securing enactment
of the CBI law, has introduced legislation in the Senate to
renew the ATPA and to extend it to textile products, provided
the final product is made of U.S. fabric, of U.S. yarn.
Let me state very clearly that ATMI would strongly oppose
any efforts to weaken this fabric and yarn requirement. If the
U.S. is to grant Andean countries greater access to our markets
on a unilateral basis, the principles of fairness and
reciprocity require that U.S. textile components be used.
We also note that Senator Graham's bill would permit duty-
free entry for knit-to-shape apparel articles assembled in the
Andean Region, and it also provides benefits to Andean knit-to-
shape apparel from components formed in the U.S., regardless of
where the yarns were made. They could be U.S., Andean, or
Asian. It doesn't matter. These are significant differences
from the precedent set in last year's Caribbean legislation and
are in opposition to the intent of the legislation which is to
promote increased trade in goods sourced from the region.
We further note that Senator Graham's bill provides for an
additional 70 million square meters of imported apparel made of
regional knit fabric of U.S. yarn, which would be allowed to
increase over the next 3 years. While ATMI represents yarn
spinners who could benefit from this provision, we also
represent knitters who could be harmed by its inclusion.
Finally, as we stated earlier regarding the CBI law, we
believe that texturing of yarns and dyeing and finishing of
fabrics should be done only in the U.S., and U.S. Customs has
yet to issue a final ruling on these issues. Because these
issues are still unresolved, that adds greatly to our concerns
with respect to the expansion of the ATPA to include textiles
and apparel.
In light of our concerns cited above, and particularly in
light of reports that this body might seek an even further
weakening of the Graham bill to the detriment of our Members,
we are opposed to expanding the ATPA to include textiles and
apparel.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Moore follows:]
Statement of Carlos Moore, Executive Vice President, American Textile
Manufacturers Institute
My name is Carlos Moore. I am Executive Vice President of the
American Textile Manufacturers Institute (ATMI), which is the national
trade association for the U.S. textile industry. Our member companies
operate in more than 30 states and process approximately two thirds of
all textile fibers consumed by plants in the United States.
ATMI welcomes this opportunity to discuss the outcome of the recent
Summit of the Americas held in Quebec City, particularly with respect
to how that meeting has set the stage for negotiations on a Free Trade
Agreement of the Americas (FTAA). We will also discuss renewal of the
Andean Trade Preference Act (ATPA) and its possible expansion to
include textiles.
As we stated in a submission to the committee earlier this year, we
are an industry that is simultaneously both a major exporter and one
that is deeply impacted by foreign imports. Accordingly, since we do
endeavor to compete in this global trading environment, the domestic
textile industry believes that United States trade policy should be
motivated by principles of fairness and equity. I would refer you to my
statement of March 7 for a detailed account of this overall issue, as
well as how our industry has fared in recent years, largely as a result
of the financial problems in Asia and despite our efforts to constantly
modernize and seek new export markets.
To preface my remarks, which will make several references to NAFTA,
I would like to remind the Committee that ATMI initially took no firm
position for or against the North American Free Trade Agreement.
Rather, our Board of Directors instructed ATMI's officers at the time,
and ATMI staff, to work with our government to seek a yarn-forward rule
of origin and effective Customs enforcement provisions. When the first
Bush Administration incorporated this as its negotiating position, and
was subsequently successful in getting such provisions into the final
agreement, ATMI's Board then adopted a position in strong support of
NAFTA, and we forcefully lobbied the Congress to urge NAFTA's adoption.
The textile portion of the NAFTA is an outstanding case where a trade
agreement is both fair and equitable to the textile sectors of all
three NAFTA partners.
This is evidenced by the billions of dollars of two-way trade in
textile and apparel exports that have been created since NAFTA was
implemented. Indeed, during the past seven years, Mexico has overcome
China to become by far the largest supplier of apparel to the United
States. It was a deal that embodied the fairness and equity we would
urge in an FTAA, although customs fraud has become an increasingly
serious problem, as I will discuss later.
With respect to the subject of today's hearing, ATMI recognizes
that the leaders of the 34 nations at the recent Summit of the Americas
clearly support the goal of completing negotiations for an FTAA by
January 2005. But as with all trade agreements, the details are
critical as to whether an FTAA will help the U.S. textile industry
establish beneficial trading partnerships with customers in these
nations, as has been the case under NAFTA and in the Caribbean Basin.
We believe that the goal of an FTAA from a textile perspective must be
to establish measures that will benefit our industry.
As we stated in our March 7 testimony, it is important that the
governments create a subgroup within the market access negotiating
group dedicated to textile and apparel access issues. This would mirror
the process that has been used in every major negotiation--including
the Uruguay Round, NAFTA and the U.S.-Canada FTA--that has involved
textiles and apparel to date. The issues involved in textile and
apparel market access, which include safeguards, customs enforcement
and verification and the negotiation of over 1,500 tariff lines, are
technical and detailed. A dedicated sub-group on textile market access
is absolutely necessary for a successful outcome. To date, no such sub-
group has been established.
As was the case with NAFTA at this stage of the negotiations,
ATMI's Board of Directors has not yet taken a formal position on an
FTAA. However, in general terms we believe the agreement should, like
NAFTA, have a basic yarn-forward rule of origin, but without: (a) the
large tariff preference levels (TPLs) included in NAFTA that granted
benefits to countries outside the free trade agreement; or (b) the
special preferences given to 807A goods under NAFTA that did not
require U.S. yarn. We also believe that customs enforcement provisions
in the FTAA should include not only the provisions in NAFTA, but should
be expanded to take into account the difficulty in policing an entire
hemisphere. New customs programs should include those in the recently
enacted Trade and Development Act of 2000. Other enforcement measures
should also be included and ATMI will be ready to advise U.S.
negotiators about them.
Specifically, the FTAA must be fair and beneficial to U.S.
textiles; it must have enforceable rules and governments must commit to
enforcing those rules. To use NAFTA as a point of reference, the
textile and apparel rules must exclude granting benefits to non-
participating countries through TPLs, have strict origin requirements,
allow for cross-country customs verification and have reciprocal tariff
phase-outs. Enforcement is key; each time that free trade is expanded,
the opportunity for goods from outside the free trade region to enter
illegally through transshipment or smuggling is expanded, to the
detriment of all of the participating countries.
Indeed, seven years into the NAFTA agreement it has become clear
that large-scale smuggling of textile and apparel goods into Mexico and
the United States to avoid quotas and tariffs is now a problem of the
first magnitude. These goods, which falsely declare NAFTA origin and
which deprive the U.S. and Mexican Treasuries of many millions of
dollars in duties, cause great harm to U.S. and Mexican producers of
textiles and apparel and their workers. Despite the authorization of
funds and of dedicated agency personnel to NAFTA textile enforcement in
the NAFTA legislation, U.S. Customs has yet to crack down on this
illegal trade.
To summarize, ATMI believes that the FTAA can provide benefits to
the industries of all the participating countries, including U.S.
textile producers, but only if a separate negotiating subgroup succeeds
with a final package that includes textile and apparel provisions based
on NAFTA, with the improvements we describe above.
On the matter of renewal of expansion of the ATPA, which expires in
December, our industry is aware that the leaders of the four Andean
Pact nations--Bolivia, Colombia, Ecuador and Peru--met with President
Bush in Quebec City on the need to include textiles in a new agreement.
We have serious concerns regarding this issue, particularly coming so
close on the heels of last year's Trade and Development Act of 2000.
This law, which went into effect only seven months ago, has not been
given the opportunity to achieve its desired results. We should be
careful about doing anything which might diminish the benefits which
the new law is intended to provide to the apparel producing countries
of the Caribbean and to their yarn and fabric suppliers in the United
States.
Moreover, there are still a number of outstanding issues which must
be resolved before the new Caribbean Basin Trade Partnership Act's
potential benefits and impact can be properly determined and evaluated.
While ATMI endorsed and supported the CBI portion of that law, ATMI is
still concerned about U.S. Customs' interpretation of key provisions of
the Act, especially with respect to texturing of U.S. yarn and dyeing
and finishing of U.S. fabrics.
ATMI's position is not unreasonable. Our position supports post-
assembly apparel dyeing and finishing in the Caribbean. Our position
also supports dyeing and finishing in the Caribbean for U.S.-formed
yarn and thread required for use in qualifying apparel, as well as for
regional knit fabric. Our position for U.S.-only dyeing and finishing
would apply only with respect to U.S. fabric in garments not qualifying
for the regional knit apparel or T-shirt allowance and to fabric used
in textile luggage. Our position with respect to textured yarn--that
is, that such yarn must be both extruded and textured in the U.S.--
reflects the commercial reality of the most efficient and cost-
effective way of producing textured yarn.
Also, the Sub-Saharan Africa portion of the Trade and Development
Act of 2000 Act contained sections that were very troubling to our
members. These included the lack of a workable surge mechanism, the
size, structure and growth rate of the quota for garments made of non-
U.S. components and generally weak anti-transshipment measures. These
concerns will be taken into account in our evaluation of any Andean
Pact renewal proposal that might include textiles.
Senator Bob Graham, who was so helpful in securing enactment of the
CBI law, has introduced legislation in the Senate, S. 525, to renew the
ATPA and to extend it to textile products provided the final product is
made of U.S. fabric of U.S. yarn. Let me state very clearly that ATMI
would strongly oppose any efforts to weaken this U.S. fabric and yarn
requirement. If the U.S. is to grant the Andean countries greater
access to our markets on a unilateral basis, the principles of fairness
and reciprocity demand that only U.S. textile components be used.
We also note that Senator Graham's bill would permit duty-free
entry for knit to shape apparel articles assembled in the Andean region
from components knit to shape in the U.S. and/or a beneficiary country
of U.S. yarn. It also provides such benefits to Andean knit to shape
apparel from components formed in the U.S. regardless of the source of
these yarns--they could be U.S., Andean, Asian--it doesn't matter.
These are significant differences from the precedent set in last year's
Caribbean Basin legislation, and are in opposition to the intent of the
legislation, which is to promote increased trade of goods sourced from
the region.
We further note that Senator Graham's bill provides for an
additional 70 million square meters equivalent (sme) worth of imported
apparel made of regional knit fabric of U.S. yarn, which would be
allowed to increase by 16 percent annually over the next three years.
While ATMI represents yarn spinners who could benefit from this
provision, we also represent knitters who could be harmed by its
inclusion.
Finally, we would like to reiterate our support for a ruling by
Customs, as stated above, regarding texturing of yarns and dyeing and
finishing of fabrics under last year's CBI law, and we are still
waiting for that favorable determination. Because that issue is still
unresolved, that is another uncertainty that adds to our concerns with
respect to the expansion of the ATPA.
In light of all the concerns cited above, and particularly in light
of reports that this body might seek an even further weakening of the
Graham bill to the detriment of our members, we are opposed to
expanding the ATPA to include textiles.
In closing, Mr. Chairman, ATMI is not opposed to fair and equitable
trade agreements which establish mutually beneficial trading
arrangements and thus create a true economic partnership between U.S.
textile companies and our customers in other regions. That is why we
supported NAFTA and the Caribbean provisions of last year's trade bill.
Let's establish a true economic partnership within this hemisphere that
benefits apparel makers throughout the FTAA region and U.S. textile
producers.
Thank you.
Chairman Crane. Thank you, Mr. Moore. Mr. Lamar.
STATEMENT OF STEPHEN LAMAR, DIRECTOR, GOVERNMENT RELATIONS,
AMERICAN APPAREL AND FOOTWEAR ASSOCIATION, ARLINGTON, VIRGINIA
Mr. Lamar. Thank you. My name is Steve Lamar and I'm
Director of government Relations for the American Apparel and
Footwear Association, the national trade association of the
apparel and footwear industries.
Just to give you a sense of where we fit in, our Members
purchase fabric from companies like those in Mr. Moore's group,
or we make our own fabric. We then go and make clothing either
in the United States or abroad, and then we sell the clothing
ourselves or through companies like those in Mr. Autor's group.
Thank you for providing our Association the opportunity to
appear before you today. I would like to focus my comments this
afternoon on the need for a robust renewal and expansion of the
ATPA as it relates to the apparel industry.
The American Apparel and Footwear Association supports
enhancement of the ATPA to provide additional benefits for
apparel produced in the Andean Region. Expansion of the current
ATPA to provide such benefits, to the extent they provide an
effective incentive to sourcing and production in the region,
is a natural extension of our policies to promote hemispheric
integration and to eliminate the economic conditions that
permit drug trafficking in the Andean Region. Expansion of the
ATPA is also a key stepping stone to negotiation of a well-
balanced and commercially viable Free Trade Area of the
Americas, a goal we also support.
In general, we believe any expansion of the ATPA benefits
to cover apparel products should incorporate the following
principles:
First, the program should be simple to use. As this
Subcommittee knows all too well, a similar extension of
benefits to the Caribbean Basin and African countries is mired
in disputes over arcane and complex rules of origin. Although
these programs provided important new incentives for apparel
production and, consequently, U.S. textile and yarn exports--by
the way, I congratulate the Subcommittee for the leadership
they exhibited last year in getting this legislation passed--it
has been difficult to realize fully these incentives because of
problems in delays and interpreting the law and in promulgating
rules and regulations.
Second, the program should be unique to the trading
relationships with and within the Andean Region. One of the
goals of the program is to provide legitimate job creation
opportunities in the region. Such goals are thwarted, however,
if existing Andean exports to other Andean markets are
diminished by an overly restrictive rule of origin. Similarly,
an overly restrictive rule of origin will make it difficult for
new investments and production--which may depend on Andean,
Asian or European fabrics--to stimulate job creation.
Third, the program should promote flexible sourcing of
apparel and their inputs within a given rule of origin. For
example, the rule of origin should reflect a negative list of
goods that cannot qualify for preference, rather than a
positive list of goods that can. This would ensure maximum
opportunities to navigate within a particular rule of origin
and eliminate some of the interpretation problems we have seen
with regard to the Caribbean Basin and Africa legislation.
Fourth, the legislation should be of sufficient duration to
provide meaningful incentives for investment and trade. This is
especially important if the preferences are subject to
significant labor, anti-narcotics, and trade conditionality. If
the countries are going to be required to make long-standing
commitments to gain better access to the U.S. market, fairness
dictates that the access be given an equally longstanding
nature.
Finally, this legislation should provide a bridge to the
Free Trade Area of the Americas for the ATPA region. It should
help prepare countries for their FTAA commitments while
promoting the kind of trade linkages that will develop and
strengthen under the FTAA.
In my written statement I have provided some statistics and
graphs that highlight features of the ATPA apparel trade
environment. These statistics show significant differences
between the ATPA and the CBI regions, suggesting that the CBI
trade partnership model, per se, may not be the most
appropriate and effective model for the Andean region. The data
also show that there are well-developed patterns of input
sourcing that rely upon other Andean sources, as well as
sources outside the region.
Finally, the data emphasize that, although this region is
not an important sourcing center for the United States, this
region depends greatly on access to the U.S. market for its
apparel products.
In conclusion, I would like to emphasize that the AAFA
strongly supports expansion of the ATPA to include apparel. A
number of our members are manufacturing in those countries and
others have signaled their interest in sourcing from those
countries in the future if a flexible and easy-to-use program
is created.
An ATPA program that is simple, flexible, and accommodates
and maximizes the natural advantages of the region, will offer
the best opportunities and incentives for our members to
commence and expand their trade partnerships with these
countries. But one that is overly restrictive, or which
effectively negates the duty savings by imposing additional
costs, will be largely ignored by our industry.
Thank you for providing us this opportunity to be here
today, and I'm available for any questions.
[The prepared statement of Mr. Lamar follows:]
Statement of Stephen Lamar, Director, Government Relations, American
Apparel and Footwear Association, Arlington, Virginia
Thank you for providing us the opportunity to discuss the need for
a ``robust'' renewal and expansion of the Andean Trade Preference Act
(ATPA) as it relates to the apparel industry.
The American Apparel and Footwear Association (AAFA)--the national
trade association of the apparel and footwear industries--supports the
enhancement of the ATPA to provide additional benefits for apparel
produced in the Andean region. Expansion of the current ATPA to provide
such benefits, to the extent that they provide an effective incentive
to sourcing and production in the region, is a natural extension of our
policies to promote hemispheric integration and to eliminate the
economic conditions that permit drug trafficking in the Andean region.
It is also a key stepping stone to negotiation of a well-balanced and
commercially viable Free Trade Area of the Americas (FTAA), a goal we
also support.
In general, we believe any expansion of the ATPA benefits to cover
apparel products should incorporate the following principles.
First, the program should be simple to use. As this Subcommittee
knows all too well, a similar extension of benefits to the Caribbean
Basin and African countries is mired in disputes over arcane and
complex rules of origin. Although those programs provided important new
incentives for apparel production (and consequently U.S. textile and
yarn exports), it has been difficult to realize fully these benefits
created by those incentives because of problems and delays in
interpreting the law and in promulgating rules and regulations.
Second, the program should be unique to the trading relationships
with and within the Andean region. One of the goals of the program is
to provide legitimate job creation opportunities in the region. Such
goals are thwarted, however, if Andean exports to other Andean markets
are diminished by an overly restrictive rule of origin. Similarly, an
overly restrictive rule of origin will make it difficult for new
investments and production--which may depend upon Andean, Asian, or EU
fabrics--to stimulate job creation.
Third, the program should promote flexible sourcing of apparel and
their inputs within a given rule of origin. For example, the rule of
origin should reflect a ``negative list'' of goods that cannot qualify
for preference rather than a ``positive list'' of goods that can. This
would ensure maximum opportunities to navigate within a particular rule
of origin and eliminate some of the narrow interpretation problems we
have seen with regard to the Caribbean Basin and Africa legislation.
Fourth, the legislation should be of sufficient duration to provide
meaningful incentives for investment and trade. This is especially
important if the preferences are subject to significant labor, anti-
narcotics, and trade conditionality. If the countries are going to be
required to make long-standing commitments to gain better access to the
U.S. market, fairness dictates that the access be of an equally long-
standing nature.
Finally, this legislation should provide a bridge to the Free Trade
Area of the Americas for the ATPA region. It should help prepare
countries for their FTAA commitments while promoting the kind of trade
linkages that will develop and strengthen under the FTAA.
With these five goals in mind, I would like to provide some
observations on the textile and apparel industry trade with and in the
Andean region.
Apparel trade from the ATPA region is fairly small both in
absolute terms and compared with other U.S. imports. In 2000,
the United States imported 159.9 million Square Meter
Equivalents (SMEs) of apparel from the ATPA region. This
represents less than one percent of the total U.S. apparel
imports and less than 5 percent of imports when compared
against those from the Caribbean Basin Initiative (CBI)
countries. At the same time, the U.S. represents a significant
market for apparel exports from the ATPA countries. (Figure 1A
and 1B).
ATPA apparel trade is not based on the same production-
sharing module that is the basis for the CBI countries. In
2000, about 35 percent of all apparel imported from the ATPA
region was entered under the 807 program (meaning components
were cut in the United States). Because there is no special
access program in place with the ATPA countries, no apparel was
entered under an 807A-style program (which requires the use of
U.S. fabric). In contrast, in 2000, at least 82 percent of
apparel imported from the CBI was entered under a program that
requires U.S. components, with a large portion of that
requiring U.S. fabric. (Figure 2).
When examining the make up of the ATPA's production sharing
trade, it becomes clear that Colombia, the largest source of
overall apparel imports from the Andean region, is the dominant
player. More than 91 percent of all ATPA production sharing
trade with the United States takes place with Colombia.
Although once a dominant part of Colombia's trade with the
United States, 807 trade has diminished in recent years as
Colombia has repositioned itself away from the production
sharing trade. From 1997 to 2000, the percentage of Colombia's
production sharing trade with the United States dropped from 80
percent to less than 55 percent of all apparel exports to
Colombia. (Figure 3).
Apparel imported from the Andean countries is generally more
expensive than that imported from the CBI countries. ATPA woven
apparel is approximately 25 percent more expensive (when
examining $/Kg for Chapter 62 imports) than similar goods from
the CBI region. ATPA knit apparel is approximately 75 percent
more expensive than similar goods imported from the CBI region.
Conversations with manufacturers in the region attribute a
variety of factors to this cost increase, including security
expenses, transportation costs, higher labor costs, and higher
prices commanded by certain apparel products made with
specialty fabrics (Figures 4A and 4B).
In general, the Andean countries import fabrics from a
variety of sources. During 1997, the last year that such
figures are available from the OAS, the U.S. was a leading
supplier of fabric, yarns, and fibers to the Andean region.
However, Andean countries imported significant quantities of
fabrics, yarns, and fibers from within the Andean region and
from countries in Asia and Europe, depending upon individual
fabric requirements. For example, fine woolen fabrics for
tailored clothing are sourced in Europe because of diminished
sources of U.S. woolen fabrics and because the Andean woolen
fabrics are not of sufficient quality for those particular
garments. Cotton fabrics are sourced in the Andean region
(primarily Peru and Colombia) and the United States, which has
an established presence in all markets. Man made fiber fabrics
are sourced in various regions, including the United States and
Asia (Figures 5A, 5B and 5C).
Looking at it another way, Andean countries represent a
significant export market for fabrics from other Andean
countries. Bolivia, for example, relies upon other Andean
countries to consume about a third of its wool fabric exports.
Similarly, Colombia and Peru have significant export markets in
the region for cotton and some man made fibers. These figures,
of course, do not include fabrics produced and consumed
entirely within a single Andean country.(Figure 6).
Together, these statistics show significant differences between the
ATPA region and the CBI region, suggesting that the CBI trade
partnership model per se may not be the most appropriate and effective
model for the Andean region. The data also show that there are well-
developed patterns of input sourcing that rely upon other Andean
sources as well as sources outside the region. Finally, the data
emphasize that, although this region is not an important sourcing
center for the United States, this region depends greatly on access to
the U.S. market for its apparel products.
In conclusion, I would like to emphasize that the AAFA strongly
supports expansion of the ATPA to include apparel. A number of our
members are manufacturing in those countries and others have signaled
their interest in sourcing from those countries in the future if a
flexible and easy to use program is created. An ATPA program that is
simple, flexible, and accommodates and maximizes the natural advantages
of the region will offer the best opportunities and incentives for our
members to commence and expand their trade partnerships with these
countries. But one that is overly restrictive, or which effectively
negates the duty savings by imposing additional components, compliance
and logistical costs, will be largely ignored by our industry.
Thank you for providing us this opportunity. I am available to
answer any questions.
[GRAPHIC] [TIFF OMITTED] T4222A.019
[GRAPHIC] [TIFF OMITTED] T4222A.020
[GRAPHIC] [TIFF OMITTED] T4222A.021
[GRAPHIC] [TIFF OMITTED] T4222A.022
[GRAPHIC] [TIFF OMITTED] T4222A.023
[GRAPHIC] [TIFF OMITTED] T4222A.024
[GRAPHIC] [TIFF OMITTED] T4222A.025
[GRAPHIC] [TIFF OMITTED] T4222A.027
[GRAPHIC] [TIFF OMITTED] T4222A.028
Chairman Crane. Thank you, Mr. Lamar. Mr. Autor.
STATEMENT OF ERIK AUTOR, VICE PRESIDENT AND INTERNATIONAL TRADE
COUNSEL, NATIONAL RETAIL FEDERATION
Mr. Autor. Thank you, Mr. Chairman.
My name is Erik Autor. I am Vice President and
International Trade Counsel with the National Retail
Federation. The National Retail Federation appreciates the
opportunity to present the views of the U.S. retail industry on
an enhanced Andean initiative and on the Free Trade Area of the
Americas.
NRF is the Nation's largest trade association representing
the retail industry. NRF Member companies cover the entire
spectrum of retailing, including department, specialty,
discount, catalogue, Internet and independent retailers. U.S.
retailers employ 23 million Americans, about one in five
workers in this country, and registered sales in 2000 of over
$3 trillion.
First of all, I would like to associate myself with Mr.
Lamar's comments. We discuss the retail industry's views on the
FTAA in our written statement, and, in the interest of time, I
shall focus my remarks on the Andean initiative, which we view
as a building block to the FTAA.
An Andean initiative should advance the larger U.S. policy
goals for the Andean region: stopping narcotics production and
trafficking, and promoting political and economic stability. To
reflect those larger goals, we believe this initiative should
be called the Andean Regional Stabilization and Development
Act. It is doubtful, however, that these goals can be achieved
without a trade program that provides economic options and
opportunities for the people of the region.
Currently, workers and farmers in the Andean countries have
few decent employment opportunities in legitimate industries.
An Andean initiative that includes trade preferences for
apparel could quickly provide thousands of jobs for these
people, particularly women. These jobs would not threaten U.S.
production or jobs. The Andean countries are small suppliers to
the United States market, at less than 1 percent of imports,
and are likely to remain so for the foreseeable future.
By providing needed business and investment, U.S. retailers
can play an important role in helping to develop an integrated
textile and apparel industry in the region. U.S. retailers are
interested in new apparel sourcing opportunities in the Andean
region, but that new business will be created if, and only if,
the right incentives are in place.
In structuring a trade preferences program for apparel, the
Caribbean Basin Trade Initiative that Congress passed last year
is not an appropriate model for the Andean region. Looking at
their competitiveness, the cost of doing business, the
structure of their textile and apparel industries, the size and
patterns of trade, the Andean countries have more in common
with sub-Saharan Africa than the Caribbean Basin region.
In our view, a viable textile and apparel trade program for
the Andean countries must be simple to use and structured to
recognize the unique problems and needs of the Andean region.
It must avoid complex rules of origin and eligibility
restrictions that become disincentives for using the program. I
have in mind here restrictions that require the use of only
U.S. inputs, such as yarn and fabric, or require that certain
production operations occur only in the United States, such as
dyeing and finishing of yarn and fabric.
A viable textile and apparel trade program must also
provide sufficient incentives for retailers and other U.S.
businesses to use the program. Under a viable trade program, we
believe that trade preferences should apply to any apparel
assembled or knit-to-shape in one or more Andean countries from
inputs produced in the United States and/or one or more Andean
countries that provide the essential characteristics to that
apparel; from yarn or fabric, regardless of origin, determined
to be in short supply, and yarn and fabric produced outside the
United States and the Andean region subject to reasonable
limitations, to encourage the development of an integrated
textile and apparel industry in the region.
U.S. retailers want to see trade with the Andean region
grow, and by increasing their business in the region, are
prepared to play a role in furthering the larger U.S. policy
goals for the region. However, retailers have other sourcing
options in places where, quite frankly, it is easier to do
business--Asia, Mexico, and the Caribbean Basin. Without
adequate incentives in place, retailers will go elsewhere and
there will be no new business in the Andean region.
If the incentives are insufficient to attract U.S.
retailers, who sell clothing, to do more business in the
region, the result will be lost business opportunities for U.S.
cotton growers, yarn spinners, fabric producers and apparel
manufacturers, who make clothing and the inputs for producing
clothing, as well as producers and workers in the region.
More importantly, the likelihood of achieving our country's
larger foreign economic and drug policy goals for the region
would be diminished.
Thank you for the opportunity to speak before the
Subcommittee.
[The prepared statement of Mr. Autor follows:]
Statement of Erik Autor, Vice President and International Trade
Counsel, National Retail Federation
I. Introduction
My name is Erik Autor. I am a Vice President and International
Trade Counsel for the National Retail Federation (NRF). NRF is the
nation's largest trade association representing the U.S. retail
industry. NRF members cover the entire spectrum of retailing--
department, specialty, discount, catalog, Internet, and independent
stores--and also include 32 national retail associations and all 50
state retail associations. NRF speaks for an industry that encompasses
over 1.4 million retail establishments, employs more than 23 million
people--about 1 in 5 American workers, and registered sales of over $3
trillion in 2000.
NRF and the U.S. retail industry strongly support the negotiation
of a Free Trade Agreement of the Americas (FTAA), and expanding the
current trade program through the Andean Trade Preferences Act (ATPA)
as an important stepping-stone towards creation of the FTAA. Initially,
we would make the following general points on these initiatives:
With respect to the Andean program, a ``robust'' trade
initiative is critical to achieving the larger U.S. foreign, economic,
and drug policy goals for the region.
An essential component of a ``robust'' Andean trade
initiative is to provide trade benefits for apparel products produced
in the Andean region with strong incentives to encourage U.S.
investment and business in the region and create jobs in legitimate
industries.
With respect to the FTAA, NRF strongly believes that the
Administration should not exclude any issue, including the U.S. trade
laws, from the negotiating agenda.
II. The Andean Regional Initiative
It should first be emphasized that the United States has critical
foreign policy interests in the Andean Region. This region is the most
politically and economically unstable area in the hemisphere and is a
major production point for illegal narcotics smuggled into this
country. Economic and political instability has also resulted in an
increase in illegal aliens coming into the United States from countries
in the region. It is, therefore, in the interests of the United States
to implement policies that will effectively address these problems--
curtail the production and trafficking of illegal narcotics, encourage
political and economic stability in the Andean countries, help build
democratic institutions, foster market-based economic reforms, generate
economic growth, and create decent employment opportunities in
legitimate industries.
With these larger goals in mind, we do not believe that an expanded
Andean initiative should be seen primarily as a unilateral trade
preferences program and certainly not mainly as a textile and apparel
trade initiative. Bigger issues are at stake. Indeed, we might even
suggest that the Congress consider a new name for this initiative--The
Andean Regional Stabilization and Development Act (ARSDA).
That being said, we believe it will be difficult, if not impossible
to achieve these larger policy goals without a trade component that
will actually work to encourage U.S. investment and trade with the
region. Only U.S. trade and investment can provide the capital
necessary to reverse the massive unemployment in the Andean countries
and create economic and employment opportunities in legitimate
industries as an alternative to coca production and narcotics
trafficking.
On this point, U.S. retailers can play an important role. Many
retailers are interested in new apparel sourcing opportunities in the
Andean region. The countries of the Andean region--Colombia, Peru,
Ecuador, and Bolivia--have integrated textile and apparel industries
that, while comparatively small, produce high-quality cotton knit
shirts and trousers, baby garments, and specialty items, such as
swimwear. However, to increase sourcing of apparel in the region,
retailers need the right incentives in place. The obstacles to doing
business in much of the Andean region are daunting. Crime, corruption
fed by the insidious influence of narco-traffickers, political
instability, and lack of adequate infrastructure present huge
disincentives for American companies doing business in the region when
other alternatives in Asia, Mexico, and the Caribbean Basin are
available. However, the picture is not all bleak. As the example of the
development of a thriving cut flower industry in Colombia and other
Andean countries demonstrates, when the right incentives are in place,
legitimate industries can grow and prosper in the region.
Other than a handful of industries, like cut flowers, workers in
the Andean countries currently have few decent employment
opportunities. Many peasants in the Andean highlands have few economic
alternatives to growing coca. However, the members of the drug cartels
take the lion's share of the profits from drug trafficking, not the
peasant growers, most of whom survive at a bare subsistence level. The
region also has large unemployed and underemployed urban populations.
Moreover, jobs in the region's existing apparel industry are threatened
as companies have begun moving production to Mexico and countries in
the Caribbean Basin, which are more competitive than the Andean region,
have closer proximity to the U.S. market, and can take advantage of
existing trade preferences under the NAFTA, the U.S.-Caribbean Basin
Trade Partnership Act (CBTPA) and the Caribbean Basin Initiative (CBI).
Increased trade with the United States would lead to the building
of new textile and particularly apparel factories that would quickly
provide jobs to thousands of rural peasants and urban workers.
Following the current pattern in developing countries, jobs in these
factories would pay wages at higher levels than the national average
wage. They would also provide employment opportunities, particularly
for women. The pattern of economic development in every country,
including the United States and Japan, has shown that the establishment
of a viable textile and apparel industry has always been the first rung
on the ladder to creating a modern, industrial economy. The pattern has
also shown, that giving women employment opportunities and control over
their family's finances is the best way to provide people in developing
countries the economic resources to move up the economic ladder and
obtain marketable education and training.
It is important that we take quick action to stop the flight of
apparel production from Colombia to Mexico and the Caribbean Basin and
make the textile and apparel industries in the Andean region more
competitive. Like the sub-Saharan African countries, the small textile
and apparel producers in the Andean region are likely to be big losers
to the more efficient producers in Asia once textile and apparel quotas
are eliminated at the end of 2004. Just as AGOA has given the sub-
Saharan African countries a fighting chance to get into the game, we
need an Andean initiative that will allow the textile and apparel
producers in the region to become more competitive and attractive to
U.S. business in preparation for a quota-free world in 2005. This goal
cannot be achieved without a sensible, incentive based textile and
apparel program.
It should be emphasized that an increase in textile and apparel
jobs and production in the Andean region does not threaten U.S. jobs.
In 2000, American consumers spent about $300 billion on apparel. U.S.
textile and apparel imports from the ATPA region totaled just $831
million (before markup) or about 0.5 percent of the U.S. market. This
level of trade is comparable to that of the sub-Saharan region. In
contrast, Mexico and the Caribbean Basin region account for 27 percent
of total U.S. textile and apparel imports. Therefore, for the
foreseeable future, it is evident that, the Andean region is likely to
be a comparatively small, niche player in supplying apparel to the
United States and that any sourcing shifts created as a result of
increased trade with the Andean countries will come at the expense of
other foreign producers, most likely in Asia.
The question arises--what incentives would U.S. retailers need to
increase sourcing and investment in the Andean region? The experience
of the CBTPA over the last year provides us some useful lessons.
Unfortunately, with the CBTPA we have faced a host of implementation
problems, in which the Customs Service has interpreted most ambiguities
in the language in the most trade restrictive way. Moreover, the
complex rules of origin, exclusions of certain categories of apparel
made from regional fabric, quantitative limitations on categories of
eligible apparel products made from regional fabric, and weak short-
supply procedures, have proven to be disincentives for retailers in
using the program. As a result, U.S. retailers, apparel manufacturers,
textile and apparel importers, yarn spinners, cotton growers, and
fabric manufacturers, as well as the Caribbean Basin countries have
been so far disappointed that the program has failed to generate as
much trade as hoped.
The potential problems that could arise in constructing the Andean
initiative are of even greater concern. With their competitive
handicaps vis-a-vis the Caribbean Basin countries, it is clear that if
Congress merely provides the Andean countries the same trade benefits
as under the CBTPA, there will be no new trade and investment. In order
to avoid the problems in the CBTPA legislation and create a viable
program that would be more than window dressing, the trade preferences
for apparel must be simple, easy to use, and provide more generous
level of incentives than are available under the CBTPA. Specifically,
we would advocate that the Andean program provide trade preferences to
any apparel assembled or knit-to-shape in one or more Andean countries
from:
Inputs (yarn and fabric) produced in the United States
and/or one or more Andean countries.
Yarn or fabric regardless of origin that is determined to
be in short supply.
Yarn and fabric produced outside the United States and the
Andean region subject to reasonable limitations.
Without such incentives, U.S. retailers will not increase sourcing
and investment in the Andean countries and will continue to source
largely from Asia, Mexico, and the Caribbean Basin. If the incentives
in the program are insufficient to attract U.S. retailers, it will also
mean lost business opportunities for U.S. cotton growers, yarn
spinners, and fabric producers, and apparel manufacturers. If the
companies that sell apparel at retail in the U.S. are not doing
business in the region, then the U.S. suppliers of inputs to make that
apparel will not have any new business in the region. But, more
disturbingly, without the business of U.S. retailers in the Andean
countries, the likelihood of achieving our country's larger foreign,
economic, and drug policy goals for the region is also diminished.
II. The Free Trade Area of the Americas
It is our view that regional trade initiatives such as the CBTPA
and the Andean initiative can serve as important building blocks for
negotiation of the Free Trade Area of the Americas (FTAA). NRF has been
a strong supporter of the FTAA since its inception, under the Clinton
Administration, and its predecessor, the Enterprise for the Americas
Initiative, under the first Bush Administration.
In the FTAA and other trade negotiations, some domestic industries
have pressured U.S. negotiators to take certain issues, such as the
U.S. trade laws, off the table. It is widely held that, in trying to
develop a negotiating agenda for the next round at the World Trade
Organization (WTO), use of this tactic played a key role in the failure
of the WTO Ministerial in Seattle. Therefore, as a negotiating
strategy, we strongly urge the Bush Administration not to tie their
hands by excluding any issue, and especially trade remedies laws, from
the FTAA negotiating agenda.
As a substantive matter, application of the antidumping law is
frequently defended on the basis that foreign producers are using
protected "sanctuary" home markets as a way to subsidize their foreign
exports at dumped prices. Since a free trade agreement would eliminate
the ability of a producer to create a sanctuary home market, we believe
that the application of the antidumping laws is an appropriate topic of
discussion in negotiations on free trade agreements.
We are also of the opinion that, with the elimination of the global
textile and apparel quotas in less than four years, the inclusion of
any special protections for the textile and apparel sector in the FTAA
negotiations is unwarranted. We are particularly concerned about an
unduly long phase out of textile and apparel duties, burdensome textile
and apparel rules of origin (often in the guise of addressing illegal
transshipment) that inhibit rather than encourage trade, and special
safeguards that apply only to textiles and apparel. If we are serious
about eliminating trade barriers and liberalizing trade across the
board in free trade agreements, then we need to seriously address the
remaining trade barriers on textiles and apparel, including U.S. duties
that average 16 percent on these products.
Chairman Crane. Thank you, Mr. Autor.
Before we get to questions, let me remind colleagues on the
Committee here that tomorrow our Andean Trade Ministers have
agreed to meet with us, with the full Committee on Ways and
Means, and we're looking forward to that meeting. So we will
reserve questions for you folks until we sit with you tomorrow.
Anyone who has any questions for our other witnesses, since we
have to be out of here in approximately eight minutes, I will
start with Mr. Rangel.
Mr. Rangel. I will yield, Mr. Chairman.
Chairman Crane. Mr. Rangel yields back his time. Mr. Levin.
Mr. Levin. Thank you very much.
Let me just ask one question, because, as mentioned, we are
going to have the opportunity to meet with the Trade Ministers
tomorrow. If I might then focus a question on those of you who
won't be here tomorrow. Again, thank you for your testimony. I
think you have helped to focus this discussion very well, all
of you. You clearly have somewhat different interests in mind,
and that is what this is all about, seeing how we can talk
about apparel and fabrics and piece them together.
Mr. Moore, let me ask you, so that I'm clear, and my
colleagues are clear, in your testimony--and we won't have time
to go into a lot of detail, but let's just spend a minute or
two probing this. You say at the bottom of the third page, ``If
the U.S. is to grant the Andean countries greater access to our
markets on a unilateral basis--'' and any Andean agreement, I
suppose, would be unilateral, though eventually part of a
multilateral agreement ``--the principles of fairness and
reciprocity demand that only U.S., textile components be
used.'' Then you go on to conclude that, in light of the
concerns that you've laid out, particularly in light of reports
that this body might seek an even further weakening of the
Graham bill, to the detriment of your Members, you are opposed
to expanding the ATPA to include textiles. Let me, if I might,
just ask you a question or two about that.
As I understand it, there is, within the Andean countries,
some considerable use of materials, or fabric, that doesn't
compete with that produced in the United States. There is some
of that, isn't there?
Mr. Moore. Certainly there is some, and we never suggested
there was no textile production in the Andean countries.
Mr. Levin. But there is some production there of fabric
that isn't made in the United States--in other words, it's not
competitive with American production of materials or fabric? Or
am I wrong?
Mr. Moore. There may be. There may be some exotic fibers
that we don't process here. But I'm not aware of a lot of
fabrics that are made in the Andean countries that we do not
make.
Mr. Levin. So you're saying there isn't any substantial
material, fabric, that is made in the Andean region which is
not also made in the United States?
Mr. Moore. There may be some, I said, but----
Mr. Levin. But you think it's small?
Mr. Moore. As I said, maybe some exotic fibers, but in both
the NAFTA and CBI law, there were provisions to exclude fabrics
that were not made at all in the United States. So we would not
be opposed to----
Mr. Levin. You wouldn't be opposed to that kind of
provision?
Mr. Moore. No. It was other provisions we were concerned
about.
Mr. Levin. Mr. Chairman, our time is running out. We have
just started on this today and I know we'll work on it further.
Thank you. It has been an excellent panel, and thank you for
your patience.
Chairman Crane. I think Minister Ramirez wanted to respond
to your question.
Mr. Levin. Okay. I didn't want to take up the time of my
other colleagues for questions. Please.
Ms. Ramirez. Mr. Chairman, thank you, and thank you,
Congressman Levin.
I just want to add something to Mr. Moore's comments. This
is not only a question about exotic fibers. This is also a
question about some specific fibers and jobs that we are doing
with some American raw materials. In the case of cotton, for
example, we are importing into the Andean region something
close to $80 million of cotton from the United States. We are
using this cotton in order to produce jobs and textiles. So
these textiles can be used for a Colombian or Peruvian or
Equadorian or Bolivian apparel that we are expecting to export
to the United States. So that's why I like very much the
association of retailers proposal, in order to have a regional
content that permits us to use Colombian fibers or regional
fibers made with some of the American raw materials, which
gives the United States also the benefit of including some of
your goods in the apparel that we are going to export to you
with preferential access. So this is not only exotic fibers.
These are regular fibers that we are expecting to use also.
Thank you.
Chairman Crane. Thank you.
Mr. Levin. Mr. Moore, do you want to briefly comment?
Mr. Moore. Well, that was my point. As I mentioned, our
industry is really being clobbered right now with several major
developments that have occurred in the last year--the slowdown
of the economy and the imports that continue from countries
that keep their own markets closed. We are facing bankruptcies,
two this week, and one mill was closed by creditors. We lost
over 25,000 jobs last year, and thousands this year.
Now, the ATPA is a true unilateral grant of access to the
U.S. market. We're not talking about this in the FTAA context.
We recognize in the FTAA context that that's a two-way deal,
like NAFTA is. But in a unilateral grant, we do not want to
endanger our workers and our production any further. We think
there can be gains for both under the CBI model, gains in U.S.
textile production and in U.S. textile employment, and gains in
apparel production and employment in the Andean region.
So that is the position that we are taking. We are being
hammered right now, very badly, and when you look at job losses
of thousands and thousands in one year, and the first loss on
sales that our industry has ever sustained in modern times--a
$500 million loss in 2000--we believe that you need to
structure an agreement so that you can provide some incentive
for growth and survival for our industry.
Mr. Levin. Thank you.
Chairman Crane. Let me thank all of our panelists.
Unfortunately, we are going into session and it's my
understanding we will have a recorded vote on the floor very
soon, if not immediately. But I want to express appreciation to
all of you for participating as panelists today. We are sorry
for the program running as long as it did, and for our
Ministers here from the Andean countries, we look forward to
seeing you tomorrow.
Thank you all. The Subcommittee standards adjourned.
[Whereupon, at 6:02 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the American Farm Bureau Federation
The American Farm Bureau Federation is the nation's largest
agricultural organization with over five million member families. Our
members produce every crop raised in America and depend on exports for
over one-third of their total production.
Negotiations now underway in the Free Trade Area of the Americas
are important to our members from both an import and export
perspective. This agreement will create an open market of 34 countries.
Several of these nations produce many of the same commodities that we
grow in America. According to a recent U.S. Department of Agricultural
report, the commodities that are expected to benefit from an FTAA
include wheat, soybeans, cotton and corn. Conversely, increased
competition in the U.S. market could substantially affect U.S. sugar,
peanut and orange juice producers. Producers from these countries
already enjoy significant access to our market and also compete with us
in the international marketplace. It is imperative that U.S. producers
begin to enjoy access to the FTAA markets on equal terms.
We also view the FTAA as an opportunity to apply the trade lessons
we learned from the North American Free Trade Agreement. On average,
NAFTA has significantly benefited the U.S. agricultural sector. When
you take a closer look at specific commodities, however, there have
been some winners and losers. While we cannot expect significant gains
for all commodities in all trade agreements, we can, and must, ensure
that the rules that are adopted as part of the FTAA result in fair
trading opportunities. To this end, we have requested that special
safeguards be implemented in the FTAA for perishable commodities that
account for seasonality and regionality.
Recognizing the importance of achieving such an agreement, the Farm
Bureau believes very effort must be made to develop negotiating
consensus in the Western Hemisphere that underscores the objectives the
United States seeks to achieve in the WTO negotiations. Although
important gains can be made in the FTAA including eliminating export
subsidies, disciplining state trading enterprises and ensuring market
access for bioengineered commodities, the real gains from trade are
more likely to be achieved in the WTO negotiations on agriculture.
Most importantly, any agreement reached in the FTAA must recognize
the existing rights and obligations of the General Agreement on Tariffs
and Trade (GATT) 1994 as provided in the Marrakesh Declaration, which
established the WTO. Agreements reached as a result of the FTAA
negotiations should in no way subordinate or prejudice member parties'
WTO commitments.
The Farm Bureau supports adoption of the following general
objectives for the FTAA negotiations:
Require compliance with existing WTO commitments of all
WTO-member trading partners in the FTAA.
Stipulate that no signatory should be permitted to protect
or exclude any sector, or commodity within that sector, from meeting
the terms of the agreement.
Provide for the continued and regular use of private
commodity and trade policy advisory group input into the FTAA
negotiation process.
General Market Access:
Customs Procedures:
Develop equivalent customs procedures to facilitate the
flow of traded products and minimize market disrupting commercial
disputes.
Rules of Origin:
Establish standardized rules of origin.
Agricultural Market Access:
Allow for adoption of zero-for-zero sectoral initiatives
where commodity specific support for such an approach exists.
Improve the administration of tariff-rate quotas to
increase the transparency and predictability of market access
opportunities.
Eliminate nontariff barriers to trade in agricultural
products, including, but not limited to: domestic absorption
requirements (barring market access until the domestic supply of a
commodity is exhausted); price pooling of domestically supplied and
exported products; discriminatory licensing procedures, reference price
calculations that overstate the value of imports, product certification
and labeling procedures that discriminate against approved exports and
sanitary and phytosanitary measures that are not science-based.
Export Subsidies:
FTAA member countries should eliminate export subsidies as
called for in the San Jose Ministerial Declaration by FTAA Ministers.
FTAA signatories should call for the elimination of export
subsidies in the WTO negotiations on agriculture.
Domestic Support:
Domestic support negotiations should take place in the WTO
and not in the FTAA.
Additional Agricultural Objectives:
Develop principles for the immediate, unrestricted,
science-based trade of agricultural products produced with genetically
modified organisms.
Obligate signatory countries to adhere to science-based
sanitary and phytosanitary measures in accordance with the WTO
Agreement on Sanitary and Phytosanitary Measures and require all FTAA
countries to come into full compliance with its provisions.
Eliminate state trading enterprises or adopt disciplines
that require full transparency of STEs that operate in the region.
Institute special safeguard provisions that remedy price
depressing import surges of perishable commodities in a quick and
efficient manner and establish disciplines that address seasonal and
regional import surges for agricultural products.
FTAA countries should support the harmonization of
labeling requirements and product certification procedures (including
harmonization of pesticide registration requirements) in regional and
international standard setting bodies.
Promote the development of science-based international
standards in recognized regional and international standard setting
bodies.
Dispute Resolution:
Develop expedited dispute resolution procedures and
processes for perishable commodities.
FTAA dispute settlement procedures should provide strong
provisions for compliance with dispute settlement rulings and should
facilitate trade.
Environment and Labor:
Environment and labor issues that restrict trade should
not be included in the agreement.
The United States, in negotiating the FTAA, should insist on strict
implementation of international trading rules to prevent unfair
practices by countries in the hemisphere and to ensure unrestricted
access to these important markets. This agreement, as with all others,
should be continually evaluated with emphasis on fair trade as well as
free trade.
Andean Trade Preferences Act (ATPA)
Farm Bureau will not support renewal of the ATPA unless certain
import sensitive products such as asparagus are excluded. The act
should only be renewed if this exclusion is granted and a competitive
trigger similar to that of the Generalized System of Preferences (GSP)
is implemented that eliminates the tariff preference once a country
becomes internationally competitive in a specific commodity and the
safeguard mechanism for perishable products is improved.
While the objectives of the ATPA are laudable, U.S. producers
should not be put out of business as a result of the Act. Considerable
injury to U.S. producers resulted from the duty-free importation of cut
flowers under the ATPA and the same scenario is beginning to unfold for
our asparagus producers.
Providing duty-free treatment for imports from Andean countries--
Bolivia, Colombia, Ecuador and Peru--has measurably affected trade in
certain horticultural products and has had a significant impact on
domestic production of those commodities. For example, the duty-free
treatment provided to asparagus growers in Peru has further enhanced an
already competitive industry that existed in Peru prior to enactment of
the ATPA. Once a small industry in the early 1980's, Peru has become
the world's largest producer and exporter of asparagus. Asparagus is
Peru's second largest agricultural export item with about $130 million
in annual export earnings.
Asparagus imports from Peru have grown more than ten-fold since
1990. Imports of Peruvian asparagus, predominantly for the fresh
market, have more than doubled in the last three years. Steady
increases in Peruvian asparagus imports are expected for the next
several years. The U.S. market absorbs up to 80 percent of the Peruvian
fresh asparagus crop. In addition, a sizeable asparagus processing
industry exists in Peru. Although most of the processed product is
white asparagus destined for European markets, significant quantities
of green asparagus are now being diverted to frozen utilization.
U.S. industry sources indicate that five to 10 million pounds of
Peruvian frozen asparagus have been made available to the U.S. market
in the past year. Imports of this magnitude are significant because the
total U.S. market for frozen asparagus is only 10 million pounds
annually. Duty free access for Peruvian frozen asparagus has
exacerbated the situation. Peruvian imports are displacing U.S. frozen
asparagus production at an alarming rate.
Peru produces asparagus for two distinct markets: green asparagus
(primarily fresh, with an increasing portion dedicated to frozen/
processed product) for the U.S. market and processed white asparagus
for the European market. Peruvian cultivation of asparagus occurs year
round with very high yields per acre experienced by its growers.
The extent to which the ATPA has advanced narcotics eradication in
Peru is highly questionable largely because cultivation of asparagus in
Peru occurs in the desert region along Peru's coastline, not in the
foothills and mountains where Peruvian drug cultivation is known to
exist.
Farm Bureau believes that duty-free treatment should not be
accorded under the ATPA for specific commodities wherein a country is
deemed economically competitive. The determination of economic
competitiveness should follow the criteria now used in the Generalized
System of Preferences program requirements.
The GSP competitive need limitation revokes duty-free treatment for
certain goods once that article/commodity accounts for 50 percent or
more of the total value of imports of that commodity or exceeds a pre-
established dollar value (in 1996 the value was set at $75 million).
Once GSP treatment is revoked for a commodity, the tariff for that
product reverts to the MFN level.
Instituting this change would support the objective of the ATPA of
providing economic alternatives to narcotics production, but would not
allow foreign imports to put U.S. producers out of business in the
process.
Second, a safeguard mechanism should be instituted to address
import surges of perishable agricultural commodities. Import surges can
be extremely disruptive to U.S. agricultural markets, especially
considering seasonality concerns and the price variability of
perishable agricultural products. Criteria now exist in the NAFTA and
the WTO agreement on agriculture that enable safeguard actions to be
taken under specified conditions. Certain trade remedies, such as the
U.S. 201 law, allow the administration to take action to mitigate
import surges when they are determined to be causing or threatening
injury to U.S. producers. However, imports from ATPA and other
countries are exempt from consideration in the investigation of 201
cases.
In order to address the often irreparable damage caused to U.S.
producers of perishable products due to import surges, we request that
any extension or renewal of the ATPA include an automatic, transparent,
and temporary safeguard mechanism. The safeguard mechanism would
provide much needed import relief to U.S. producers being injured by an
import surge and would still provide market access for ATPA beneficiary
countries during the remedy phase.
Farm Bureau appreciates this opportunity to comment on the Free
Trade Area of the Americas and the Andean Trade Preferences Act.
[By permission of the Chairman.]
Statement of Asociacion De Exportadores De Prendas De Vestir A Los
Estados Unidos De America, Lima, Peru
Mr. Chairman, the Association of Apparel Exporters to the United
States (EXPORAMERICA) is a non-profit association compromised of
private Peruvian companies that export apparel to the United States.
Our members create jobs in the clothing sector that are instrumental in
battling illegal drug production and trafficking. We are pleased that
an extension and expansion of the Andean Trade Preferences Act (ATPA)
is on the Committee's agenda. We look forward to working with the
Committee on an ATPA that benefits all four Andean nations in order to
reduce the drug trade by strengthening the local legal economies.
The ATPA was enacted on December 4, 1991 to authorize preferential
trade benefits for the Andean nations. The purpose of the ATPA is to
expand economic incentives to assist Bolivia, Ecuador, Colombia, and
Peru to generate an alternative to employment in the drug production
and trade. The goal is to increase legal employment through exports to
the United States market. The beneficiary countries have to meet
criteria for cooperating in the drug war. Duty-free treatment only
applies to certain products. The product list does not include textiles
and apparel. Yet, these products create many farming and manufacturing
jobs that provide alternatives to work in the coca fields. The ATPA
expires on December 4, 2001. It is essential that the ATPA be extended
and expanded promptly.
The ATPA has had only a moderate impact in generating new
employment opportunities in Peru because textiles and apparel are
excluded from duty free treatment. Textiles and apparel are the
principal industrialized exports to the U.S.A. Peruvian products that
currently benefit from the ATPA are mostly minerals that do not involve
an intensive labor process and have very low import duties. By
contrast, we have a fully integrated and highly efficient apparel
industry that creates many jobs vital to the fight against drugs. Most
apparel from Peru and Bolivia is made from high quality, locally grown
cotton or from llama or alpaca that is native to the region. The use of
cotton grown in Peru and Bolivia is an essential part of our industry.
Cotton is an important alternative crop to the coca and provides an
important source of lawful employment for both our agricultural and
factory workers.
Recently, the Trade Ministers of the Andean community at a meeting
in Lima stated their joint position on the inclusion of textile
apparels in the ATPA in a document called ``Position of the Andean
Community to the Andean Trade Preference Act.'' The Trade Ministers
believe that textiles and apparel should be included in the ATPA and
more specifically, ``the expansion of the coverage of the ATPA should
not be conditioned to regulations regarding the origin of raw materials
that restrict the access of our textiles and apparel.''
Hundreds of thousand of jobs are at stake. The Trade and
Development Act of 2000 now provides the Caribbean Countries with
preferential tariff treatment for certain textile and apparel products.
This expansion of benefits to CBI countries places Andean farmers and
manufacturers at a competitive disadvantage and threatens to undermine
the drug war. Peru's textiles sector supports 32 percent of the
population employed in the manufacturing industry, which amounts to
approximately 180,500 jobs. Another 200,000 jobs are in the agriculture
industry. Workers who would otherwise have lawful jobs will be left
without an alternative to coca production, if our industry continues to
be at a competitive disadvantage due to high tariff barriers in the
United States.
Expanding the ATPA to include textiles and apparel would not have a
substantial negative impact on the U.S. economy. In 1999, textile/
apparel exports from Andean countries represented only 1.1 percent of
the total textile/apparel exports to the United States and 0.46 percent
of this is exported from Peru. The ATPA countries export far less
textiles/apparel than the CBI region. In addition, Peruvian apparel
exporters are interested in importing additional cotton from the United
States to supplement the Peruvian cotton production. Thus, to the
extent, we can sell more apparel to the United States, the more cotton
we will import from the United States, providing export markets and
jobs to your country as well.
We look forward to working with you to expand your initiative to
provide a solution that benefits all the Andean nations. The drug war
cannot be won without improving the economies in the entire Andean
region. The data on the drug trade clearly shows that the coca economy
is regional, and that actions adopted in one country affect the drug
combat efforts in neighboring countries. The success in Peru's drug
fight, for instance, has corresponded with an increase in Colombia's
coca-growing activity. Any bill that does not help the entire region
will only move the drug problems from one country to the next, which
does not help you or us.
An expansion of the ATPA to include textiles and apparel would
provide the necessary economic incentives to eliminate the lure of
illicit jobs and build a stronger more stable hemisphere.
Statement of the Coalition for Sugar Reform
We appreciate the opportunity to present testimony before the
subcommittee to discuss the implications of the proposed Free Trade
Area of the Americas to American sugar consumers. The Coalition for
Sugar Reform is an umbrella organization representing some 20 U.S.
trade associations, consumer and environmental groups, businesses and
taxpayer advocates united in their belief that the U.S. sugar program
should be fundamentally reformed. The Coalition commends the
subcommittee for holding this hearing. We cannot emphasize strongly
enough the vital importance of increased U.S. market access for sugar
to the Administration's overall goal of lowering trade barriers and
increasing the level of trade in goods and services in the Western
Hemisphere.
Simply stated, maintaining the archaic U.S. sugar program in
anything like its present form will undercut our ability to open
foreign markets for a whole range of U.S. products and services,
particularly agricultural commodities and value-added products. This
isn't simply about the price of a five-pound bag of sugar, or even the
$2 billion extra that consumers spend annually because of our sugar
program. It's actually about our ability to deliver on the promise to
open markets more fully around the world for our farmers, ranchers,
food processors and everyone else who is part of America's food
industry. The sugar program is the Achilles heel of U.S. trade policy.
Through the Free Trade Area of the Americas, we have a unique
opportunity to continue the extraordinary period of trade expansion
that began with the completion of NAFTA and the Uruguay Round in 1993
and has continued through last summer's approval of Permanent Normal
Trade Relations. By any measure, markets around the world are far more
open than they were a decade ago, thanks to U.S. leadership. Under the
new Bush Administration, we are poised to continue that record of trade
expansion through the conclusion of a successful FTAA. However, the
inconsistency in the U.S. position created by our domestic sugar
program has the potential to jeopardize these future negotiations and
will certainly not engender good will from our Latin American
neighbors.
The special importance of trade to U.S. agriculture has long been
clear; our farmers and ranchers were many years ahead of the rest of
the economy in recognizing the vital importance of access to foreign
markets. As Agriculture Secretary Ann Veneman stated last month,
Expanding trade is the President's top priority for U.S.
agriculture. With 96 percent of the world's population living
outside the United States, the work market is essential to the
future of the American food chain. Nearly one-half of our
annual production of wheat and rice, one-third of our soybeans,
one-fifth of our corn and two-fifths of our cotton are sold
overseas. In addition, we are exporting growing quantities of
grains and oilseeds through meat exports, and an increasing
volume of other high-value products. Agricultural trade
barriers and production-distorting subsidies continue to
inflict heavy costs on consumers, producers, and exporters
around the world. Recent analysis by USDA's Economic Research
Service shows the average global tariff on agricultural
products is over 60 percent, compared to about 12 percent for
products coming into the United States. Clearly, the U.S. has
much to gain from further reform. As trade barriers continue to
fall, exports to our NAFTA partners are growing faster than
those to other regions of the world. That's why we will
continue to work toward regional trade agreements, such as the
FTAA.
Trade is also vital to the growth of value-added and processed
foods and feedstuffs. Global trade in processed food is growing twice
as fast as bulk commodity trade, and consumer products now account for
a greater percentage of U.S. agricultural exports than raw commodities.
The progress in opening markets around the world has undeniably
benefitted U.S. agriculture and the food sector. The Uruguay Round was
a landmark accomplishment, which finally began to bring agricultural
trade under fair and internationally accepted rules. The Uruguay Round
Agreement on Agriculture abolished quotas, ensuring that countries
would use only tariffs to restrict imports; and went on to reduce and
bind those tariffs. It subjected export subsidies and trade-distorting
domestic support measures to specific limits, reducing them as well.
Through the Agreement on Sanitary and Phytosanitary Measures, WTO
members agreed to use science-based sanitary and phytosanitary
standards to protect human, animal and plant life and health, taking
away, at least in principle, one of foreign governments' most powerful
protectionist tools. NAFTA gave our farmers and ranchers preferential
access to Mexico as well as to Canada; our agricultural exports to
those countries have grown by nearly $4 billion since 1993, and now
represents more than one-fourth of our agricultural exports. We have
successfully negotiated numerous bilateral agreements opening up new
opportunities in a large range of commodities: tomatoes and apples in
Japan; citrus and other fruits in Brazil, Chile, Mexico and other
countries; beef in Korea, cattle, hogs, wheat and barely into Canada.
China's WTO accession agreement is an historic achievement in many
respects ,but certainly in terms of dramatic new opportunities for U.S.
agriculture. USDA predicts more than $1 billion annual increase in
processed food exports as a result of this agreement.
Despite these achievements, all over the world agriculture remains
the most sensitive area--economically, politically and culturally--of
international trade. While many barriers have come down, agricultural
products, TRQs have created some access for imports, but continue to
maintain restrictive conditions. The European Union continues to employ
90 percent of the world's export subsidies, damaging the interests of
our farmers and ranchers, and harming many of the nations of the
developing world. Countries still routinely invoke sanitary and
phytosanitary barriers to block imports, in the absence of sound
science. State trading enterprises still play far too large a role in
agricultural trade. The economic health of our agricultural sector
depends on getting strong rules, and breaking down these barriers, to
ensure greater access to markets around the world.
For these reasons, in recent years every U.S. official has made it
crystal clear that a primary goal for the United States in any future
trade negotiation was agriculture trade liberalization. Our ambitious
objectives are set forth clearly in the ``Proposal for Comprehensive
Long Term Agricultural Trade Reform'' submitted in Geneva last year.
That proposal ``entails reforms across all measures that distort
agricultural trade and that once adopted, will reduce levels of
protection, close loopholes that allow for trade-distorting practices,
clarify and strengthen rules governing implementation of commitments,
foster growth and promote global food security and sustainable
development.'' The proposal notes that ``the United States believes
there are compelling arguments for further reform. Too often and in too
many countries, the production and marketing decisions farmers make are
still driven by government programs and protections from market access
barriers, rather than market conditions. As a result, competitive
farmers, ranchers and processors are denied sufficient access to
markets and face subsidized products and the trade-distorting policies
of foreign governments, leaving the world with an agricultural market
still far from the WTO objective of a fair and market oriented
system.''
There is no doubting the commitment of Congress and this
Administration to continue world agricultural markets. The real
question is how we will accomplish that vital objective. Because
agricultural trade barriers still proliferate around the world, the
U.S. comes to any negotiation with an ambitious list of liberalization
objectives. Because the playing field is not currently level, the
United States will press other nations to undertake more changes and
more market opening than we are prepared to do. Because we are already
so open, we have relatively little to use as leverage in exchange for
the market opening that we seek.
Against this backdrop, it is quite clear that the U.S. sugar
program stands as one of the principal impediments to our hopes for
continuing agricultural trade liberalization. First, the program makes
our calls for ``a fair and market oriented system'' sound hollow and
hypocritical. If we saw this program in another country, we would
regard it as a major and unacceptable distortion of trade. In fact,
OECD estimates distributed by USDA show that this is one commodity
where, during 1996-98, U.S. subsidies were actually somewhat higher
than European Union subsidies, when expressed as a share of production
value.
The 1996 Farm Bill ended government controls and phased out
payments to farmers of corn, wheat, cotton and other crops. The sugar
program is glaring exception to this progress. USDA continues to
tightly control the marketplace through the TRQ, and high price support
levels remain in effect. The lower duty applicable to in-quota imports
is unchanged, while the over-quota duty rate actually rose initially
and has remained at levels that are still prohibitive to imports. Thus,
the Uruguay Round Agreement--despite its introduction of important
principles for agricultural trade--made almost no progress in altering
the basic features of the sugar program. While defenders of the sugar
program point out that the United States imports approximately 15
percent of its sugar, this contrasts sharply with the 40 percent market
share that foreign sugar had in the U.S. market before the current
sugar program was put in place in 1981.
The U.S. sugar industry argues that the European Union's subsidy
program is worse than that of the United States; thus, if the U.S.
scraps its own sugar program, subsidized EU sugar will pour into the
United States and drive U.S. sugar growers out of business. The
European Union's sugar subsidy does, in fact, distort markets in ways
the U.S. sugar program does not, because it depends on export
subsidies. However, even without the U.S. sugar program, dumped and
subsidized European sugar would be unable to enter the country due to
the anti-dumping duties that have been in place for some time against
European sugar producers (Belgium, France, Germany) and the
countervailing duties applied to European Union sugar. In addition, the
U.S. has deliberately chosen not to follow the European model in other
agricultural products in the past, instead attempting to compete in
world markets and tear down the trade barriers of other countries.
The sugar industry continues to argue that the decline of the world
price of sugar in recent years is the result of dumping and is a sure
sign of things to come if the sugar program is eliminated. In fact,
both world and domestic sugar prices have declined recently due to
unprecedented oversupply, stimulated by favorable weather conditions,
increases in acreage due to lower prices for other commodities, and
contracting markets in Russia and Asia. To the extent that a lower
price may be reflective of dumping, however, U.S. antidumping laws
provide an effectively remedy to a domestic industry that is being
injured by less-than-fair-value imports. There is no reason why the
antidumping laws and the countervailing duty laws, which protect other
industries from unfairly traded products, will not afford similar
protection to the sugar industry, assuming that dumping or subsidizing
is occurring and resulting in injury.
There are few issues, if any, that matter to more developing
nations--many included in the Free Trade Area of the Americas--than
increased sugar access to the markets of the developed world. This
issue stands close to the top of the agenda of two of the leading
developing nations, Brazil and Chile. But, it is the highest priority
for some of the smallest, struggling economies in our hemisphere:
Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and
Panama. These developing nations tend to maintain the highest tariffs
against our agricultural products. They are potentially among the
fastest growing markets for our farmers and ranchers if those barriers
can be reduced. We know from Seattle, and the discussions since, that
many developing nations believe that they have been shortchanged by the
international trading system. Many believe that they made significant
market opening commitments in the Uruguay Round and have received too
little benefit in terms of reciprocal access to the markets of the
developed world. The inequities of the U.S. sugar program compel the
conclusion that the grievances of the developing countries are well
justified, not just deeply felt.
Our own citizens will benefit from reform of the sugar program,
including liberalized imports. According to the General Accounting
Office, users and consumers of sugar paid nearly $2 billion more in
1998 for products containing sugar than if there had been no sugar
program. In order to claim that consumers will see no benefit from
sugar liberalization, one has to assert that there is no competition in
the food industry. We submit that no one who shops for groceries will
take this claim seriously. Our food manufacturers and grocers are
intensely competitive, as anyone who compares prices and uses coupons
can tell you.
The Coalition for Sugar Reform hopes this hearing marks the
beginning of a serious discussion of the myriad costs of the archaic
U.S. sugar program in the context of future international trade
negotiations. Every nation has its sensitive commodities, and sugar is
plainly one of ours. But when one sensitive commodity--produced by
relatively few growers--is vitally important to the economic well-being
of so many other nations in our own hemisphere, it can cause a major
imbalance in the international trading system. Reform of the U.S. sugar
program would provide a vital boost to the economies of many poor and
developing nations in the Western Hemisphere. At the same time, such
reform would clearly be a major catalyst in expanding export
opportunities for American producers of grains, oilseeds, cotton, meat,
processed foods and value-added agricultural products.
[The attachment is being retained in the Committee files.]
Distilled Spirits Council of the United States
Washington, DC 20005-3998
May 22, 2001
Ms. Allison Giles
Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House office Building
Washington, DC 20515
Re: Comments on the Summit of the Americas and the Free Trade Area of
the Americas
Dear Ms. Giles:
On behalf of the Distilled Spirits Council of the United States, Inc.
(DISCUS), I am writing to provide a statement for the printed record of
the hearing of the Subcommittee on Trade of Tuesday, May 8, regarding
the Summit of the Americas and the Free Trade Area of the Americas
(FTAA), DISCUS is the national trade association representing U.S.
producers, marketers, and exporters of distilled spirits products.
DISCUS member companies export to more than 120 countries, including
the parties of the FTAA. In 2000, U.S. producers exported approximately
$63 million in spirits products to the countries of the western
hemisphere, accounting for about 20 percent of global U.S. spirits
exports. DISCUS strongly supports the efforts of the U.S. government to
negotiate a comprehensive free trade agreement with the governments of
the western hemisphere, and we welcome this opportunity to provide a
written statement.
DISCUS has been a vocal supporter of the FTAA since the Miami
Summit, and we applaud the progress made thus far toward completion of
the agreement. We are encouraged by the recent progress made at the
Quebec City Summit of the Americas. Although we supported the Chilean
proposal for an accelerated time frame for completion of the agreement,
we nonetheless welcome the Declaration of Quebec City instructing the
negotiators to complete their work by January 2005 so that the
agreement may enter into force no later than December 2005. We further
applaud the decision to release to the public the preliminary draft
negotiating documents, confirming the leaders' commitment to
transparency during the negotiating process. DISCUS was also pleased
that the Buenos Aires Ministerial Declaration directed that the actual
market access negotiations begin no later than May 15, 2002.
High tariffs continue to present a significant market access
barrier to U.S. spirits exports, particularly in our most important
emerging markets. The distilled spirits industry benefitted from the
``zero-for-zero'' negotiations that began during the Uruguay Round. As
a result of the Round and over the course of subsequent negotiations,
the ``Quad'' countries--the United States, European Union, Canada, and
Japan--agreed to eliminate tariffs on most categories of distilled
spirits. As a consequence, the United States has eliminated all tariffs
under Harmonized Tariff Schedule (HTS) Subheading 2208, with the
exception of certain categories of rum. We view the FTAA as an
excellent opportunity to expand the scope of the zero-for-zero
initiative. Accordingly, we seek the immediate, hemisphere-wide
elimination of tariffs on all spirits products, thus securing tariff
treatment for U.S. spirits throughout the hemisphere that is equal to
the treatment that the U.S. currently accords imported spirits.
Further, the FTAA presents an opportunity to eliminate non-tariff
measures which continue to present major market access obstacles to
U.S. spirits exports. DISCUS urges the U.S. government to use the
opporunity of the FTAA as a mechanism to enhance hemispheric
disciplines regarding:
The use of discriminatory internal tax systems that place
a disproportionate tax burden on imported products vis-a-vis like,
substitutable, or directly-competitive domestic goods, or that serve to
protect the domestic industry;
Non-competitive practices by state monopolies concerning
the production or sale of goods;
The use of export restraints, export and import price
requirements, and import licensing conditioned on the fulfillment of a
performance requirement;
Trade-distorting sanitary measures that are not based on
sound science; and,
Non-transparent notification procedures that provide
inadequate time periods for public comment on, implementation of, and
compliance with any new rules, laws, or regulations that may affect
trade.
As part of the FTAA process, DISCUS also believes that participants
should fully implement their obligations under the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPS), including the
establishment of mechanisms to ensure and enforce the protection of
geographical indications associated with distinctive distilled spirits.
DISCUS and its member companies view the FTAA as a critical vehicle to
secure from FTAA participants explicit protection for Bourbon and
Tennessee Whiskey (which is a straight whisky authorized to be produced
only in the State of Tennessee) as distinctive products of the United
States, using language similar to that found in NAFTA Annex 313
(``Distinctive Products''). Accordingly, the FTAA participants should
agree not to permit the sale of any product as Bourbon or Tennessee
Whiskey unless it has been produced in the United States in accordance
with the laws and regulations of the United States, nor permit the use
of these designations for any product which is not Bourbon or Tennessee
Whiskey.
Our trading partners are moving forward with numerous bilateral and
multilateral agreements that favor competing spirits suppliers and
place U.S. exports at a competitive disadvantage. Within the
hemisphere, Canada currently has free trade agreements in place with
Chile and Costa Rica, and is negotiating an agreement with El Salvador,
Guatemala, Honduras and Nicaragua. Mexico currently has agreements with
31 nations, including Bolivia, Chile, Costa Rica, Colombia, El
Salvador, the European Union, Guatemala, Honduras, Nicaragua, Uruguay,
and Venezuela. The Andean Community and Mercosur impose significant
common external tariffs that impede U.S. exports to these markets. Our
major competitors, including the countries of the European Union and
the European Free Trade Association, have in place or are currently
negotiating agreements with Chile and Mercosur. As these preferential
trade agreements proliferate, U.S. spirits exporters are systematically
locked out of critical markets. It is essential that the United States
engage actively and constructively with the countries of the western
hemisphere to bring the FTAA to fruition and maintain U.S.
competitiveness in these markets.
As we enter this critical stage of the FTAA process, it is vital
that U.S. negotiators be empowered to secure tangible benefits in the
negotiations. Providing the President with Trade Promotion Authority
(TPA) is essential to ensure that the U.S. government has the authority
to negotiate the minute and painstaking details of comprehensive trade
agreements, including the FTAA and the bilateral free trade agreements
with Chile and Singapore. It also seems clear that prospects for
securing TPA will be a key consideration of our trading partners in
deciding whether to launch a much-needed new WTO round in Doha in
November. Without TPA, U.S. negotiators will lack the tools they
require to negotiate the best possible deal for the United States.
DISCUSS stands ready to support efforts to secure prompt passage of TPA
legislation this year.
Thank you again for the opportunity to offer our views on the FTAA
negotiations.
Sincerely,
Deborah A. Lamb
Vice President
International Issues and Trade
Florida Farmers & Suppliers Coalition, Inc.
Lake Worth, Florida 33454-0623
April 12, 2001
Hon. E. Clay Shaw, Jr.
U.S. House of Representatives
Washington, DC 20515
Dear Congressman Shaw:
We are writing to make known our position on Trade Promotion Authority
(TPA), formerly known as Fast Track. On April 3, 2001 the industry
leadership, by unanimous consent, agreed to oppose this legislation. In
the past we have twice opposed Fast Track and most of the Florida
Congressional Delegation has remained committed to vote against such
legislation.
Since enactment of NAFTA, over 300 winter vegetable farmers have
gone out of business in Florida alone. We are now learning that
hundreds of smaller producers in southern States also suffered similar
fate. We are further disappointed by the billions of dollars that have
been paid to producers from apples to cranberries during the last two
years. Florida has not received one cent of the supplemental
appropriations to compensate our farmers for losses suffered by these
unfair foreign competition practices.
Last year alone (1999-2000), our tomato growers in Florida lost
$112 million. Our farmers employ over 100,000 workers, but no one seems
to care about them either. We simply cannot compete with third world
countries paying $4.00 per day in wages. Our industry cannot survive
unless it is protected as a sensitive and strategic food industry.
We wish that in the spirit of free trade and better foreign
relations, we could support such initiative, however, realistically we
know we cannot survive under the present scenario. We urge you to vote
no for Trade Promotion Authority.
Sincerely,
Paul DiMare,
Chairman
Statement of Michael J. Stuart, President, Florida Fruit & Vegetable
Association, Orlando, Florida
The Florida Fruit & Vegetable Association (FFVA) submits the
following comments to be included in the record of the May 8, 2001,
hearing held by the House Committee on Ways and Means regarding the
outcome of the Summit of the Americans, and the prospects and timing
for achieving the Free Trade Area of the Americas (FTAA). The following
comments address specific FTAA objectives for the agriculture and
market access negotiating groups to help ensure fair treatment for
Florida's import-sensitive fruit and vegetable sectors.
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 crops
compete against low-cost, often subsidized producers from Latin
America, Europe, and elsewhere.
I. General Views
FFVA's principal concern with the proposed FTAA is that it could
lead to further reduction in import-sensitive U.S. tariffs in favor of
competitive exporters in Chile, Brazil, Argentina and other western
hemispheric countries, creating greater competition in the U.S. market
for Florida's fruit and vegetable growers. Accordingly, FFVA's priority
objective in the negotiations is to ensure that the tariff methodology
adopted to eliminate agricultural tariffs allows for exceptions from
tariff elimination for Florida's most import-sensitive fruit and
vegetable products. FFVA is on record with the U.S. government in
support of similar objectives for the U.S.-Chile Free Trade Agreement.
Florida's growers are skeptical about a FTAA in part because both
the North America Free Trade Agreement (NAFTA) and the Uruguay Round
Agreement in the World Trade Organization (WTO) have failed to protect
Florida's import-sensitive products from increased competition in the
U.S. market.
Sine the NAFTA Agreement took effect, Florida fruit and vegetable
growers have lost significant domestic sales to Mexico of tomatoes,
bell peppers, cucumbers and other crops. NAFTA encouraged this
increased competition in two ways: first, by reducing U.S. tariffs,
making already low-priced Mexican products more competitive; and,
second, by encouraging investment in Mexico's agricultural industries
from non-traditional sources. The increased investment has
substantially advanced Mexico's technology, increased Mexico's
production in competitive crops, and reduced per-unit costs of those
commodities. These advantages, along with the cost savings derived from
the devaluation of the peso shortly after the NAFTA took effect, have
significantly increased Mexico's export competitiveness relative to
Florida.
Likewise, the Uruguay Round ``reforms,'' which reduced U.S. tariffs
across the board, including tariffs on import-senstitive products, have
left Florida's fruit and vegetable sectors more vulnerable to imports.
While the Uruguay Round has contributed to limited progress in opening
foreign markets for Florida tomato and citrus products, losses in the
U.S. market have on balance outpaced gains inexport markets. Florida's
fruit and vegetable exports continue today to face tariff quotas and
unjustified phytosanitary restrictions.
With competition in the U.S. market increasing, many of Florida's
producers have been forced to curtail their operations. Others have
closed down altogether. Even import relief acions have not stopped the
harm.
A hemispheric-wide free trade agreement will compound this
adversity. Chile, Brazil and Argentina are competitive producers and
exporters of fruit and vegetables that are also grown in Florida.
Imports of these products at duty-free or preferential duty rates pose
an immediate threat for Florida's growers.
FFVA therefore requests that high priority be given to the
following comments respecting FTAA tariff elimination, tariff-rate
quotas, safeguard measures, currency devaluation, and santitary and
phytosanitary disciplines.
II. In the Area of Tariff Phase-Outs, FFVA is Seeking Special
Exemptions For Flordia's Most Import-Sensitive Products
In NAFTA, despite the extreme import sensitivity of Florida's fruit
and vegetable products, only frozen concentrated orange juice (FCOJ)
and, for part of the year, cucumbers received the meximum tariff phase-
out period of 15 years provided for under the NAFTA agreement. In many
sectors like tomatoes, peppers, and cucumbers, ten-year phase-out
periods have proven insufficient to protect against increased imports
from Mexico. Consequently, U.S. growers have been forced to spend
precious industry dollars to fight back unfair competition from Mexico
through antidumping procedures and other trade remedy laws.
The FTAA is a regional trade agreement covering many more countries
than NAFTA--including Brazil, Argentina and Chile, all countries that
are highly competitive with Florida's fruit and vegetable sector. These
countries currently export melons, lettuce, onions, tangerines/
mandarins, and frozen concentrated orange juice to the U.S. market,
products that compete directly with Florida production. To ensure that
the FTAA negotiations do not lead to increased U.S. imports from these
countries of principal fruit and vegetable products, FFVA is asking
that a request-offer approach be pursued that explicitly authorities
exemption from tariff phase-out for FFVA's most highly import-sensitive
fruit and vegetable products. Although exemptions from tariff phase-out
were not granted under NAFTA, there is no WTO requirement that this be
the standard for an FTAA, nor is there a policy justification for such
an approach, given the greater competitive threat presented by the
larger trade agreement. Moveover, FTAA countries like Chile, Argentina,
and others are themselves interested in product exemptions for import-
sensitivie agricultural sectors.
A complete list is attached of FFVA's most important fruit and
vegetable products for which special tariff exemptions are requested.
Even where Generalized System of Preferences (GSP) benefits are
currently being conferred on these products, FFVA considers the GSP
exemption to be temporary and the Latin American countries competitive
producer of many of these products. Accordingly, Florida's growers and
processors oppose granting permanent duty-free access for these
products under the FTAA.
III. Past Safeguard Measures Specific to Agriculture Have Been
Ineffective
A major problem with both the NAFTA and Uruguay Round Agreement for
Florida's import-sensitive fruit and vegetable products is the
inadequate safeguard mechanisms included in those agreements. These
measures have been ineffective in curbing increased imports resulting
from the preferential tariff access.
NAFTA contains a special agricultural safeguard that is a volume-
based TRQ mechanism that restores the pre-NAFTA tariff on a limited
number of products if certain volume targets are met. There safeguards
have been ineffective for two reasons. First, they are limited to only
a few commodities, leaving many of Florida's import-sensitive products
uncovered. Second, the volume ceiling that triggers the safeguard
measure is met only at the very end of the season when the extra
volumes in the markets have already depressed prices and injured U.S.
growers. Although the Uruguay Round contains a priced-based mechanism,
the safeguard does not apply to Florida's fruit and vegetable crops,
since none of these were subject to non-tariff barrier measures prior
to the Uruguay Round negotiations.
Because an FTAA will stimulate imports of perishable, senstivite
agricultural producrs even if they are exempted from tariff reduction,
any agreement should include a special safeguard mechanism for
agriculture that is (1) broader in product coverage than the NAFTA
mechanism (i.e., one that covers all import-sensitive agricultural
products); and (2) triggered automatically based on price, not year-end
volumes of imports. A price-based mechanism is preferred, since it
reacts to import volumes throughout the season whenever they increase
because of unfairly low prices, and before irreparable injury has
occurred to the U.S. industry. The duration of the safeguard should
also be sufficiently long to allow the U.S. industry to adjust to the
import surges and the injury caused by the increased imports. Finally,
the safeguard mechanism should be structured to include effective
relief once the trigger price or volume is reached. Under NAFTA, the
relief was to ``snap back'' to the bound or applied pre-NAFTA tariff
rate. A more effective mechanism might be to allow, at least indefined
circumstances, a breach of binding to a higher tariff level if
necessary to product the injured U.S. industry.
The U.S. proposal for the FTAA Group on Agriculture does not
include a special agricultural safeguard measure. Under the general
market access text, the U.S. proposes a hemispheric safeguard measure
that would allow tariff increases, but no TRQs. The text reserves the
right ``to propose at a later date provisions on dispute settlement
panel review specific to hemispheric safeguard measures, and sector-
specific safeguard regimes.'' Under this reservation, FFVA urges the
U.S. government to explore the inclusion of a special agricultural
safeguard to protect import-sensitive U.S. agricultural sectors. Given
the great number of countries involved in the FTAA, the competitiveness
of many of these countries in the fruit and vegetable sectors, and the
attractiveness of the U.S. market, adequate safeguard measures are
imperative to protect import-sensitive U.S. fruit and vegetable
products.
IV. The FTAA Should Include A Mechanm to Guard Against the Unexpected
Effects of Currency Devaluation
NAFTA did not include provisions to address currency devaluation.
As a result, when Mexico's peso dramatically devalued shortly after the
NAFTA agreement took effect, Mexico's exports to the U.S. market
instantly became much cheaper and increased significantly, while U.S.
exports to Mexico became more expensive and declined. Many of Florida's
fruit and vegetable industries experienced this rapid shift in import/
export flows and incurred significant losses.
Several of the Latin American currencies not currently pegged to
the U.S. dollar also are susceptible to rapid devaluation. To protect
against the negative effects on trade, U.S. negotiators should consider
ways in which FTAA ``protections'' could be structured to incorporate
appropriate safeguards that would counter increased exports that occur
when a country's currency unexpectedly devalues.
V. The FTAA Should Seek to Strengthen the Sanitary and Phytosanitary
Disciplines Contained in the NAFTA And Uruguay Round Agreement
Despite the disciplines included in the WTO Agreement on Sanitary
and Phytosanitary Measures, access for Florida's fruit and vegetable
crops in many export markets continues to be limited by sanitary and
phytosanitary restrictions and regulations. Chile and Argentina are two
Latin American countries that have limited and delayed access for
Florida citrus under the guise of sanitary and phytosanitary concerns.
The U.S. is proposing that FTAA countries collaborate in the WTO to
strengthen international standards and to
coordinate on data exchange, research and technical assistance. FFVA
supports that proposal, but further urges the U.S. government to
include disciplines in the FTAA itself that will better ensure that
FTAA countries do not use unjustified plan quarantine issues to
prohibit or stall access for U.S. agricultural products. Another area
of cooperation that should be explored in the FTAA is harmonization of
pesticide regulations among the FTAA countries.
VI. Conclusion
The above objectives, especially those addressing tariffs and
safeguard measures, are necessary to ensure that U.S. import-sensitive
agricultural products from Florida and other U.S. states are not put at
risk by a FTAA. FFVA looks forward to working with the Ways and Means
Committee and Congress generally to ensure that these goals are
achieved.
Florida Fruit & Vegetable Association Import-Sensitive Products
----------------------------------------------------------------------------------------------------------------
2001 U.S. Tariff Rates
-------------------------------------------------
H.S. Number Product Description GSP Rate (does not
MFN Rate include GSP for LDDCs)
----------------------------------------------------------------------------------------------------------------
0702.00.20........................... Tomatoes, fresh/chilled 3.9/kg................. .......................
(3/1-7/14 or 9/1-11/
14).
0702.00.40........................... (7/15-81).............. 2.8/kg................. .......................
0702.00.60........................... (11/15 to end of next 2.8/kg................. Free
Feb.).
0703.10.20........................... Onion sets............. 0.83/kg................ Free (Chile excluded)
0703.10.30........................... Pearl onions 16 mm. 0.96/kg................ Free
diameter.
0703.10.40........................... Other.................. 3.1/kg................. Free
0704.10.20........................... Cauliflower and 2.5%................... Free
broccoli (6/15-10/15).
0704.10.40........................... Other (not reduced in 10%.................... Free
size).
0704.10.60........................... Cut/sliced............. 14%.................... Free
0704.20.00........................... Brussels sprouts....... 12.5%.................. Free
0704.90.40........................... Kohlrabi, kale......... 20%.................... .......................
0705.11.20........................... Head lettuce (6/1-10/ 0.4/kg................. Free
31).
0705.11.40........................... Other.................. 3.7/kg................. Free
0705.19.20........................... Other than Head Lettuce 0.4/kg................. Free
(6/1-10/31).
0705.19.40........................... Other.................. 3.7/kg................. Free
0707.00.20........................... Cucumbers (12/1 to end 4.2/kg................. Free
of Feb.).
0707.00.40........................... (3/1-4/30)............. 5.6/kg................. Free
0707.00.50........................... (5/1-6/30; 9/1-11/30).. 5.6/kg................. .......................
0707.00.60........................... (7/1-8/31)............. 1.5/kg................. Free
0708.20.10........................... Lima beans (11/1-5/31). 2.3/kg................. Free
0708.20.20........................... Cowpeas................ Free................... .......................
0708.20.90........................... Other.................. 4.9/kg................. .......................
0709.30.20........................... Eggplants (4/1-11/30).. 2.6/kg................. Free
0709.30.40........................... Other.................. 1.9/kg................. Free
0709.40.20........................... Celery (reduced in 14.9/kg................ .......................
size).
0709.40.40........................... Other (4/15-7/31)...... 0.25/kg................ Free
0709.40.60........................... Other.................. 1.9/kg................. .......................
0709.51.............................. Mushrooms.............. 8.8/kg. + 20%.......... .......................
0709.60.20........................... Chili peppers.......... 4.4/kg................. Free
0709.60.40........................... Other.................. 4.7/kg................. Free
0709.90.20........................... Squash................. 1.5/kg................. Free
0709.90.90........................... Other vegetables....... 20%.................... .......................
0804.50.............................. Guavas, mangoes, 6.6/kg................. Free
mangosteens (fresh).
0804.50.80........................... Dried.................. 1.5/kg................. Free
0805.10.............................. Oranges................ 1.9/kg................. .......................
0805.20.............................. Mandarins, clementines 1.9/kg................. .......................
(fresh or dried).
0805.30.20........................... Lemons (fresh or dried) 2.2/kg................. .......................
0805.30.40........................... Limes (fresh or dried). 1.8/kg................. Free
0805.40.............................. Grapefruit (fresh or 1.9/kg................. .......................
dried) (8/1-9/30).
0805.40.60........................... During October......... 1.5/kg................. .......................
0805.40.80........................... Any other time......... 2.5/kg................. .......................
0807.11.30........................... Watermelons (12/1-3/31) 9%..................... Free
0807.11.40........................... Any other time......... 17%.................... .......................
0807.19.10........................... Cantaloupes (fresh) (8/ 12.8%.................. .......................
1-9/15).
0807.19.20........................... Any other time......... 29.8%.................. Free
0807.19.70........................... Other melons nesi 5.4%................... Free
(fresh) (12/1-5/31).
0807.19.80........................... Any other time......... 28%.................... .......................
0807.20.............................. Papayas (papaws) 5.4%................... Free
(fresh).
1701.12.50........................... Beet sugar............. 35.74/kg............... .......................
1701.11.50........................... Cane sugar............. 33.87/kg............... .......................
1701.91.05........................... Cane/beet sugar subject 3.6606/kg. less Free (Brazil excluded)
to general note 15. 0.020668/kg. for each
degree and fractions
of a degree in
proportion but not
less than 3.143854/kg.
1701.91.10........................... Cane/beet sugar 3.6606/kg. less Free
pursuant to U.S. note 0.020668/kg. for each
5 of this chapter. degree under 100
degrees and fractions
of a degree in
proportion but not
less than 3.143854/kg.
1701.91.30........................... Other.................. 35.74/kg............... .......................
2008.30.35........................... Orange pulp, otherwise 11.2%.................. .......................
prepared/preserved.
2009.11.............................. Orange juice, frozen, 7.85/liter............. .......................
unfermented.
2009.19.25........................... Orange juice, not 4.5/liter.............. .......................
concentrated.
2009.19.45........................... Orange juice, other.... 7.85/liter............. .......................
2009.20.20........................... Grapefruit juice, not 4.5/liter.............. .......................
concentrated.
2009.20.40.20........................ Other/frozen........... 7.9/liter.............. .......................
2009.30.10........................... Lime, unfit for 1.8/liter.............. Free (Honduras
beverage, concentrate/ excluded)
non-concentrate
(2009.30.10.20 and
2009.10,40).
2009.30.20........................... Lime, other............ 1.7/liter.............. Free
2009.30.40.00........................ Other single citrus 3.4/liter.............. .......................
fruits, not
concentrate.
2009.30.60........................... Single citrus juice/ 7.9/liter.............. .......................
other, concentrate.
2009.90.40........................... Mixture of juices, 7.4/liter.............. .......................
other.
2106.90.46........................... Syrups from cane/beet 35.74/kg............... .......................
sugar, other.
2106.90.48........................... Orange juice, fortified 7.85/liter............. .......................
2106.90.52........................... Juice of any single The rate applicable to Free (El Salvador
fruit or vegetable the natural juice excluded)
(other than orange heading in 2009.
juice), fortified.
2202.90.30........................... Orange juice, 4.5/liter.............. .......................
fortified, not made
from a juice having a
degree of concentrate
of 1.5 or more.
2202.90.35........................... Other.................. 7.85/liter............. .......................
2202.90.36........................... Single fruit or The rate applicable to Free (Dominican
vegetable juice (other the natural juice Republic excluded)
than orange juice) heading in 2009.
fortified, not
concentrated.
2202.90.37........................... Mixed fruit or The rate applicable to Free (A*)
vegetable juice (other the natural juice
than orange juice) heading in 2009.
fortified, not
concentrated.
----------------------------------------------------------------------------------------------------------------
Statement of Grocery Manufacturers of America
The Grocery Manufactures of America (GMA) welcomes this opportunity
to present our views on the Free Trade Area of the Americas (FTAA)
negotiations. GMA supports the FTAA negotiations and has actively
participated in the both the Toronto and Buenos Aires Americas Business
Forums.
GMA is the world's largest association of food, beverage and
consumer product companies. With US sales of more than $460 billion.
GMA members employ more than 2.5 million workers in all 50 states. The
organization applies legal, scientific, and political expertise from
its member companies to vital food, nutrition and public policy issues
affecting the industry. Led by a board of 42 Chief Executive Officers,
GMA speaks for food and consumer product manufacturers at the state,
federal and international levels on legislative and regulatory issues.
The association also leads efforts to increase productivity, efficiency
and growth in the food, beverage and consumer products industry.
GMA views the FTAA negotiations as an important opportunity to
build upon the success of the North American Free Trade Agreement
(NAFTA), and enhance economic integration throughout the Western
Hemisphere. In FY-2001, US exports of processed food products to the
hemisphere reached their highest level since 1970. In fact, at roughly
$9.44 billion, processed food exports alone represent 39 percent of all
US agricultural exports to the region.
Economic factors, such as population and income growth indicate
that there is room for significant expansion of trade in processed food
products throughout the region. While the US and Canada have largely
stable and aging populations, Latin America has a growing and
relatively young population.\1\ As a result, more food is demanded on a
per capita basis in Latin America because of a younger population with
higher caloric requirements and a propensity for purchasing non-
traditional food.\2\ In addition, rising incomes throughout the region
should lead to increasing expenditures on processed food.
---------------------------------------------------------------------------
\1\ For example, roughly 30-35 percent of the population is under
the age of 15 in Argentina, Brazil and Chile compared with 21 percent
in the United States and Canada.
\2\ U.S. Foreign Direct Investment in the Western Hemisphere
Processed Food Industry, ERS/USDA, March 98.
---------------------------------------------------------------------------
Yet, despite this optimistic outlook, food manufacturers have been
unable to realize the full potential of the market due to trade
barriers in the region. GMA believes the FTAA process is an appropriate
vehicle through which to address these impediments. The following are
GMA's specific comments with respect to negotiating modalities for the
FTAA, and in particular, those of the Agriculture Negotiating Group. In
addition, we also offer comments on the prospects for success of the
negotiations.
Recommendations for the Agriculture Negotiating Group
Market Access
Barriers to processed food and beverages in the FTAA countries
remain significantly higher than those for many other products. And,
although the WTO Agreement on Agriculture delivered some benefits, the
reductions in tariff for processed foods and beverages were mostly at
the lower end of the allowable range. Because the rules allowed
countries to average their tariff cuts, countries naturally chose to
make high percentage reductions on already low tariffs and lower
percentage reductions on higher tariffs. Consequently, tariffs on
processed food product exports to the region range between 20 to 40
percent and, in some cases, exceed 100 percent.
To address these barriers, GMA recommends tariff elimination based
on a formula approach that will accelerate the elimination of tariff
peaks (asymmetrically high tariffs) and address the problem of tariff
escalation, where tariffs increase with the level of processing. This
approach should, in essence, reduce the higher tariffs faster than the
lower ones to create meaningful market access for processed food
products in a reasonable time frame. GMA also suggests that
negotiations should also result in elimination of non-tariff barriers
to processed food products. In addition, we recommend that this
liberalization in tariff and non-tariff barriers be completed in less
than the ten-year period negotiated in the NAFTA.
GMA also believes that there should be no product or policy
exceptions in the FTAA negotiations. For the benefits of the FTAA to be
truly realized by the food processing industry, it is imperative that
sugar, peanuts an dairy be subject to meaningful reform and
liberalization throughout the hemisphere. Tariff-rate quotas (TRQ),
which are often utilized to provide access for sensitive commodities,
must be employed judiciously and administered in a market-oriented and
pro-competitive manner. Finally, we recommend that the negotiations on
tariff reductions begin from applied rather than bound rates to ensure
commercially meaningful reductions in a reasonable timeframe.
Export Competition
GMA supports the Ministerial objective of a hemisphere-wide
``subsidy free zone.'' Export subsidies artificially distort world
market prices and steal market share from efficient producers.
Elimination and prohibition of future subsidies in the FTAA is an
import fist step toward multilateral commitments in the same area.
Domestic Support
GMA believes the most effective means for achieving a reduction in
domestic support for agricultural commodities will come through
increased market access and an elimination of export subsidies. We
recommends however, that any continued domestic support be decoupled
from production so that it is the least trade distorting as possible,
consistent with provisions in WTO Agreement on Agriculture.
SPS Issues
We urge negotiators to ensure that any FTAA sanitary and
phytosanitary regulations are fully consistent with the WTO Agreement
on Sanitary and Phytosanitary Measures (SPS) and based soundly on
science. Sound science should necessarily be at the core of any
agreement in order to ensure that national health and safety regulation
are not used as disguised barriers to trade. In addition, we support
increased cooperation and consultation on SPS-related trade barriers in
the region. We recommend that the US consider a NAFTA-like SPS
committee to work on harmonization of science-based regulations and
standards throughout the region.
Prospects for the FTAA Negotiations
GMA firmly believes that the success of the FTAA is necessarily
liked to the launch of a new round of negotiations in the WTO and the
passage of Trade Promotion Authority.
Importance of WTO Round
Agriculture has emerged as one of the most contentious sectors in
the FTAA negotiations. For example, at the April Trade Ministerial in
Buenos Aires, many countries argued for a direct linkage between
reductions in domestic support and reductions in tariffs. In addition,
although countries have committed to the elimination of export
subsidies in the region, they are conflicted as to how to deal with
subsidized exports from third country markets. Unfortunately, these
issues cannot realistically be solved in the FTAA context. Rather, they
must be addressed in a multilateral context to achieve meaningful
commitments from all trading partners. It makes no sense for the US to
``unilaterally disarm'' and lose leverage against our most significant
and reluctant trading partners, the EU and Japan. Put simply, it is
unlikely there will be an FTAA agreement without agriculture and
extremely difficult to achieve any results in agriculture negotiations
in the FTAA without comprehensive round of negotiations in the WTO.
Trade Promotion Authority
Trade Promotion Authority (TPA) is an essential and necessary tool
for progress in the FTAA. TPA establishes a partnership between the
Administration and the Congress that protects trade agreements
negotiated by the Administration from amendment during congressional
consideration. With TPA, the Administration can ensure trading partners
that commitments made during negotiations will be honored when Congress
considers these trade agreements. Without TPA, it is unlikely that
trading partners will put forth meaningful offers for fear concessions
will be withdrawn later. GMA is committed to the passage of Trade
Promotion Authority by the end of this year.
Conclusion
Thank you for this opportunity to share our views on the Free Trade
Area of the Americas. GMA firmly believes that it is of critical
importance to farmers and producers alike to continue to expand market
access, reduce tariffs and dismantle barriers to food and agricultural
products. Achieving the objectives discussed above will benefit
consumers throughout the hemisphere with a more reliable, diverse, safe
and affordable food supply. We look forward to working with you and the
Administration to achieve these goals.
Kal Kan Foods
Vernon, California
May 22, 2001
Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
I respectfully submit comments for the Committee's consideration on
behalf of Kal Kan Foods concerning renewal of the Andean Trade
Preference Act (ATPA). While Kal Kan Foods firmly supports assistance
to the Andean Community to promote trade and economic development, the
Committee's attention is also requested to the need to secure more fair
and reasonable treatment by Andean Pact members for US exports.
Kal Kan Foods manufactures food for pet dogs and cats at factories
in California, South Carolina, Ohio, Texas, Illinois, and Nevada for
domestic consumption and for export worldwide including to Colombia and
the Andean Pact countries.
I. Issue Summaries
Colombia is a member of the Andean Community and is participating
in the Community's ``price-band'' tariff system which was implemented
in 1995.\1\ Pet food (HS 2309.10) is the only multiple ingredient
processed finished product that is ``linked'' to the price band system.
In this case the linkage is to yellow corn whether or not the pet food
contains corn.
---------------------------------------------------------------------------
\1\ Decision 371 of the Cartagena Agreement Commission.
---------------------------------------------------------------------------
Since April, 1995 Colombia's 20% basic tariff on pet food has been
increased 40 times with the increases averaging 44%. Since early 1999
the duty has varied from 53% to 88% and by the end of the year was
100%.\2\ A 7% IVA tax was imposed on pet food mid year but was not
imposed on yellow corn.
---------------------------------------------------------------------------
\2\ Colombia has not yet exceeded its WTO bound rates for pet food.
Colombia's 2000 bound rate for pet food is 106.6% ad valorem and the
final bound rate is 97% in 2004.
---------------------------------------------------------------------------
The duty rate for the period June 1-15 will be 54%. Both the level
of the tariff and the substantial, frequent fluctuations are major
impediments to trade because they force retail prices beyond acceptable
consumer levels (more than a 100% premium over local brands) and make
it impossible for importers to predict costs and price products
accordingly. As a direct result of Colombia's high tariffs on pet food,
US pet food manufacturers, including Kal Kan, who make the world's
leading brands are being forced out of the Colombia market.
Early last year, as part of negotiations at the WTO in Geneva
regarding Colombia's request for a delay in implementing the WTO
Agreement on Customs Valuation, the US Government secured an agreement
from Colombia to de-link wet pet food from the price-band system.
However, the Government of Colombia has thus far failed to act on this
commitment to the United States.
II. Background
The stated purpose of the Andean price band system is to stabilize
import costs for 13 agricultural commodities whose international prices
are considered by the Pact countries to be volatile or ``distorted.''
The commodities included are rice, malting barley, yellow and white
corn, soybeans, wheat, crude palm oil, crude soybean oil, raw and
refined sugar, powdered milk, poultry meat, and pork meat. This
protection is achieved by increasing import tariffs when prices are low
and lowering them when prices are high. The price band also links 147
additional commodities and one finished product (pet food) that are
considered derivatives or substitutes for the 13 ``marker''
commodities. For example, derivative and substitute products linked to
yellow corn are poultry mean, sorghum, starches, glucose syrup, bran,
and food for pet animals and livestock.
The operation of the band is based on an Andean Community Board
determination of a ceiling price, a floor price, and a reference price
which are then used to calculate a duty surcharge or discount to be
assessed on imports of marker and linked products. The floor and
ceiling prices are derived from the international fob prices and are
valid for one year. The reference price is the 15-day average price of
the market product adjusted by so-called ``international market
information.'' None of these price relate to import transaction values.
If the reference price is within the price band i.e. between the floor
and ceiling prices, then the common external tariff (CET) will be
applied to imports of the marker product. If the reference price is
above or below the price band than a surcharge or discount will be
calculated. The example below shows the most common situation--an
import surcharge.
---------------------------------------------------------------------------
\3\ Article 12 provides that If the CET for the linked product is
greater than the CET for the marker product, then the additional
variable duty of the linked product will be the greater of the
following two values: (a) Additional variable duty of the market
product, multiplied by the ``quotient'' between the CET of the marker
product and that of the linked product; (b) the additional variable
duty of the marker product, less the difference between the CET of the
linked product and the CET of the marker product.
EXAMPLE OF A VARIABLE DUTY SURCHARGE CALCULATION
----------------------------------------------------------------------------------------------------------------
Reference Floor Price Ceiling Price
Marker or Linked Product CET Price US$/mt US$/mt US$/mt
----------------------------------------------------------------------------------------------------------------
Yellow Corn..................................... 15% 117 161 192
----------------------------------------------------------------------------------------------------------------
Step 1: The difference between reference price and floor price or 161-117=44
Step 2: Calculate duty on the amount of difference, and add difference or 44+[4415%]=$50.60
Step 3: Convert this specific duty to advalorem or $50.60+117=43%. This is the variable surcharge component of
the total duty.
Step 4: Calculate total duty by adding the CET to the variable surcharge or 15%+43%=58%.
Step 5: This duty rate of 58% is applied against the reference price.
As of January 2000 the duty on yellow corn cannot exceed 44%.12
Pet food (linked)--20%.
Because pet food is linked to yellow corn the import duty on pet food is the CET plus the variable duty
surcharge. However, because the CET on pet food is higher than the CET on corn Article 12 \3\ of Decision 371
applies which adjusts the variable duty surcharge to reflect the difference between the CET on yellow corn
(15%) and the CET on pet food (20%). In this case rule (b) applies and the calculation is 43%-5%=48%. The
total duty on pet food is 20%+38%=58%*
This duty rate of 58% is applied against the declared value of the imported pet food.
There is no ceiling on the pet food duty.
Among the objections to the price band system are the lack of
process transparency and arbitrary nature of reference price inputs.
Also, the system's use of reference prices introduces volatility to the
cost of importing and makes it impossible for importers to predict
costs and build markets. The arbitrary nature of the system was
evidenced in 1999 when Colombia, bowing to pressure from domestic
poultry producers, reduced the duty on 100,000 mt of yellow corn to
35%. However, the tariffs on pet food and other products linked to
yellow corn were not reduced. Similarly, early in 2000 the government
decreed the duty on yellow corn could not exceed 44% but no such
maximum duties were set for linked products.
Not all members of the Pact impose the additional duties on yellow
corn and linked products. Bolivia and Peru do not participate in the
price band system and their tariffs on pet food are 10% and 12%
respectively which provides fair market access for imported products.
III. The Linkage of Pet Food to Yellow Corn Is Unjustified
The Andean price band system sets two criteria for products to be
included as ``linked'': (1) the product includes the marker commodity
as a raw material; (2) the product can be substituted for a marker
commodity or a related product in industrial use. Pet food does not
meet either of these two criteria.
Pet food is a highly processed product that is made to meet
national and international standards for food for pet dogs and cats.
Regulatory authorities \4\ have determined the nutrition requirements
for pet animals at each stage of life, for example, from puppies to
mature dogs. Pet food recipes are designed to utilize ingredients that
deliver complete nutrition in a digestible form that meets national
standards. Corn may be included among the many ingredients used in pet
food but could not be used alone if the regulatory standards for energy
and nutrition content are to be met. In the case of wet pet food which
has a high water content and is packed in cans, pouches or trays, the
corn content ranges from 0 to 1%.
---------------------------------------------------------------------------
\4\ For example, the American Association of Feed Control Officials
(AAFCO) has set out nutrient profiles for pet dogs and cats at each
stage of life that prepared pet foods must deliver. The nutrients
include crude protein, crude fat, crude fiber, Ash, Calcium, and
Phosphorus.
---------------------------------------------------------------------------
Further, it cannot be said that pet food is in any way derived from
corn or that corn is an essential ingredient in pet foods for which
there is no substitute. Additionally, it has been shown that there is
no correlation between the price of yellow corn and the price of pet
food.
Pet food cannot readily be substituted for corn. Pet food is made
to meet specific energy and nutrient targets for pet animals and is
more costly to produce than the yellow corn feed meal that would be
used for livestock. The cost of feeding prepared pet food to livestock
would be prohibitive.
Of the 147 products linked to the 13 marker commodities, including
the 27 products linked to yellow corn, pet food is the only highly
processed multiple ingredient product. This singling out of pet food
among all processed products for linkage is discriminatory and reveals
a misunderstanding of how pet food is formulated and the international
nutrition standards that influence ingredient selection.
It is for the reasons stated above that a petition was filed with
the Colombian Ministry of Agriculture to remove pet food from the price
band and apply only the 20% CET to imported pet food.
Kal Kan Foods supports efforts by the Administration and Congress
to advance trade liberalization among all countries of the Americas.
The Andean Trade Preferences Act can be viewed as one component of this
larger vision. With this in mind, it is important to build support
among all US business sectors and the American public by ensuring that
US exporters also have a fair opportunity to participate in all the
markets of the Americas.
Sincerely,
Marietta E. Bernot
President
Statement of the Michigan Farm Bureau, Lansing, Michigan
Michigan Farm Bureau appreciates the opportunity to present this
written testimony on the impact the Andean Trade Preference Act (ATPA)
has had on our domestic asparagus industry. Michigan Farm Bureau is the
state's largest general farm organization, representing more than
45,000 farmer member families.
The ATPA provides the four Andean countries of Bolivia, Columbia,
Ecuador and Peru with duty free and reduced duty access to our market.
ATPA was enacted to assist those countries in their fight against
narcotics trafficking. The extent to which the ATPA has advanced
narcotics eradication in Peru, however, is highly questionable largely
because cultivation of asparagus and other crops in Peru occurs in the
desert region along Peru's coastline, not in the foothills and
mountains where Peruvian drug cultivation is known to exist.
Providing this duty free and reduced duty treatment to imports from
these countries has measurably affected trade in certain horticultural
products and has had a significant impact on domestic production of
these commodities.
The duty free treatment provided to asparagus growers in Peru has
further enhanced an already competitive industry that existed in Peru
prior to enactment of the ATPA. Once a small industry in the early
1980's, Peru has become the world's largest producer and exporter of
asparagus. Asparagus is Peru's second largest agricultural export item
with about $150 million in annual export earnings. Export production is
for two different markets: green asparagus (primarily fresh) for export
to the United States, and processed white asparagus for the European
market. Peruvian cultivation of asparagus occurs year round with very
high yields per acre experienced by its growers.
The U.S. market consumes 75% of the fresh asparagus produced in
Peru. Peru's fresh exports to the U.S. market have increased by 10-fold
in the last decade, doubling in just the last two years. Peru ranks
second to Mexico in fresh asparagus sales to the U.S.
As the Peruvian industry has matured they have also begun to ship
larger quantities of processed asparagus to the U.S. In 2000, Peru
shipped 813 metric tons of canned asparagus and 1,560 metric tons of
frozen asparagus to the United States. Processed asparagus imports from
Peru in 2000 were almost eight times greater than the amount shipped in
1994. Peru is the largest offshore source of processed asparagus with a
total volume exceeding the amounts imported from all other sources
combined.
U.S. industry sources indicate that five to ten million pounds of
Peruvian frozen asparagus have been made available to the U.S. market
in the past year. Imports of this magnitude are significant because the
total U.S. market for frozen asparagus is only ten million pounds
annually. Duty free access for Peruvian frozen asparagus has
exacerbated the situation. Peruvian imports are displacing U.S.
asparagus production at an alarming rate.
U.S. Asparagus Production and Imports from Peru--Metric Tons
------------------------------------------------------------------------
Peru as a
U.S. Imports Percent of
Production from Peru U.S.
Production
------------------------------------------------------------------------
1994................................ 99,656 8,593 8.6%
1995................................ 91,808 10,032 10.9%
1996................................ 90,220 11,574 12.8%
1997................................ 91,899 13,368 14.5%
1998................................ 92,806 15,151 16.3%
1999................................ 99,383 23,424 23.6%
2000................................ 103,572 32,196 31.1%
------------------------------------------------------------------------
Asparagus production in the U.S. is centered in California,
Washington and Michigan. These three states make up over 95% of annual
production. Minor production is found in New Jersey, Illinois, Indiana,
Maryland, Minnesota and Oregon. Over the past decade U.S. asparagus
acreage had declined by 17%, while production has deceased 7%. Per
capita consumption of asparagus in the U.S. has increased slightly in
recent years.
In recent reports to Congress, the U.S. International Trade
Commission \1\ and the U.S. General Accounting office \2\ concluded the
following about ATPA and the asparagus industry:
---------------------------------------------------------------------------
\1\ Andean Trade Preference Act, Impact on U.S. Industries and
Consumers and on Drug Crop Eradication and Crop Substitution. USITC
Publication 3358, September 2000. Seventh Report 1999, Investigation
No. 332-352.
\2\ Agricultural Trade; Impacts of the Andean Trade Preference Act
on Asparagus Producers and Consumers. Government Accounting Office,
March 2001.
---------------------------------------------------------------------------
The ATPA has encouraged the production of nontraditional
agricultural commodities, such as asparagus, in Peru (ITC).
The Peruvian asparagus industry has dramatically increased
production in the past decade and is projected to increase as
much as 40% from 1999 to 2000 (ITC).
Peru's substantial increase in asparagus production has
allowed them to become a major exporter of frozen product,
complementing their already strong position in canned and fresh
asparagus (GAO).
As U.S. imports of asparagus have increased, demand for
domestic processed asparagus has declined (GAO).
Imports of ATPA-exclusive products were estimated to have
had a potentially significant effect on a number of domestic
industries, including asparagus (ITC).
Asparagus production in the U.S., particularly processed
production, has been displaced by duty-free imports from Peru
under ATPA, and reauthorization of ATPA will result in
continued displacement of domestic producers (GAOP).
A portion of this displacement will continue even without
reauthorization of ATPA, due to Peru's climate and cost
advantage (GAO).
Asparagus is not listed as one of the crops that provide an
alternative to the production of coca in Peru's major drug
producing areas. However, asparagus production was found in
areas adjacent to coca producing regions (ITC).
Farmers and pro-coca local officials in Peru's coca areas
have actively resisted coca eradication efforts and have
shunned the development of alternative crops (ITC).
For the reasons noted above, Michigan Farm Bureau requests that
significant modifications be made to the ATPA should it be renewed at
all. First, we request that duty free treatment not be accorded for
specific commodities wherein a country is deemed economically
competitive. The determination of economic competitiveness should
follow the criteria now used in the Generalized System of Preferences
(GSP) program requirements. Once a country has reached the established
level of economic competitiveness, it would no longer be eligible for
duty-free access to the U.S. market for that commodity. Instead, the
tariff for that product would revert to the MFN level.
Instituting this change would support the objective of the ATPA of
providing economic alternatives to narcotics production, but would not
allow foreign imports to put U.S. producers out of business in the
process. We do not oppose competition with foreign imports, but we do
oppose providing trade preferences to countries to the extent that such
preferences result in the elimination of otherwise competitive U.S.
production.
Second, a safeguard mechanism should be instituted to address
import surges of perishable agricultural commodities. Import surges can
be extremely disruptive to U.S. agricultural markets, especially
considering seasonality concerns and the price variability of
perishable agricultural products. Criteria now exist in the NAFTA and
the WTO agreement on agriculture that enable safeguard actions to be
taken under specified conditions. Certain trade remedies, such as the
U.S. 201 law, allow the administration to take action to mitigate
import surges when they are determined to be causing or threatening
injury to U.S. producers. However, imports from ATPA and other
countries are exempt from consideration in the investigation of 201
cases.
In order to address the often-irreparable damage caused to U.S.
producers of perishable products due to import surges, we request that
any extension or renewal of the ATPA include an automatic, transparent,
and temporary safeguard mechanism. The safeguard mechanism would
provide much needed import relief to U.S. producers being injured by an
import surge and would still provide market access for ATPA beneficiary
countries during the remedy phase.
Statement of Malcolm O'Hagan, President, National Electrical
Manufacturers Association, Rosslyn, Virginia
Mr. Chairman, Members of the Committee. Thank you for this
opportunity to discuss NEMA's experiences in the Americas and our
perspective on the proposed Free Trade Area of the Americas (FTAA).
The National Electrical Manufacturers Association (NEMA) is the
largest trade association representing the interests of U.S. electrical
industry manufacturers. Our more than 450 member companies manufacture
products used in the generation, transmission, distribution, control
and end-use of electricity. Annual shipments exceed $100 billion in
value.
NEMA brings a unique perspective to your hearing as a result of the
successful outreach efforts that we have been conducting throughout the
Hemisphere in recent years. Supported partly by a Commerce Department
Market Development Cooperator Program grant, we have opened Sao Paulo
and Mexico City offices that have not only helped our members do
business in the Americas, but have proven invaluable with regards to
addressing standards-related and other non-tariff barriers to trade.
Moreover, we have also been engaging counterpart industry groups, in
particular conducting a mini ``Summit of the Americas'' for our
industry in Costa Rica last November, as well as taking the initiative
to begin signing numerous memoranda of understanding with a variety of
Latin trade associations. Finally, we have also attended several of the
Americas Business Forums and last month were part of a U.S. business
delegation that went to Santiago to meet with leaders there to show our
strong support for the proposed US-Chile FTA.
In short, NEMA has found that there are plenty of groups and
individuals throughout the Hemisphere who share our view that the FTAA
is a ``win-win'' goal.
While NEMA applauds the limited progress made in the recent Buenos
Aires and Quebec.
City meetings, our view is that participating governments need to
catch up with the latent desires of their populations to further
develop and integrate economically. Substantive FTAA negotiations are
long overdue in starting, with many capitals still not seriously
engaged in the process. In our view, the 34 governments should have
moved up the deadline for the completion of negotiations from 2005 to
2003 so as to help the people of the Americas enjoy the benefits of
trade liberalization as soon as possible.
Specifically, NEMA strongly encourages FTAA negotiators to attain
the following as soon as possible as soon as possible as soon as
possible:
Tariff Elimination
Openness and Transparency in Government Procurement
No Mutual Recognition Agreements (MRAs) For Non-Federally-
Regulated Products
Energy Services Liberalization
Protection of Intellectual Property Rights
Compliance with all World Trade Organization (WTO) Technical
Barriers to Trade (TBT) Requirements
Inclusive Definition of ``International Standards''
Voluntary, Market-Driven Standards and Conformity Assessment
As Many Market Opening Measures As Possible
Effective Monitoring and Enforcement Mechanisms
Free Trade Benefits Not Encumbered By Labor Or Environmental
Provisions
Thank you for your consideration of these remarks.
Statement of Myles Frechette, North American Peruvian Business Council
Mr. Chairman, I commend you for the timeliness of this hearing on
prospects for free trade in the Hemisphere. I am Myles Frechette,
Executive Director of the North American Peruvian Business Council
(NAPBC) whose fundamental mission is to facilitate investment and
promote trade between Peru and North America. The Founding members of
the NAPBC are Newmont Mining Corporation, Barrick Gold Corporation,
Caterpillar Inc., Continental Airlines, J.P. Morgan, Compania De Minas
Buenaventura S.A., and Forza S.A. Other members of the NAPBC are Exxon-
Mobil Corporation, Patton Boggs LLP, Riggs Bank N.A., Texaco Inc.,
Ferreyros S.A., Hunt Oil Company, and Schmeltzer, Aptaker & Sheppard,
P.C. The NAPBC was incorporated in August 2000 as a non-profit
organization and includes U.S., Canadian and Peruvian companies.
The NAPBC would like to work with Congress to promote and increase
trade opportunities in the Hemisphere. The 1991 Andean Trade Preference
Act (ATPA) grants Colombia, Bolivia, Ecuador, and Peru tariff
preference on certain goods for ten years in an effort to help those
countries fight narcotics trafficking. The ATPA has proven to be a
valuable weapon in the war against drugs by creating economic
incentives to encourage the Andean countries to avoid the illegitimate
industry of narcotics, especially coca, and increase the production of
legitimate products.
In January, the Office of the United States Trade Representative
released its third report to Congress on the operation of the ATPA. the
report indicates that the ATPA has generated significant job
opportunities in a variety of sectors, including cut flowers, non-
traditional fruits and vegetables, jewelry and certain electronic
inputs. Between 1991 and 1999, total two-way trade between the U.S. and
the ATPA beneficiary countries nearly doubled. The ATPA has been
essential to strengthening the legitimate economies in the Andean
countries.
I was Ambassador to Colombia from July 1994 to November 1997.
During my service there, I saw at first hand the benefits of the ATPA
and the potential of an extended and ``robust'' ATPA. The ATPA created
thousand of jobs in Colombia, helped Colombia's economy and government
offset the high cost of countering narcotics trafficking and turned the
private sector into staunch and vocal supporters of anti-narcotics
cooperation.
The ATPA did not include several import sensitive products such as
apparel and textiles. Congress is now faced with the unique opportunity
of expanding and extending the ATPA before it expires on December 4,
2001. Congress should not squander this opportunity to provide the ATPA
countries with an effective tool for combating the war on drugs.
Even though in 1999 Bolivia, Colombia, and Peru achieved record
levels of coca eradication, these cooperative efforts to combat the
scourge of drugs are ongoing and should be strengthened.
The ATPA should be expanded to include textiles and apparel. The
ATPA was based on the Caribbean Basin Initiative (CBI) which did not
originally provide tariff relief for apparel and textiles. Recently,
the Andean countries' competitors for textile and apparel have received
beneficial trade treatment from the United States due to the recently
enacted ``Trade and Development Act of 2000.'' CBI beneficiaries now
receive preferential tariff treatment for regional products made with
American fabric and yarn. This expansion of CBI already compounds
disadvantages to the Andean textile and apparel industries created by
the North American Free Trade Agreement.
By including textiles and apparel, the ATPA would become a valuable
weapon in the war against drugs in the Andean region. The data on the
drug trade clearly shows that the coca economy is regional, and that
actions adopted in one country affect anti-drug efforts in neighboring
countries. The success in Peru's drug fight corresponds with an
increase in drug production in Colombia which clearly indicates the
interconnected relationship between drug protection and trafficking in
Peru, Colombia and Bolivia.
We commend Senator Graham (D-FL) for taking the lead on expanding
the ATPA and for including textiles and apparel. However, we are
concerned about the limitations of the textile and apparel provisions
included in S. 525, the Andean Trade Performance Expansion Act. The
textile provisions included in S. 525 are based on the textile and
apparel provisions included in the expansion of the CBI as passe in the
Trade and Development Act of 2000. An approach based on the use of
fabric and yarn does not help the Andean countries.
The use of cotton grown in Peru and Bolivia is an essential part of
their industry. The cotton industry provides an important alternative
crop to the coca industry and additional lawful employment for both
agricultural and factory workers. These jobs are vital to Peru's
efforts in the war against drugs. Peruvian products that currently
benefit from the ATPA are mostly minerals but mining is not as labor
intensive as the textile and apparel industries.
Recently, the Trade Ministers of the Andean community at a meeting
in Lima stated their joint position on the inclusion of textiles and
apparel in the ATPA in a document called ``Position of the Andean
Community to the Andean Trade Preference Act.'' The Trade Ministers
believe that textiles and apparel should be included in the ATPA and
more specifically, ``the expansion of the coverage of the ATPA should
not be considered to regulations regarding the origin of raw materials
that restrict the access of our textiles and apparel.''
Tens of thousands of jobs are at stake. Most apparel from Peru and
Bolivia are made from high quality, locally grown cotton or are made
from llama or alpaca that is native to the region. In Peru alone, the
textile sector supports 32 percent of the population employed in the
manufacturing industry, which amounts to approximately 180,500 jobs.
Workers who would otherwise have lawful jobs will be left without an
alternative to coca production.
Expanding ATPA benefits to include apparel made with regional
fabric will not have an adverse impact on the domestic U.S. industry.
In 1999, textile and apparel exports from Andean countries represented
only 1.1 percent of the total textile and apparel exports to the United
States. The ATPA countries export far less textiles and apparel to the
United States than the CBI region does.
An expansion of the ATPA to include textiles and apparel would
provide economic and political stability to the Andean countries.
Increasing the number of legitimate employment opportunities would
provide a needed boost to the struggling economies of the Andean
countries. The NAPBC looks forward to working with Congress to extend
benefits under the ATPA in order to provide the necessary economic
incentives to eliminate the lure of illicit drugs and strengthen
democracy in the region.
Statement of the Hon. E. Clay Shaw, Jr., a Representative in Congress
from the State of Florida
Mr. Chairman I am a avid supporter of free trade and the expansion
of markets with open lines of movement of goods and services between
our country and our trading partners, I have supported ``Fast Track''
and now support ``Trade Promotion Authority,'' as well as voting in
favor of the various trade agreements that now define our larger
commercial relationship with the world, particularly the Uruguay Round
agreements that formed the WTO and our partnerships with Canada and
Mexico, which are embodied in NAFTA and other bilateral agreements in
this hemisphere.
I support free trade because I understand how it benefits both the
consumers and the producers in our own economy to modernize and advance
our ability to make the most of our own comparative advantages and our
trading partners' competencies. In addition, many of us are fully aware
of the strategic role expanded trade plays in building diplomatic
bridges and common purpose and other nations, sometimes more
effectively than direct foreign aid or technical assistance. Even as
some countries resent yet strive to emulate U.S. success, recent events
underscore how some of the most thorny international security and
internal political challenges can be subordinated to the desire for
stronger economic commercial ties, when cooler heads prevail.
I have also heard the legitimate grumblings of parties in this
country who do not feel that they got the best deal possible in recent
agreements. Even worse, some have rightly observed that not all the
commitments they received for their concessions have been squarely met.
Some in these industries have communicated to me that they have
reasonably concluded that further expansion of free trade in our
hemisphere is not in their own best interest.
Today, rather than argue apples and oranges, I want to give voice
to citrus and tomatoes. I remain committed to free trade, but I
acknowledge that unless we forthrightly address the issues that hold
back some individuals and certain industries from wholeheartedly
supporting expanded trade in our hemisphere, we miss an important
opportunity to assure that we are doing right by own citizens in all
four corners of the U.S. If now is the time for debate, then let us
meet the debate head-on with facts, understanding various parties'
positions and prepared to continue improving in the future how we do
business in international trade negotiations. This way, the people we
represent can have confidence we are doing, for them, the best job
possible of protecting their interests.
In particular, many fruit and vegetable growers in Florida have
expressed frustration to me in recent years. At previous hearings and
in personal discussions with many in this room, including Ambassador
Zoellick, I have mentioned ``seasonality'' as an important element of
assuring fairness to certain farmers in competing with Latin American
during certain limited growing seasons. I raise it again today, asking
for some specifies, so that we may move the debate forward.
A number of U.S. agricultural commodities, including fresh and
processed citrus, have been found import-sensitive in the past, and
been required to compete with unfairly traded or subsidized imports
both in domestic and foreign markets. In addition, foreign advantages
gained through looser antitrust laws and differing environmental
standards and labor conditions, have permitted many foreign producers
of horticultural products to overcome superior U.S. product quality.
Trade relief laws alone have not fully satisfied these industries in
offsetting the very advantages that have launched and nurtured some of
these foreign competitors.
Thank you for your attentiveness to these issues. I look forward to
discussing them with you in more detail as we move forward on TPA and
in negotiations with our trading partners.
Statement of Jay Mazur, President, Union of Needletrades, Industrial
and Textile Employees, New York, New York
I appreciate having this opportunity to comment on last month's
Summit of the Americas in Quebec City, Canada, on progress to date in
negotiating a Free Trade Area of the Americas (FTAA) and on renewal and
possible expansion of the Andean Trade Preference Act (ATPA). I speak
for 250,000 members of the Union of Needletrades, Industrial and
Textile Employees (UNITE) in the United States and Canada, many of whom
were in Quebec City during the Summit. I also speak for an equal number
of retired members of our union, many of whose lives were made more
difficult because of United States trade policy.
In addition to the impact of trade on our members in Canada and the
U.S. UNITE works with garment worker unions and union federations
throughout Latin America. We are aware of the prolonged and profound
economic hardships suffered by working people of the region, so we
wholeheartedly support any policy of the United States that would raise
the living standards of workers in the region.
The negotiations on FTAA and the expiration of ATPA provide a
critical opportunity for the government of the United States to re-
think how it can best help promote development in Latin America. There
is no evidence that nearly 20 years of trade under various versions of
the Caribbean Basin Initiative (CBI), 10 years of trade under the ATPA
or 7 years of trade under the North American Free Trade Agreement
(NAFTA) have advanced the most pressing development needs of the
peoples of those respective regions. Furthermore, there is considerable
evidence that the special U.S. apparel market access programs for
Mexico and the Caribbean Basin countries, the model on which the
proposed ``enhancement'' of ATPA is based, may actually retard
development.
Any strategy for development must strengthen democratic
institutions that move developing societies toward the rule of law and
a more equitable distributions of wealth. A legitimate FTAA and a
genuine enhancement of ATPA would place them in the context of such
strategy, one adapted to the most pressing needs of the Western
Hemisphere today.
The demonstrations in Quebec City, like those before them in
Seattle, Washington, D.C., Buenos Aires, Prague and countless other
cities in this Hemisphere and around the world, cannot be dismissed as
the actions of a handful of radicals or a political version of spring
break. They are reflections of serious concerns about the rules of
trade that have been established since the creation of the World Trade
Organization in 1994. Polling consistently shows that the uneasiness
expressed by the demonstrators reflects the view of the vast majority
of the American public.\1\
---------------------------------------------------------------------------
\1\ See, e.g., Scheve, Kenneth and Slaughter, Matthew,
Globalization and the Perceptions of American Workers, Institute for
International Economics, March 2001.
---------------------------------------------------------------------------
For all of its virtues, trade in the 90s has left multitudes of the
world's citizens behind. While globalilzation has created spectacular
wealth for the few, whatever has trickled down to the many must not be
confused with social development or even economic growth. Workers in
both developed and developing nations have seen their real incomes
stagnate or decline over the past decade. Nearly 2 billion people are
living on less than one dollar a day; 2.6 billion lack even basic
sanitation. Hundreds of millions of people are malnourished.
Globalization has increased income and social disparities within
nations and between nations. I has left many people behind.
The sheer size and, with it, the power of multinational
corporations is overwhelming nations. Of the 100 largest economies in
the world, 51 are corporations--only 49 are countries.
Those who are negotiating trade agreements today and hereinafter
ignore these facts at their peril. We do not believe Congress should or
will continue to pass trade legislation or approve trade agreements
that protect the interests of multinational corporations and investors
and ignore the interests of working families.
As Dani Rodrik, Professor of International Political Economy at
Harvard University, put it:
The new agenda of global integration is built on shaky
empirical ground and it seriously distorting policy makers'
priorities. Making compliance with it the first order of
business diverts human resources, administrative capabilities,
and political capital away from more urgent development
priorities such as education, public health, industrial
capacity, and social cohesion.\2\
---------------------------------------------------------------------------
\2\ Rodrik, ``Trading in Illusions,'' ``Foreign Policy, March/April
2001, p. 55.
It is UNITE's position that steps must be taken to bring the
Western Hemisphere countries into compliance with internationally
recognized core labor standards, or the result will be increased
inequality and the stagnation of living standards.
Trade policy liberalization is not a development strategy
``Development'' and economic growth are not synonymous. According
to a principal architect \3\ of the United Nations Development
Program's influential annual Human Development Report, development
hinges on four elements:
---------------------------------------------------------------------------
\3\ Mahbub ul-Haq, Reflections on Human Development. Oxford: Oxford
University Press, 1999.
---------------------------------------------------------------------------
productivity growth:
empowerment of people;
equity; and
sustainability.
The U.S. government has not evaluated whether current trade
policies have promoted measurable progress on the above four dimensions
in the Western Hemisphere. Exports of products to the United States
have grown, according to the U.S. International Trade Commission.
Officials from some transnational corporations say that they feel less
inhibited about doing business in various parts of the region. No
thorough study has been done by the U.S. Government, however, of the
impact of NAFTA, CBI in its various forms and the ATPA on the working
people who actually produce articles covered under the trade acts.
Evidence is available, however, about the impact of special apparel
market access programs on the working people of Mexico and Central
America. Both the CBI and NAFTA programs were promoted as development
strategies for Mexico and the Caribbean Basin. The evidence from these
countries suggests, however, that simple extension of special U.S.
Market access to apparel and textiles (and by extension, other
products) will fail to promote or consolidate any of the cornerstone
elements of the development in the Hemisphere.
Trade boom, development bust
Apparel exports to the United States from Mexico and a few
Caribbean Basin countries boomed during the 1990s. Employment in
Mexico's apparel industry increased some 60 percent between 1993 and
1998. The CBI and Mexico apparel booms, however, have not driven
forward development in those countries:
Productivity and living standards:
Mexican apparel industry labor productivity declined more
than 15 percent between 1993 and 1998.
Real (inflation-adjusted) hourly compensation for Mexican
apparel workers dropped almost 25 percent over the same
period.\4\
---------------------------------------------------------------------------
\4\ UNITE analysis of official Mexican data on consumer price
indices, total compensation, and hours worked. Data available via the
internet at http://www.inegi.gob.mix.
---------------------------------------------------------------------------
Apparel industry labor productivity in major Caribbean Basin
apparel-exporting countries dropped significantly after 1986
(when the first CBI special access program for apparel was
launched).\5\
---------------------------------------------------------------------------
\5\ UNITE analysis of official Mexican data on consumer price
indices, total compensation, and hours worked. Data available via the
internet at www.inegi.gob.mix.
---------------------------------------------------------------------------
The wages of the majority of workers employed in the apparel
maquiladoras and ``export processing zones'' of Mexico and the
Caribbean Basin are insufficient to purchase nationally defined
``basic baskets'' of goods and services that satisfy physical
needs.\6\
---------------------------------------------------------------------------
\6\ See Equipo Tecnico Multidisciplinario Para Centroamerica, Cuba,
Haiti, Mexico, Panama, y Republica Dominicana, Fuerza Laboral, Ingresos
y Poder Adquisitivo de los Salarios en Centroamerica, Panama y
Republica Dominicana, San Jose, Costa Rica: Oficina Internacional del
Trabajo, 1998. This report contains data on the cost of basic food
baskets for the larger countries of the Caribbean Basin. A simple rule
of thumb to estimate the cost of a more complete basket is to double
the cost of the food basket.
---------------------------------------------------------------------------
Empowerment
The rights of workers have long been defined by the International
Labor Organization (ILO), and were made binding on all member-nations
in 1998. The countries in the FTAA are all members of the ILO. They
are, therefore, bound to ``promote and realize'' the basic rights of
their workers: freedom of association, the right to organize and
bargain collectively; and the right to be free from forced labor, child
labor and discrimination in employment. There is no evidence that
special access to the U.S. market encourages the exercise of workers'
rights. Again the experience of export-oriented apparel promotion in
Mexico and CBI provides a dismal record:
Only a few dozen collective bargaining agreement exist in
the CBI region, where approximately half a million workers in
CBI countries employed at hundreds of companies produce apparel
for export to the United States. Employers, in collusion with
government authorities, systematically crush workers'
organizing efforts. Employees are left defenseless against the
arbitrary and abusive practices of their employers.
Numerous studies exist that describe in detail the pervasive
and systematic restriction of freedom of association and the
right to organize in Mexico.\7\ The university-founded Workers'
Rights Consortium recently examined industrial relations at a
supposedly ``model'' apparel factory in the Mexican state of
Puebla and uncovered gross violations of workers' fundamental
rights.\8\
Human rights activists in Mexico and the CBI countries have
documented patterns of attacks on women's rights and freedoms
within export-oriented apparel firms.\9\ Some abuses, such as
pregnancy testing, appear to be motivated by an interest in
avoiding the economic cost of legally mandated pregnancy and
maternity benefits. Other abuses, such as occupational
discrimination and tolerance of sexual harassment (and, less
frequently, sexual assault), appear to be employed by managers
as tools of control over the workforce.
---------------------------------------------------------------------------
\7\ See various reports submitted to and issued by the U.S.
National Administrative Office for the North American Agreement on
Labor Cooperation.
\8\ See the preliminary WRC report on systematic abuse of workers'
rights at the Kukdong apparel factor via the internet at http://
www.workersrights.org. Also see http://mikebiz.com for a less thorough
report.
\9\ See, for example, Human Rights Watch, Mexico: A job or your
rights (New York: HRW, December 1998). Available via the internet at
http://www.hrw.org/hrw/reports98/women2/.
---------------------------------------------------------------------------
Export-oriented apparel firms have been found to employ
children who fall below the legal age threshold and to
discourage working youths from attending school. Countries and
companies that have been subjected to international media
attention focused on this issue appear to have taken some steps
to eliminate these practices.
Equity:
What fruits there have been from the apparel export boom in Mexico
and the CBI countries have been distributed inequitably. The principal
beneficiaries of the market access programs have been U.S.-based
apparel companies, retailers and importers, elites in Mexico and the
CBI countries, and some Asian companies that have set up apparel and
textile factories in Mexico and the Caribbean to export to the U.S.
market. Workers in Mexico and the CBI countries are not getting their
fair share.
The increasing integration of Mexican and Caribbean Basin
production workers into the U.S. apparel supply chain has meant that
the income gap between those at the top of the transnational industry
pyramid and those at the bottom has grown. Without even taking stock
options into account, CEOs of U.S. companies in the apparel industry
frequently make over 500 times as much money in a year as the average
Mexican apparel worker producing goods for their companies.\10\
---------------------------------------------------------------------------
\10\ The annual earnings of top executives of large U.S. apparel
retail and manufacturing corporations that source production in Mexico
and the Caribbean Basin frequently exceed $1 million (see http://
www.ecomponline.com/). The annual average wage of Mexico apparel
production workers is about $2,000 (see official Mexican government
statistics, available via the internet at http://www.inegi.gob.mx).
Average annual earnings data are not available for the CBI countries.
---------------------------------------------------------------------------
Sustainability:
The United Nations' Economic Commission for Latin America and the
Caribbean (ECLAC) study of Mexican and Central American maquiladoras
has aptly summarized a fundamental flaw with the maquiladora-led growth
strategy:
The contribution made by [Mexican and Central American maquila
factories] to economic growth is more modest than that which
one could suppose upon seeing the volume of their activity.
Should the maquila factories multiply in their current form,
the countries would be specializing in supplying cheap labor,
and [the sector's] growth would depend on the continual
cheapening of this factor. This is not compatible with a long-
range strategy of growth with social equity.\11\
---------------------------------------------------------------------------
\11\ Comision Economica para America latina y el Caribe. Maquila y
transformacion productiva en Mexico y centroamerica. LC/MEX/R.630. 28
de octubre de 1997. Translated by UNITE from the original Spanish.
Emphasis added.
The data contained in Table 1 below support the ELCAC's assertion.
Growth in apparel imports from CBI countries has tended to increase
most rapidly where hourly labor costs have increased the least. Where
labor costs increased significantly, growth in apparel exports to the
USA slowed.\12\ Apparel manufacturer and retailer executives are
seeking out the lowest cost labor they can find. Is this not a race to
the bottom? And will not those countries that are unwilling to pursue
the race to bottom to its logical conclusion discover that reliance on
apparel export-led employment growth leads to a dead end?
---------------------------------------------------------------------------
\12\ Countries where wages have fallen the most are also the
countries that have the worst record of abusing worker rights. For an
interesting argument along these lines see: Dani Rodrik, Democracies
Pay Higher Wages, NBER Working Paper 6364, revised October 1998,
published in the Quarterly Journal of Economics.
---------------------------------------------------------------------------
Table 1
------------------------------------------------------------------------
Growth of
Growth of reported
Apparel Industry U.S. avg. hourly
imports labor costs
(USS)
------------------------------------------------------------------------
1989-98 1985-96
------------------------------------------------------------------------
Honduras...................................... 2523% 10%
El Salvador................................... 2512% -27%
Guatemala..................................... 466% 8%
Dominican Rep................................. 256% 56%
Costa Rica.................................... 206% 186%
Jamaica....................................... 74% 71%
------------------------------------------------------------------------
Sources: (imports) U.S. Department of Commerce, Major
Shippers Reports, various years; (wages) Bobbin Consulting
Group (1987), and Werner International Management Consultants
(1998); (wages*) UNIDO available via the internet at http://
www.unido.org.
Apparel executives see tariff preferences as a useful tool by which
to pressure supplier companies to lower prices. The apparel industry
magazine Bobbin recently related the expectations of the president of
Sportif, a U.S. branded sportswear company, about the role of ``NAFTA
parity'' for CBI countries. In the executive's view, Bobbin reported,
``It's possible that Caribbean competition will create supply-
and-demand dynamics that could cause Mexico's labor rates or
currency value to fall.''\13\
---------------------------------------------------------------------------
\13\ Bobbin, ``Exploring the HOT Topics of 2000: Sourcing and
electronic commerce.'' Dec. 2000.
This might seem to apparel industry executives to be a positive
development. However, for the working people of North, Central and
South America whose livelihoods are tied to the transnational apparel
industry, intensification of the deregulated scramble for market share
is cause for grave concern. The same is equally true of workers making
other manufactured goods and even those providing soon-to-be integrated
services.
Any policy that rests its hopes for development primarily on
apparel industry export promotion is flawed. Any such policy that fails
to promote and protect nationally and internationally recognized worker
rights is fatally flawed. Such a policy makes the United States
complicit in the perpetuation of worker abuse.
Systematic violation of workers' rights in Andean countries
For millions who live and work in the four Andean countries covered
by the ATPA, freedom, as it relates to work is an illusion. Year after
year, investigators from inter-governmental and non-governmental
organizations document unconscionable violations of the most
fundamental rights of trade union leaders and rank-and-file
members.\14\ It is alarming, but not surprising, that one-third of all
complaints in the world filed with the Committee on Freedom of
Association of the International Labor Organization (ILO) originate in
the Andean region.
---------------------------------------------------------------------------
\14\ See The Second Report of the Special Representative of the
Director-General for Cooperation with Colombia (Geneva: ILO, 2001);
Report of the United Nations High Commissioner for Human Rights on the
human rights situation in Colombia; International Confederation of Free
Trade Unions (various publications); and U.S. State Department, Country
Reports on Human Rights Practices (various years).
---------------------------------------------------------------------------
Despite condemnation from unions and the ILO, new labor laws in
Colombia, Peru, Ecuador and Bolivia have undermined the right of
collective bargaining in those countries. In Peru, according to the
State Department's Human Rights Report for 2000, ``the ILO specifically
criticized a provision that permits businesses to employ youth workers
between the ages of 16 to 25 as up to 30 percent of the workforce;
workers in this age bracket are precluded from union membership and
participation'' (emphasis added).
As a result of these practices, the number of collective bargaining
agreements in the region has dropped precipitously. A recent ILO study
reports that the number of agreements in Peru dropped from 1,762 in
1990 to 623 in 1996, and in Ecuador from 315 in 1987 to 206 in 1996,
while in Bolivia only two new agreements were signed in the decade from
1990 to 1999.
Additional weakening of labor laws in export processing zones
(EPZs) serves to further impede union organization. According to the
State Department, in Peru: ``Special regulations aimed at giving
employers in export processing and duty free zones a freer hand in the
application of the law provide for the use of temporary labor as
needed, for greater flexibility in labor contracts, and for setting
wage rates based on supply and demand.'' In Colombia, there are no
unions in the EPZs, while in Ecuador employers have used short-term
contracts to prevent organization in the zones.
Colombia is the leading Andean exporter of apparel to the United
States. Colombia also is the most dangerous country in the world in
which to be a trade unionist. Killings of labor leaders and unionized
workers remain a ``regular'' occurrence in Colombia, according to an
ILO special Direct Contacts Mission, which visited the country in
February 2000. ``Cases where the instigators and perpetrators of the
murders of trade union leaders are identified are practically
nonexistent, as is the handing down of guilty verdicts,'' according to
the ILO investigative team.\15\
---------------------------------------------------------------------------
\15\ Report of the Direct Contacts Mission to Colombia, 7-16
February 2000. Emphasis added.
---------------------------------------------------------------------------
The Medellin-based National Labor School reports that approximately
1,500 union members have been murdered since 1991, when the ATPA first
took effect.
Over 100 union members were killed during 2000, according to
a tripartite Colombian commission;
Thirty-five additional killings of trade unionists have
already been reported in 2001.
The U.N. High Commissioner for Human Rights, in her 2001 report on
Colombia, lay a portion of the responsibility for the persistence of
human rights abuses at the feet of the government:
``. . . [P]rotection of human rights and compliance with
international recommendations were neither accorded the
importance nor pursued with the persistence or effectiveness
that the serious situation in Colombia requires. This was
reflected in the Government's limited follow-up, continuity and
vigor regarding relevant mechanisms and standards. It was also
reflected in the absence of adequate resources for programs and
institutions that have a vital role to play in the human rights
area and could contribute towards the resolution of the
country's human rights crisis. The High Commissioner expresses
her concern at the fact that the authorities have failed
properly to follow up the majority of the international
recommendations.
``The Office was able to confirm that the principal problem
as regards human rights is not an absence of laws, programs,
mechanisms or institutions, but a failure to use them and thus
an absence of tangible decisions, action and results.'' \16\
---------------------------------------------------------------------------
\16\ Report of the United Nations High Commissioner for Human
Rights on the human rights situation in Colombia. Emphasis added.
In addition to the extra-judicial violence perpetrated with
impunity in Colombia, the latest Annual Survey of Violations of Trade
Union Rights issued by the International Confederation of Free Trade
Unions reports that authorities in the Andean countries utilize various
tools to repress strikes. For example, in Colombia 149 people were
injured and 418 arrested when security forces clashed with workers in
1999.
The Inadequacy of the Workers' Rights Provisions in Existing Trade Law
Under the Generalized System of Preferences (GSP), the U.S. extend
trade preferences to a country only if it ``has taken or is taking
steps to afford to workers in that country . . . internationally
recognized workers' rights.'' The U.S. trade union movement and other
labor rights activists have tried on numerous occasions to utilize the
workers' rights provision in response to gross and persistent
violations of those rights in Western Hemisphere countries that benefit
from U.S. trade preferences. The labor movement has found the
enforcement mechanism flawed. One major problem is the snail's pace of
investigations; another is the fact that the U.S. Government has too
much discretion over whether or not to take action.
Take the example of Guatemala. Labor rights advocates in the United
States first petitioned the U.S. Government to investigate gross
violations of internationally recognized workers' rights in Guatemala
in 1986. Petitions also were filed in 1987, 1989, and 1990, 1991 and
1992. The U.S. Government refused to act on the petitions until 1992.
The Government engaged in a ``review'' of the state of workers' rights
in Guatemala through 1993. In 1994 the GSP statue lapsed and the review
process ended. The AFL-CIO submitted new allegations of violations of
workers' rights in 1995--again, the U.S. Government chose not to
suspend benefits, but to ``review'' Guatemalan law and practice. The
U.S. terminated this review in 1997, having concluded that the
government of Guatemala was, indeed, ``taking steps'' to afford
Guatemalan workers their internationally recognized rights. The AFL-CIO
filed a new petition in 1998. The U.S. Government rejected the new
petition, then reversed itself and self-initiated an investigation in
the wake of brutal physical attacks on Guatemalan banana workers' union
leaders. Since the decision to investigate was made, the U.S.
Government has made a good faith effort to promote respect for workers'
rights in Guatemala. But while the U.S. Government investigated, the
Guatemalan courts rendered judgments against the banana union leaders'
assailants that amounted to a slap on the wrist and made a mockery of
justice. The union leaders were forced to flee for their lives, and
came to the United States in March of 2001.
The leaders of the Guatamalan banana workers' union join many other
labor leaders and workers' rights advocates from throughout the
Hemisphere likewise forced into exile. The absence of those activists
and leaders represents a real setback for development in the Americas.
The workers' rights clause in the ATPA and the related enforcement
mechanism established by the U.S. Trade Representative are simply
inadequate to deal with the level and intensity of exploitation that
takes place on a routine basis in many of the Andean countries. Both
the law and the enforcement mechanisms are especially inadequate for
dealing with countries here paramilitary forces, government
authorities, and employers mount assaults on trade union rights on a
daily basis.
The FTAA will not even include the weak labor provisions in the
ATPA, the GSP or the CBI NAFTA Parity program adopted in 2000. It does
not include the weak and mostly unenforceable labor side agreements
that are in NAFTA. The ongoing negotiations for the FTAA have
studiously avoided serious consideration of labor rights and the
critical connection between labor rights and economic development. The
nine negotiating groups for the FTAA do not include a group on labor
issues, nor are labor issues being negotiated by any of the groups. The
United States has not insisted that labor rights be included in the
FTAA, nor has any other country.
Conclusion
Half a million U.S. apparel and textile workers have lost their
jobs over the past ten years as U.S. apparel retailers and brand
marketers have shifted production and sourcing to Mexico, the Caribbean
Basin and, to a lesser degree, the Andean countries. These production
and sourcing shifts have failed to contribute in any measurable way to
development in those countries and have driven down standards for
apparel workers in the United States, many of them immigrants from
Latin America. members of UNITE, therefore, find it hard to understand
why U.S. policy makers expect that expanding the NAFTA model of trade
to the rest of the Hemisphere will improve working conditions, lift
standards of living, and enhance people's freedom in the region.
Negotiations for expanded trade in the Western Hemisphere must
include as a core commitment a concerted effort to strengthen
institutions--both within individual nations and a the international
level--that will (1) ensure substantial compliance with existing laws
that promote and protect workers' rights and (2) promote movement by
governments and employers in the region toward full respect of
internationally recognized workers' rights.
Without such action, the FTAA and a renewed and expanded ATPA will
simply accelerate the race to the bottom for millions of workers. That
is not acceptable.
Statement of West Indies Rum and Spirits Producers Association
The West Indies Rum and Spirits Producers Association (``WIRSPA''),
representing the major producers of rum and spirits in the Caribbean
region, appreciates this opportunity to express its views on both (i)
the proposed extension of the Andean Trade Preferences Act (``ATPA'')
and (ii) the proposed Free Trade Area of the Americas (``FTAA''). In
both of these initiatives, special attention must be given to rum in
order to avoid causing irreparable damage to the struggling economies
of the Caribbean Basin.
Rum's Special Role in the Caribbean
Rum is a product of special significance to the Caribbean Basin,
where it has been produced for centuries, contributing to local
economies and enhancing the culture and folklore of the Caribbean
region. U.S. trade policy has long reflected an appreciation for rum's
unique role in Caribbean history--for example, establishing a tax
``cover-over'' mechanism to support rum production in the U.S.
Caribbean territories (1983), by rejecting petitions for duty-free
entry of non-Caribbean rum under the Generalized System of Preferences
(1987 and 1990), and by excluding rum from the ATPA (1991).
Andean Trade Preferences Act
The ATPA provides special duty-free benefits to Bolivia, Colombia,
Ecuador, and Peru. Some have advocated that this expiring program
should be not only renewed, but expanded to include formerly excluded
products such as rum. Adding rum to the ATPA would trigger sharp
dislocations in the Caribbean Basin. Legislative history explains that
rum was excluded from the original ATPA ``in order to preserve the
benefits that the Congress has provided to Puerto Rico, the Virgin
Islands, and the Caribbean Basin countries ....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). That
description is as accurate as ever.
The only meaningful change in circumstances since those words were
written in 1991 occurred as a result of the 1997 U.S.-EU tariff
agreement on distilled spirits. As of 2003, most rums (and all branded
rums) will be able to enter the United States duty free from anywhere
in the world. Thus, much of what the Andean countries would get from
bringing rum into the ATPA has already been accomplished by other
means. However, the EU and U.S. negotiators in 1997 were careful to
preserve their tariffs (and thus the Caribbean suppliers' duty
preference) on low valued rums, upon which Caribbean suppliers depend
to remain in business. This carefully negotiated solution appropriately
balanced the interests of global spirits companies with the unique
needs of the fragile Caribbean economics. Expanding the coverage of
ATPA duty-free benefits to include rum would threaten that balance.
Exports from the ATPA countries, particularly Colombia, could
quickly overwhelm and displace Caribbean suppliers. Approximately 2.3
million cases of rum per year are produced in Colombia, by government
entities under a legal monopoly. Colombia also has substantial rum
exports, and even with the remaining tariff on low-valued rums, U.S.
imports from Colombia doubled in 2000 as Colombia took advantage of
duty reductions already implemented since 1997. This increase includes
Colombia's emergence, for the first time in 2000, as an exporter to the
United States of bulk rum--an ominous indicator of what Colombia could
accomplish if the remaining import duty on low-valued bulk rum were
lifted. Colombia's competitive advantages include: (1) substantial
surplus sugar production, so that molasses is readily available to rum
producers at very low cost; and (2) large petroleum deposits that
enable rum producers to secure inexpensive fuel oil, whereas Caribbean
producers in the USVI, Puerto Rico, and most CBI countries must depend
on more expensive imported fuel oil. Moreover, lower costs of labor and
environmental compliance strongly suggest that overhead expenses--the
only other significant cost category--are also lower in Colombia and
the other Andean countries than in the Caribbean Basin countries.
Therefore, displacement of Caribbean rum would be substantial, and the
consequences, in a region whose fragile economies can ill-afford them,
would include lost sales, closed distilleries, and lost jobs.
Free Trade Area of the Americas
For the same reasons that duty free access for low-valued rums
should not be granted to the four Andean countries under the ATPA, it
would be devastating to the Caribbean rum suppliers to grant duty free
access to the entire hemisphere under the FTAA. Duty free access for
countries like Brazil and Venezuela would quickly wipe out the hard-
earned position of Caribbean suppliers of rum in the U.S. market. The
resulting damage to Caribbean economies, including those of the U.S.
territories, would be unbearable. The tariff on low-valued rums was
left in place for a reason, and that reason is every bit as valid today
as it was in 1997.
We note that our positions on these issues are precisely aligned
with the positions that the U.S. territories in the Caribbean are
advocating through their representatives in Washington.
* * * * *
The Committee on Ways & Means has long been a staunch defender of
the Caribbean region. We urge you to maintain that role as you design
these upcoming trade initiatives.