[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
PRESIDENT BUSH'S TRADE AGENDA
=======================================================================
HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
FEBRUARY 26, 2003
__________
Serial No. 108-12
__________
Printed for the use of the Committee on Ways and Means
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 SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana JIM MCDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona EARL POMEROY, North Dakota
JERRY WELLER, Illinois MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
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.
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C O N T E N T S
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Page
Advisory of February 14, 2003, announcing the hearing............ 2
WITNESS
U.S. Trade Representative, Hon. Robert B. Zoellick, Ambassador... 12
______
SUBMISSIONS FOR THE RECORD
American Drawback Service, LLC, Englewood Cliffs, NJ, Tom
Ferramosca, letter............................................. 86
American Textile Manufacturers Institute, statement.............. 86
Barnes, Donnie B., National Association of Foreign-Trade Zones,
letter......................................................... 145
Canahuati, Mario M., Embajada de Honduras, letter................ 113
Carmichael International Service, Seattle, WA, Steve Orton,
letter......................................................... 92
Carnegie Endowment for International Peace, statement and
attachments.................................................... 92
CENCIT, Guatemala, Guatemala, statement.......................... 107
Comstock & Theakston, Inc., Oradell, NJ, William A. Hagedorn,
statement...................................................... 109
Denninger, Sr., Edward P., J.G. Eberlein & Co., Inc., West Islip,
NY, statement.................................................. 144
E.I. du Pont de Nemours & Company, Wilmington, DE, J.S. Kempf,
letter......................................................... 111
Electronic Industries Alliance, Arlington, VA, Brian Kelly,
letter......................................................... 112
Embajada de Honduras, Mario M. Canahuati, letter................. 113
Embassy of the Government of the Dominican Republic, statement... 118
Faleomavaega, Hon. Eni F.H., a Representative in Congress from
American Samoa, statement...................................... 119
Ferramosca, Tom, American Drawback Service, LLC, Englewood
Cliffs, NJ, letter............................................. 86
Florida Citrus Mutual, Lakeland, FL, Andy W. LaVigne and Matthew
T. McGrath, letter............................................. 120
Government of the Commonwealth of Puerto Rico, San Juan, Puerto
Rico, Hon. Milton Segerra, letter and attachments.............. 137
Hagedorn, William A., Comstock & Theakston, Inc., Oradell, NJ,
statement...................................................... 109
Hebert, Marc C., Preis, Kraft, & Roy, PLC, New Orleans, LA,
letter and attachments......................................... 157
J.G. Eberlein & Co., Inc., West Islip, NY, Edward P. Denninger,
Sr., statement................................................. 144
Kelly, Brian, Electronic Industries Alliance, Arlington, VA,
letter......................................................... 112
Kempf, J.S., E.I. du Pont de Nemours & Company, Wilmington, DE,
letter......................................................... 111
LaVigne, Andy W., Florida Citrus Mutual, Lakeland, FL, letter.... 120
McGrath, Matthew T., Florida Citrus Mutual, Lakeland, FL, letter. 120
National Association of Foreign-Trade Zones, Donnie B. Barnes,
letter......................................................... 145
National Association of Manufacturers, Frank Vargo, letter....... 146
National Electrical Manufacturers Association, Rosslyn, VA,
statement and attachment....................................... 150
Orton, Steve, Carmichael International Service, Seattle, WA,
letter......................................................... 92
Preis, Kraft, & Roy, PLC, New Orleans, LA, Marc C. Hebert, letter
and attachments................................................ 157
Sanders, Karen Corbett, Verizon, letter.......................... 178
Segerra, Hon. Milton, Government of the Commonwealth of Puerto
Rico, San Juan, Puerto Rico, letter and attachments 137
U.S. Tuna Foundation, statement.................................. 176
Vargo, Frank, National Association of Manufacturers, letter...... 146
Verizon, Karen Corbett Sanders, letter........................... 178
Zero Tariff Coalition, statement and attachment.................. 180
PRESIDENT BUSH'S TRADE AGENDA
----------
WEDNESDAY, FEBRUARY 26, 2003
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:35 a.m., in
room 1100 Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Committee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 14, 2003
FC-4
Thomas Announces Hearing on
President Bush's Trade Agenda
Congressman Bill Thomas (R-CA), Chairman of the Committee on Ways
and Means, today announced that the Committee will hold a hearing on
President Bush's trade agenda. The hearing will take place on
Wednesday, February 26, 2003, in the main Committee hearing room, 1100
Longworth Building, beginning at 10:30 a.m.
The sole witness at this hearing will be United States Trade
Representative Robert B. Zoellick. However, any individual or
organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee and for inclusion in the
printed record of the hearing.
BACKGROUND:
On August 6, 2002, the President signed into law the Trade
Promotion Authority Act (TPA) of 2002 (P.L. 107-210), which provides to
the President the authority to negotiate trade agreements and bring
them back to Congress under certain procedures setting forth detailed
negotiating objectives and ensuring extensive consultation with
Members. Since TPA became law, the President has notified Congress of
his intent to enter into free trade agreements with Chile and
Singapore. He has also notified Congress of his intent to enter into
negotiations with Morocco, the Central American countries, Australia,
and the Southern African Customs Union. In addition, he is continuing
negotiations to establish the Free Trade Area of the Americas as well
as multilateral negotiations in the World Trade Organization (WTO) to
expand U.S. opportunities in trade in agriculture, industrial goods,
and services.
In announcing the hearing, Chairman Thomas stated, ``Now that TPA
is in place, we have the chance to regain our leadership role in trade
negotiations and to eliminate foreign trade barriers to our goods and
services. The Administration has moved ahead quickly to establish an
ambitious agenda for seizing these opportunities. I am committed to
ensuring the Administration's adherence to the rigorous consultation
process and the detailed negotiating objectives established in TPA.
This hearing, which will give Ambassador Zoellick the opportunity to
lay out the President's trade priorities within the TPA framework, is
an important component of our bipartisan oversight responsibilities.''
FOCUS OF THE HEARING:
The hearing is expected to examine current trade issues such as:
(1) implementation, under TPA procedures, of the Chile and Singapore
free trade agreements, which have been initialed and are expected to be
signed at the end of April, (2) other free trade agreements, including
those notified by the President (Morocco, the Central American
countries, Australia, and the Southern African Customs Union) and the
Free Trade Area of the Americas, (3) prospect for trade expansion in
agriculture, industrial goods, and services through multilateral
negotiations in the WTO, (4) compliance with WTO dispute settlement
decisions, (5) the status of Russia and other former Soviet Republics
under the Jackson-Vanik amendment, (6) other bilateral trade issues,
and (7) legislation to implement U.S. obligations in the Kimberley
Process (concerning rough diamonds) in a WTO-consistent manner.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to
hearingclerks.waysandmeans@mail.house.gov, along with a fax copy to
(202) 225-2610, by the close of business, Wednesday, March 12, 2003.
Those filing written statements that wish to have their statements
distributed to the press and interested public at the hearing should
deliver their 200 copies to the full Committee in room 1102 Longworth
House Office Building, in an open and searchable package 48 hours
before the hearing. The U.S. Capitol Police will refuse sealed-packaged
deliveries to all House Office Buildings.
Chairman THOMAS. Mr. Ambassador, welcome once again to the
Committee on Ways and Means. We are pleased to know that you
are back from another trip abroad. That means you are working
hard in carrying out the Trade Promotion Authority (TPA), which
became law last August 6. I know you are pressing forward on
multiple fronts.
We have been on the sidelines too long. It is nice to know
that we are engaged. More important than being engaged, work
product is actually being produced. I know that you have
concluded negotiations with Chile and Singapore and you are in
the process of screening that, and it is before a limited
number of eyes and will be before a larger number of eyes very
soon.
We are concerned on a number of fronts--World Trade
Organization (WTO), we look forward to the Central American
Agreement moving forward to a Free Trade of the Americas--and
on a number of fronts I think you will find that Members of
this Committee are interested in providing you with questions
and will be listening carefully to your answers regarding
Europe in general and perhaps particular countries within the
European Community.
We look forward to your comments, and I would briefly
recognize the Chairman of the Subcommittee on Trade, the
gentleman from Illinois, Mr. Crane, for any remarks he may
make.
[The opening statement of Chairman Thomas follows:]
Opening Statement of the Honorable Bill Thomas, Chairman, and a
Representative in Congress from the State of California
Good Morning. This is a hearing to discuss the United States trade
agenda for 2003. Ambassador Zoellick, we are pleased to have you here
today to discuss the important progress we have made and will continue
to make in expanding international trade.
Since the President signed Trade Promotion Authority (TPA) into law
on August 6, you have pressed forward on multiple fronts. The truth of
the matter is your assignment has been one of catching-up. After eight
years without TPA, the United States remains behind the wave of trade
agreements that swept the world economy while American negotiators were
sitting on the sidelines. The enactment of TPA has put the United
States back in the business of negotiating meaningful trade agreements
for U.S. workers, manufacturers and farmers.
Having concluded negotiations with Chile and Singapore, you are
moving on to initiate negotiations with other nations. Reaching free
trade agreements, even with smaller countries and regions, allows the
United States to establish benchmarks for our negotiations within the
World Trade Organization and towards a Free Trade Area of the Americas.
Europe, however, continues to be among our most troublesome trading
partners. I agree with you that initiating action in the WTO appears
necessary to bring the European Union into compliance with existing
disciplines that require trade barriers to U.S. exports, particularly
in the area of biotechnology, to be justified on the basis of sound
science. Europe's stance on agriculture market access and subsidies is
also unacceptable and would cement historical inequities, disadvantage
our farmers and relegate much of the developing world to perpetual
dependence. A WTO agriculture deal along the lines Europe is proposing
is a non-starter in Congress.
Recently, I was asked about the possibility of an FTA with the
European Union, to which I replied that FTAs today are possible with
almost any country except the European Union!
Ambassador Zoellick, I look forward to your comments on our
difficult problems with Europe and on the many other ones facing USTR
this year.
Mr. CRANE. Thank you, Mr. Chairman. I also want to warmly
welcome Ambassador Zoellick to the Committee. I am delighted
that the administration has pursued trade negotiations on so
many fronts. Now that the President has TPA, it is clear that
the United States is back again in the driver's seat after a
lapse of too many years.
The conclusion of the negotiations on Chile and Singapore
is long overdue, and I look forward to considering these bills
as part of the TPA process sometime in late spring--the sooner
the better, in my book.
These bills will bring tremendous benefits to our farmers,
companies, and workers, which should not be delayed any longer
than absolutely necessary. I also congratulate the
administration on taking seriously during the Chile and
Singapore negotiations the consultation requirements that we
put into the TPA bill.
I now look forward to the negotiation of more free trade
agreements (FTAs) involving Central American countries,
Morocco, the South African countries, and Australia. I hope
that we will consider additional countries, such as New
Zealand, in the coming months. Crucial deadlines and the Free
Trade Area of the Americas (FTAA) negotiations for hemispheric
free trade by 2005 are coming up fast. I am pleased that the
United States has aggressively pursued opportunities in the
WTO, most recently on agriculture and on industrial tariffs. We
all have serious questions about whether Europe has committed
to achieving significant reforms in agricultural trade, as is
called for in the Doha negotiating mandate. It is encouraging
to see that Ambassador Zoellick has numerous avenues to pursue
free trade agreements if the WTO negotiations bog down. I
welcome his testimony.
Chairman THOMAS. I thank the Chairman. The Chair now
recognizes the Ranking Member of the Committee, the gentleman
from New York, Mr. Rangel, for any comments he may wish to
make.
Mr. RANGEL. Thank you, Mr. Chairman. I soon will yield to
Mr. Levin, but I want to always welcome the Ambassador for
representing in the best possible light the United States of
America, and also indicate that at some point I would like to
discuss with him the possibility of the Dominican Republic
being included in the Central American Free Trade Agreement in
terms of the reputation of the United States, especially at a
time that we are getting a lot of anti-American feeling. I also
am concerned with opposition on pharmaceutical patents and its
relationship to poor people having access to essential
medicine. I am working with Mr. Levin and Mr. Moran and hoping
that we can come up with a position that treats our
pharmaceuticals fairly, but at the same time that we be known
as a country that is concerned to the sensitive question of
life-threatening diseases.
Last, and on a more political issue, is the Foreign Sales
Corp. (FSC) problem that we are having now with the WTO where
our European friends have indicated that we can write the rules
as long as we don't have to abide by them. I am certain that
together we can come up with a solution that is equitable and
acceptable to the WTO. I know that you say it is a Treasury
problem, but to a large extent, your credibility is going to be
dependent upon our ability to work this out.
The Administration has been very successful in picking up
one or two Democrats and calling these things bipartisan
solutions to national problems. I don't think you are going to
be able to do that in this particular case, but perhaps you
might share with us at some point why the proposal supported by
our Chairman in rewarding those people who do business offshore
is more equitable than the idea of giving those benefits from
the windfall taxes that we will be collecting to manufacturers
in the United States.
In any event, I am glad that you are here. Sorry I couldn't
make the previous meeting, and I would like to yield, if the
Chair would permit, to Mr. Levin.
Mr. LEVIN. Thank you. Thank you, Mr. Chairman. Welcome,
Ambassador. I have a full statement, and I want to summarize it
as quickly as I could. I ask that the full statement be placed
in the record, Mr. Chairman.
Chairman THOMAS. Without objection.
Mr. LEVIN. The prepared statement of the Ambassador, of
you, Mr. Zoellick, includes numerous statements like, and I
quote, ``rebuilding America's leadership on trade,'' ``America
is back in the business of promoting open trade,'' ``reversing
the retreat at home.''
Let me make, if I might, a comment on this. I have made it
before. It is a bit pointed, but I wanted to be clear, and I
want to be clear on other matters that I state. I think it may
be helpful, though it isn't always considered, I think,
complimentary.
I think those characterizations of trade policy pre- and
post-the current Administration are simply wrong. There was
progress under the Clinton Administration, and many of us
Democrats on the Committee on Ways and Means, working with
Republicans here, were an intrinsic part of that progress:
Caribbean Basin Initiative (CBI), African Growth and
Opportunity Act (AGOA), China Permanent Normal Trade Relations
(PNTR), Jordan FTA, and the Uruguay round, among others.
I don't want to fall into the same pitfall and caricature
of the first 2 years of the Bush Administration. There has been
some important movement on trade issues, for example, in Doha,
the launch of the negotiations, which I supported actively,
notwithstanding my concern that the text was unduly ambiguous.
The temptation of proponents is to overstate the case and
understate the challenges, and I believe this is true of the
testimony today.
There have been serious setbacks and disturbing stalemates,
and a key point: the major challenges are still ahead of us. I
believe in pursuing expanded trade not because more trade is
invariably better, but because expanded trade can be a powerful
tool to promote economic growth and improve standards of living
in our country and around the world. To do so, trade policy
must shape the rules by which trade and international economic
policy is conducted, just as we do domestically, to maximize
its benefits and to minimize its downsides.
The economic backdrop against which you appear today is
troubling. For several years now, the U.S. trade deficit has
been hitting a new high almost every month. This deficit
reflects both a decline in U.S. exports and an increase in
imports. The deterioration is occurring in vital sectors where
the United States supposedly has a comparative advantage, such
as services and advanced technology.
The trade deficit has been felt hard in the manufacturing
sector. We have lost 2 million jobs since January 2001. The
widening trade deficit has contributed to an already anemic
economy. As the Economic Report of the President states,
``Trade deficits exert a drag on gross domestic product (GDP)
growth.'' A Washington Post article estimates that the trade
deficit sliced one-half of 1 percentage point off the GDP
growth last year.
For U.S. trade policy to contribute to economic growth, our
policy has to, as I said, shape trade to maximize its benefits
and minimize its downsides. In key respects, I think the
Administration's trade policy has failed to do that. I start
with the FSC issue that Mr. Rangel has mentioned. I think
instead of working within the WTO to correct a flaw that
disadvantages U.S. exporters, the Administration is now using
the threat of retaliation by the European Union (EU) to advance
a proposal that would repeal the FSC benefits for American
exporters and use the money primarily to pay for reduced taxes
on the offshore activities of U.S. firms.
Another area that is of real concern relates to the WTO
dispute settlement. You have announced some grand proposals to
eliminate tariff barriers while at first, anyway, downplaying
non-tariff barriers. In a sense, that has overshadowed the
failure to use existing rules to ensure real market access to
U.S. firms, in contrast with the approach of our trading
partners.
What is even more disturbing is that the actual decisions
of the panels clearly violate the WTO mandate. What has been
our response, the Administration response to this serious
problem?
Chairman THOMAS. The gentleman has 5 minutes.
Mr. LEVIN. Well, I don't think I can finish in 5 minutes.
Chairman THOMAS. Go ahead.
Mr. LEVIN. All right. You are the Chairman.
What has been U.S. Trade Representative's (USTR's) response
to this problem? First, USTR agreed to open trade remedies for
negotiation of the Doha Round, claiming that there were serious
offensive interests for U.S. exporters. If there are such
interests, where are the cases? To date, there have been zero
cases filed alleging that U.S. exporters have been subject to
wrongful unfair trade duties abroad.
Another issue relates to pharmaceutical patents and
medicines, as mentioned by Mr. Rangel. Here the Wall Street
Journal recently reported, ``The Administration engaged in a
post-election flip-flop in policy under pressure from the
pharmaceuticals industry, thereby stalling progress on an issue
so vital to people all over the world,'' and that you have
worked on, Mr. Ambassador.
Let me say just a brief word about the Chile and Singapore
trade agreements.
So, far there has been a failure to release the text, and
that breaks a precedent that was established, for example, in
North American Free Trade Agreement (NAFTA). I want to
emphasize this. Restricting the availability of the text
undermines the fundamental purpose of the 90-day notification
period--public involvement.
So, let me just suggest, as I close, a few components of
the way, as I see it, and I think others on this Committee on
the minority side, to move our trade policy forward.
On FSC, take seriously the approach being suggested by Mr.
Rangel.
On Russia PNTR, do provide PNTR to Russia, but at the same
time ensure a meaningful role for Congress in negotiations to
bring Russia into the WTO as a number of us here have suggested
and Senator Baucus.
On drug patents and access to medicines, coverage should be
broadened to allow developing countries, as we have written to
you, that lack manufacturing capabilities to address
effectively serious public health problems and not only the
infectious epidemics that have now been identified.
Let me just say a brief word about free trade agreements. I
think there needs to be a clear, overall strategy. There can't
be a cookie-cutter approach to them. In the case of the Central
American Free Trade Agreement (CAFTA), a key issue of concern
that Mr. Rangel and I have already flagged is the question of
labor standards enforcement in CAFTA and the adequacy or lack
of the Chile-Singapore approach in that context.
As to the textiles agreement with Vietnam, the USTR should
encourage implementation of core labor standards through
positive incentives, as in the Cambodia model.
In conclusion, the basic task, as many of us see it, before
this Administration and our Committee was not, in quotes, ``to
re-establish U.S. trade leadership around the globe,'' but
instead to re-establish now a broad bipartisan coalition around
U.S. trade policy from which the United States can truly and
fully lead.
Thank you, Mr. Chairman.
[The opening statements of Mr. Shaw and Mr. Levin follow:]
Opening Statement of the Honorable E. Clay Shaw, Jr., a Representative
in Congress from the State of Florida
Mr. Ambassador, I want to talk to you about a trade dispute
involving the Revpower Corporation, which was owned by my constituent,
Mr. Robert Aronsson. This matter has been ongoing now for well over a
decade, and I ask for your help.
Allow me to briefly state the facts: In December 1989, SFAIC, a
Chinese state-owned corporation, confiscated a factory owned by
Revpower. In response, Revpower sought in 1993 and won a $4.9 million
arbitration award from the Arbitration Institute of the Stockholm
Chamber of Commerce against SFAIC.
When Revpower attempted to enforce the award with the Chinese court
in Shanghai, that court refused to even acknowledge that the suit had
been filed for two years. When the Shanghai court finally adjudicated
the suit, it was only after SFAIC transferred its assets to its parent
company, The Shanghai Aviation Industry, that the Court then dismissed
Revpower's suit on that ground that FSAIC had filed for bankruptcy and
accordingly there were no assets against which the arbitral award could
be enforced. Four years later, the Xuhui Bankruptcy Court, found that
the SFAIC and SAIC ``conspired maliciously'' to evade the enforcement
of the arbitral award by transferring property from SFAIC to its parent
SAIC. But by then it was conveniently too late for the Chinese
government to grant any relief to Revpower.
As you are aware, China is required to enforce arbitral awards
under the 1958 New York Convention on Recognition and Enforcement of
Arbitral Awards. As SFAIC and SAIC were owned by the Chinese government
at the time of the arbitration award. The Chinese government is bound
by treaty to enforce and pay this award. Moreover, by failing to honor
the Revpower award, the Government of China ratified the violative acts
of the Shanghai Court and thus breached its treaty obligations under
the New York Convention. The net result is that what was initially a
small commercial dispute has now become a situation whereby the injury
to the U.S.-owned entity stems directly from the Chinese government's
willful violation of an international treaty.
This debt to Revpower by the Chinese government has been
outstanding now for over a decade, and with interest, now exceeds $11
million. I contacted the previous Administration about this manner in
writing on four occasions, with little result. Moreover, I asked your
predecessor for her personal assurance that the office of the U.S.
Trade Representative would vigorously pursue this matter with the
Chinese, during a Ways and Means hearing in 2000, but nothing
transpired.
Therefore, Mr. Ambassador, can you appoint a representative in your
office to look into this matter, with the hopes of resolving this
problem, instead of just endlessly managing a problem. China is
ignoring its international treaty obligations, and small American
businesses are getting financially hurt. I urge you to be aware of the
overall problem of the Chinese ignoring international arbitral awards.
I implore you to use your office to work with your Chinese counterparts
to finally bring closure to this matter. Thank you.
Opening Statement of the Honorable Sander M. Levin, a Representative in
Congress from the State of Michigan
The prepared testimony of Ambassador Zoellick includes numerous
statements like, ``rebuilding America's leadership on trade, America is
back in the business of promoting open trade, reversing the retreat at
home.''
These characterizations of trade policy pre- and post-the current
Administration are simply wrong. There was progress under the Clinton
Administration and many of us Democrats on the Ways and Means Committee
were an intrinsic part of that progress. To conclude otherwise ignores
CBI, AGOA, China PNTR, the Jordan FTA, the Uruguay Round agreements and
many others.
I do not want to fall into the same pitfall and caricature the
first two years of the Bush Administration. There has been some
important movement on trade issues. For example, in Doha I supported
the launch of the negotiations notwithstanding my concern that the text
was unduly ambiguous. But, the temptation of proponents is to overstate
the case and understate the challenges, and I believe that is true of
the testimony of the USTR.
There have been some serious setbacks and disturbing stalemates
and, a key point, the major challenges are still ahead us.
To begin with, however, I believe that a basic precondition to the
U.S. trade agenda operating on the right track at a time when
globalization is moving ahead exponentially is having a consistent
policy foundation. Most fundamentally, I believe in pursuing expanded
trade not because more trade is invariably better, but because expanded
trade can be a powerful tool to promote economic growth and improved
standards of living in the United States and around the world. To do
so, trade policy must shape the rules by which trade and international
economic policy is conducted--just as we do domestically--to maximize
its benefits and minimize its downsides.
The Economic Backdrop
The economic backdrop to Mr. Zoellick's testimony is troubling.
For several years now, the U.S. trade deficit has been hitting a
new high almost every month. The trade deficit in December hit a record
high of $44.2 billion, which capped a record high $435 billion trade
deficit for the year 2002. The widening of the trade deficit was
particularly troublesome given that it continued at a time when the
dollar's value was weakening.
The vast and record trade deficit reflects both a decline in U.S.
exports and an increase in imports.
U.S. goods exports have declined significantly over the past two
years. In 2000, U.S. goods exports stood at $771 billion. That figure
declined by more than $50 billion during the first year of the Bush
Administration to $718 billion. U.S. goods exports declined further in
2002, falling to $682 billion, a level below that of 1999.
Moreover, the deterioration is occurring in vital sectors where the
U.S. supposedly has a comparative advantage: One example is services
trade. Here, the surpluses in the U.S. services balance of trade have
deteriorated in every year the Bush Administration has been in office--
declining from $74 billion in 2000, to $69 billion in 2001, and
dropping dramatically to $49 billion last year.
The trade deficit has been felt hard in the manufacturing sector,
which has seen a steep and steady erosion of jobs. Since January 2001,
the U.S. has lost almost two million manufacturing jobs.
In 2000, the United States had a net trade surplus in advanced
technology products of $5 billion. In 2001, that surplus shrank by
almost 20 percent, and in 2002, the surplus became a deficit of more
than $17 billion. This is the first time that the U.S. has ever had a
trade deficit in Advanced Technology Products since the Census began
compiling data on those products, beginning with data from 1982. A
deficit for the first time compared to an average trade surplus in
Advanced Technology Products of over $27 billion throughout the 1990s.
The point is not that trade is the sole cause of the country's
continuing economic stagnation. There are several sides to the trade
deficit, positive and negative. But, overall a poor trade performance
has had real adverse effects for U.S. businesses and workers. The
widening trade deficit has contributed to an already anemic economy. As
the Economic Report of the President states, trade deficits exert a
drag on GDP growth. A Washington Post article estimates that the trade
deficit sliced one-half-of-one percentage point off the GDP growth rate
last year.
For U.S. trade policy to contribute to economic growth in the short
and medium term that benefits the widest array of Americans, U.S.
policy has to shape trade to maximize its benefits and minimize its
downsides. In key respects, the Administration's trade policy has
failed to do that.
Trade Policy Problems
FSC
Perhaps the most obvious example of where the Administration's
trade policy has failed to stand up for American workers, farmers and
businesses is in the case of the FSC/ETI dispute with the EU.
The Administration has chosen to ignore the expressly stated policy
of the Congress to ensure that international rules do not discriminate
against U.S. exporters in the treatment of tax systems. The FSC/ETI
rules were designed to correct a flaw in WTO rules on border tax
adjustments so that American companies and farmers would not be
disadvantaged in competing against companies and farmers in Europe and
other places. Realizing this flaw, Congress directed the Administration
to work to correct the problem in the WTO negotiations. To date,
however, the USTR has ignored Congress' request.
Instead of working to correct a flaw that disadvantages U.S.
exporters, the Administration has been using the threat of retaliation
by the EU to advance a proposal that would repeal the FSC/ETI benefits
for American exporters and use the money primarily to pay for reduced
taxes on the offshore activities of U.S. firms. Regardless of the
merits of sensible international tax reform standing on its own, to use
the FSC benefits as a pay-for in this way is an affront to U.S.-based
producers. Given dramatic declines in U.S. export performance, the
Administration's response to the FSC/ETI loss stings American workers
and manufacturers even harder.
Flawed Approach to WTO Dispute Settlement
Another area where the Administration has failed to act effectively
to correct a festering and growing problem is in its approach to WTO
dispute settlement. There are serious problems with the enforcement of
the WTO agreements--by far, the most important single set of trade
agreements in which the United States participates.
At the WTO, the Administration's announcement of grandiose
proposals that side-step key issues (for example, the USTR proposal to
eliminate all tariff barriers downplaying the fact that the primary
barriers faced by many U.S. industries are non-tariff) has been
overshadowing the Administration's failure to use existing rules to
ensure real market access for U.S. firms. The failure of the
Administration to respond effectively to problems with the tools it
already has raises the question: what is the point of concluding a slew
of new trade agreements if they are not going to be enforced?
Now in its third year under this Administration, the USTR has filed
only five cases, barely more than two per year. This compares with 56
cases in which the U.S. served as a complainant from 1995 to 2000--an
average of almost 10 cases per year.
The USTR's failure to push for U.S. rights in WTO dispute
settlement stands in clear contrast with the approach of our trading
partners. Since the Administration has been in office, there have been
29 cases filed against the United States at the WTO. Of the cases
against the United States that have been adopted during the
Administration's tenure, the U.S. has lost 11 out of 13. Ten out of
these eleven losses involved the U.S. trade remedy rules--safeguards,
antidumping and countervailing duties.
What is even more disturbing is the actual decisions of the panels
in the cases. For example, the panels are going far beyond what the WTO
agreements provide to pull in new concepts that the United States never
agreed to such as ``substantive public international law.'' Going
beyond the terms of the agreements clearly violates the WTO's mandate,
which states plainly that panels and the Appellate Body not ``add to or
diminish'' the rights and obligations of the United States or other WTO
members. Notwithstanding this clear rule, WTO panels are creating
obligations that neither the Administration nor Congress agreed to in
signing and approving the Uruguay Round Agreements.
What has been USTR's response to this serious problem? First, USTR
agreed to open trade remedies for negotiation in the Doha Round,
claiming that there were serious ``offensive interests'' in this area
for U.S. exporters. If there are such interests, where are the cases?
To date, the USTR has filed zero--zero cases alleging that U.S.
exporters have been subject to wrongful unfair trade duties abroad.
Further, last year Congress specifically directed Commerce,
consulting with USTR, to develop a strategy to respond to the assault
against the U.S. trade laws. Rather than take this duty seriously, the
Administration presented Congress with a short paper, almost half of
which consisted of an extensive discussion of the history of the WTO
dispute settlement system not relevant to Congress' request. Most of
the rest of the paper comprised a reprise of case summaries and ideas
that had already been submitted to the WTO by the U.S.
The paper contained virtually nothing on strategy, the focus of
Congress' request. Rather, the paper spoke vaguely about the
Administration's intent ``to address these concerns in both the DSU and
Rules negotiations'' and to ``work within the current dispute
settlement system to avoid panel or Appellate Body findings that would
be of concern.'' The report contains no strategy, no action plan, not
even an indication as to how the Administration intends to ``address''
the problems in the negotiations or how it intends to ``avoid'' dispute
settlement decisions that come out literally quarterly that undermine
American laws.
In fact, next month, the WTO is scheduled to decide the challenges
to the steel safeguards applied by the United States in 2002, after
nearly four years of record-breaking steel imports. Needless to say,
many of us in Congress will be watching those cases very closely.
Intellectual Property and Access to Medicines
Another issue where the Administration has relinquished a
leadership role is on the vital issue of protecting pharmaceutical
patents while ensuring access to medicines for the world's poorest
people. Here, the Wall Street Journal recently reported that the
Administration engaged in a post-election flip-flop in policy under
pressure from the pharmaceuticals industry, thereby stalling progress
on an issue so vital to people all over the world, and setting up the
United States as the main obstacle to agreement in the WTO
negotiations. Morever, if this dispute remains unresolved into
September, it is not clear how it might affect the success of the
broader WTO negotiations--which have the greatest potential to deliver
for the U.S. economy.
LUnnecessary Secrecy--Failure to Release Texts of Chile and
Singa- pore Agreements
The Administration has created unnecessary problems for itself in
other areas, as well. This Administration's penchant for secrecy is
well known in other contexts, but now it threatens to poison the water
in the trade arena, as well. To date, the Administration has failed to
release to the public the texts of the Chile and Singapore FTAs. Here,
the Administration has broken with the precedents of the NAFTA and
other agreements--bipartisan precedents set by previous
Administrations.
This unnecessary secrecy has made it difficult for Members of the
advisory committees and Congress to do their jobs. Moreover, it
undermines a fundamental purpose of the 90-day statutory lay-over
period. One of the primary reasons for the 90-day notification period
is to ensure a broad consultation process about the agreement itself--
not only with Congress and cleared advisors--but with the public at
large. Once the agreement is signed, that opportunity is extinguished,
leaving the public to evaluate only the question of implementing
legislation.
Finally, restricting the availability of the texts runs contrary to
common sense. It creates a significant risk of rumor, misinformation
and suspicion.
So far, 28 days have gone by--fully a third of the period, advisory
committee reports are essentially completed and due to be submitted
later this week or early next week, and the texts are still not
publicly available. Two weeks ago, the Democratic House Members of the
COG sent the President a letter urging the immediate release of the
texts. Just yesterday, we received a response from you to that letter,
in which you stated that you ``anticipate'' that the Administration
will make the text of the Singapore agreement available to the public
in early March, and the text of the Chile agreement in late March or
early April.
We are pleased with this apparent progress at moving up the release
date, but the letters seem to raise as many questions as they answer.
Why is the text of the Chile Agreement, which was completed about a
month earlier, not going to be made available until about a month after
the Singapore text? And, it is notable that even under the new
anticipated scenario, neither text, it appears, will be available when
the advisory committee reports are submitted this week or next.
FTAs
A strategy of pursuing free trade agreements can be useful for
opening markets to American exporters, addressing issues that are more
difficult to handle in multilateral negotiations, even keeping the
pressure on those negotiations to conclude. However, there has to be a
clear and publicly-stated strategy consistent with maximizing the
economic benefits to American workers, farmers and businesses of the
Administration's and particularly, USTR's limited resources.
To date, the Administration's announced potpourri of FTA candidates
does not reflect a clear strategy and raises as many questions as it
answers.
It is no wonder, then, that the Chamber of Commerce--normally an
unfailing ally of the USTR--has begun to question the Administration's
priorities in determining FTA partners. And there is good reason to
raise questions. The criteria for allocating the scarce trade
negotiating resources of the U.S. government does not seem to place
much emphasis on giving U.S. workers, businesses and farmers the most
bang for our buck. The combined trade covered by all of the new FTAs
announced by this Administration--CAFTA, SACU, Australia, and Morocco--
is only a little over 2 percent of total U.S. trade. Even if we were to
include the Chile and Singapore agreements, the total would still only
be about 3.5 percent. Certainly, no one would deny that there are some
commercial benefits that will flow from these agreements; the question
is whether and where those benefits fit into the overall priorities of
trade negotiations and whether, indeed, they will be effective in
pioneering answers to issues that have proven difficult for the largest
multilateral areas, including core labor and environmental standards.
Finally, while all these other matters are pursued, a number of
problems go unattended. For example, U.S. semiconductor companies in
China are facing discriminatory taxes. In short, China is
discriminating against U.S. high tech companies, harming those
companies and their workers, and so far USTR has not stopped it.
The Way Forward
What we need, as globalization moves forward, is a globalization of
American trade policy within our own borders. In this era of inexorably
expanding trade, we have no choice but to build a broad-based,
bipartisan coalition. A trade policy that in fact will tackle the tough
issues--agricultural reforms, strong intellectual property protections
and access to medicines--can ultimately be successful only if it is
based on such a foundation of support in Congress and in our country.
We have readily within our grasp exactly that kind of strong
coalition of internationally-minded Members of Congress. As recently as
2000, a real coalition came together to pass China PNTR, the African
Growth and Opportunity Act and the CBI enhancement legislation with
broad bipartisan support.
We can do that again. Hopefully, the Chile and Singapore agreements
do not become another polarized and partisan fight.
The key ingredients of a broad-based approach are a consistent
policy foundation and ensuring that U.S. policy shapes trade in ways
that maximize its benefits and minimize its drawbacks.
The following are some suggested building blocks for that kind of
an approach.
FSC. First, on the FSC, Mr. Rangel has already laid out an approach
to domestic legislation and international negotiations that can garner
broad support in both parties in the House and Senate, and in the
business and labor communities.
Russia PNTR. Second, we should provide immediate Permanent Normal
Trade Relations (PNTR) status to Russia as Mr. Rangel and I, along with
Senator Baucus, have proposed. Our legislation, which we expect to
introduce next week, will also ensure a meaningful role for Congress in
negotiations to bring Russia into the World Trade Organization (WTO).
Drug Patents and Access to Medicines. Third, on the subject of
pharmaceutical patents and access to vital medicines, a number of us--
Mr. Rangel, Mr. Matsui, Mr. Moran and I and others--have proposed an
approach that both safeguards our intellectual property and promotes
access. We believe that coverage should be broadened to allow
developing countries that lack manufacturing capabilities to address
effectively serious public health problems--and not only the infectious
epidemics that have now been identified.
FTAs--Central American FTA. Fourth, when it comes to negotiating
free trade agreements, U.S. policy should have two cornerstones. First,
the United States should not take a ``cookie-cutter'' approach to FTAs.
With regard to all commercial issues, agreements should be negotiated
on their own merits depending on the circumstances of a particular
country or set of countries on issues ranging from agricultural
subsidies, to service sector regulations, and IPR standards. In the
case of the CAFTA, a key issue of concern that Mr. Rangel and I have
already flagged is the question of labor standards enforcement in CAFTA
countries, and the adequacy (or lack thereof) of the Chile/Singapore
approach in that context.
Second, underlying each decision to negotiate--or not negotiate--
there must be a strong economic rationale particularly in light of the
resource constraints faced by USTR. No one would suggest that the
economic rationale is ever the sole reason for pursuing an agreement,
but it must be the overriding rationale. In the case of the CAFTA, as
Mr. Rangel and I have already stated, it is difficult given the
importance of countries like the Dominican Republic to see the
rationale for departing from the 20-year tradition of developing trade
and commercial relationships throughout the Caribbean, rather than
hand-picking a few countries with which to negotiate further
agreements.
Vietnam ``Quota-Plus'' Textiles Agreement. Fifth, on the Vietnam
bilateral textiles agreement, we have proposed a ``quota-plus''
approach that both promotes additional access to the U.S. and
implementation of core labor standards in Vietnam. We were very
concerned to learn that USTR was not intent on negotiating such a
provision when your office opened negotiations on a textile and apparel
agreement with the Government of Vietnam last week. We understand that
those negotiations did not reach agreement. We very much hope you will
include a positive incentives labor provision in that agreement--what
we call a ``quota-plus'' agreement.
As we have discussed, some aspects of the Cambodia model will need
to be modified to reflect the differences between Vietnam and Cambodia,
including the size of their textile and apparel sectors and forms of
government. However, the overall approach has great merit and would be
an important building block.
Conclusion
In conclusion, the basic task before this Administration and this
Committee was not to ``re-establish U.S. trade leadership around the
globe'' as stated in Ambassador Zoellick's testimony. It is, instead,
to re-establish a broad bi-partisan coalition around U.S. trade policy
from which we can truly lead.
Chairman THOMAS. I thank the gentleman. Apparently, a
majority of the Committee greets you, Mr. Ambassador, and your
written statement will be made a part of the record, and you
can address us in any way you see fit.
STATEMENT OF THE HONORABLE ROBERT B. ZOELLICK, AMBASSADOR, U.S.
TRADE REPRESENTATIVE
Mr. ZOELLICK. Thank you, Mr. Chairman and Mr. Rangel, who
was here just a minute ago, and Chairman Crane and Mr. Levin. I
prepared a rather lengthy statement, so I will try to create a
slightly more user-friendly overview to take you through some
of the topics today. So, I think you all have a little handout
in front of you.
Just to review where we are, from the start of the
Administration our focus has been on trying to promote freer
trade by moving on multiple fronts: globally, regionally--and
that is primarily the Western Hemisphere--and also through
small bilateral or regional agreements. I think what moving on
multiple fronts has enabled us to do is to take the fact that
the United States starts with about 25 percent of the world's
economy and leverage it.
It also means that we don't allow any one country to block
us, so if we are only in the WTO negotiations and 1 out of 144
decides to stop us, we can keep moving. Frankly, it also allows
us to set the pace instead of being reactive.
So, it is my view, and certainly the view of many people
around the world, that over the past 2 years we have regained
momentum on trade at home and abroad, and that U.S. leadership
is recognized and appreciated around the world.
We have also been able to do this in a way that broadens
the message because we have connected trade to some other
objectives, not only global growth but development, expansion
of the rule of law, open societies, and indeed the values that
are at the heart of our country and our political system.
We have also tried to connect trade to the broader realm of
security in the world after 9/11. I certainly would never argue
that poverty is the cause of terrorism. If you look at the
background of most of the terrorists, frankly, they are not
from poor families, and it is an insult to millions of poor
people around the world that don't turn to terrorism. There is
no doubt, if you have been in Indonesia or you have been in
Sub-Saharan Africa, that you see that broken societies create
the roots of problems because in those societies people that
focus on destruction as opposed to creation and want to close
as opposed to open find fertile ground. So, part of our longer
term security campaign is to create opportunity and prosperity.
In terms of what we have done over the past 2 years, I
really want to start by thanking the Chairman and many of you
on this Committee for the hard work done over the past couple
years to get the Trade Act passed. It not only restored
America's negotiating power after an 8-year lapse, but we
managed to extend some preferential trade agreements that came
at a critical time, given the world economy: the Andean Trade
Preference Act, which we expanded; AGOA II, and for those of
you--the Chairman led a delegation to Mauritius in Africa where
we met with some 35 Sub-Saharan African countries. You could
see the fact that the Congress took their considerations into
account and passed AGOA II amendments to be a very important
sign. The expansion of GSP, the Generalized System of
Preferences, for some 140 developing economies; and also, I
think very importantly, a trade adjustment assistance package
to help American workers through the adjustment; the launch of
the Doha Development Agenda, reversing the failure in Seattle
in 1999; completing the negotiations, which were not done, in
China and Taiwan to bring them into the WTO during the course
of 2001, and moving on to the important implementation agenda;
and moving forward the FTAA into concrete negotiations.
Steel safeguards, which I know are a controversial topic,
but I think has given a breathing space for the industry. We
have now seen some of the restructuring that we hoped would
start to occur to move the industry back to a competitive
posture.
Passing the Jordan Free Trade Agreement; passing the
Vietnam bilateral trade agreement; completing the Singapore and
Chile FTAs; and launching a series of other FTAs.
Now, let me just review where we are in these key parts. In
the WTO, the Doha Development Agenda, this was a negotiation we
launched in November of 2001. As Mr. Levin said, he was with us
there, and I also appreciated that at some key points I had an
opportunity to consult with the Chairman on things as we were
putting together the mandate.
This involves 144 participants around the world. Our next
key meeting will be in Cancun in September, where we will have
all the countries come back together, and our target date for
completion is January 2005.
With your help, the United States has tried to set the pace
by focusing on the heart of the agenda, and that is market
access in agricultural goods and services--the meat of what
trade negotiations are about.
You see on the next page I have just highlighted the key
elements of our agriculture proposal: first, to eliminate
agricultural export subsidies. I have noted in the recent press
that President Chirac of France has suggested that maybe it
would be a good idea to eliminate them for Africa, and we urged
him to expand his horizons beyond the hedge rows and see all of
the world having the elimination of export subsidies, helping
the commission have more ability to negotiate what is an
important area for the WTO.
We have also proposed a drastic reduction in agricultural
tariffs that would cut the average agricultural tariff from 60
to 15 percent and to cut trade-distorting domestic support by
about $100 billion, and an important part of this is removing
much of the differential you have between the European subsidy
level, which is about 3 times higher than the U.S. subsidy
level.
On consumer and industrial goods, we propose that we cut
all tariffs at 5 percent or below to 0 by the year 2010. That
would open up three quarters of the trade for the United
States, Europe, and Japan and make it tariff-free. That is
important to our industrial and business sectors. It is also
important to a lot of the developing countries.
We would cut all other tariffs to 8 percent by 2010 and
eliminate them by 2015. We also proposed quicker zero-for-zero
negotiations for key export sectors.
Now, there is no doubt that this is a bold proposal. Not
everybody is ready to go this far. It is our strategy to try to
set the boundaries and push for liberalization and demonstrate
that the United States is willing to cut if others do.
The next page also talks about an area that I think needs
increasing attention, which is services liberalization. Today,
about two-thirds of America's GDP is represented by services
and about 80 percent of employees in America are in service
industries. It is not only our country. In East Asia and Latin
America, about 50 percent of their economies are in the service
industries, but it only represents about 20 percent of world
trade.
Now, you have actually seen that this is an important area
for the trading system because Ralph Nader's organization just
started out this week attacking the services trade. So, it must
be something that has promise for opening markets.
Now, why did they attack it? One thing they said is the
United States is trying to push privatization around the world.
False charge. The United States has not insisted that countries
privatize. If they do privatize, however, we hope that U.S.
firms have the same opportunities that others have.
We have been accused about trying to interfere with health
and safety regulation. Again, false charge. Not any of our
proposals interfere with health and safety regulation, and
instead what we have suggested is, if there are fields like
private education where American university education leads the
world, that people open up opportunity for more competition in
the private sector, then we should be part of it. It is the
same with other areas, as you can see here.
What is important about the services agenda is that it is
not just a North-North trade or just a North-South trade. This
is an area where you are finding a lot of developing countries
find that it is critical to develop their infrastructure. It is
critical for business like tourism services. It is critical for
education to upgrade the learning levels of their population.
So, it is an area that I think will become increasingly
important.
The next area is the regional initiatives, and here the key
one is the FTAA. This involves 34 countries in the Western
Hemisphere. Our target date for completion is January 2005. We
are now moving to the key phase, with the United States and
Brazil being the co-Chairs, the two biggest economies in the
hemisphere other than our North American partners. We now are
going to the concrete level of making concrete offers on
agriculture, goods, services, investment, which we just did in
February. Again, we tried to set the pace. The United States
proposed that in the first year 65 percent of our goods market
would be open to others and 56 percent of our agricultural
market. We are starting to get the responses from other
countries. Some are cautious. There is no doubt there is hard
bargaining ahead. The next ministerial meeting will be in the
United States, in Miami, in November of this year.
Then the bilateral initiatives, and I get the question a
lot, and perhaps Mr. Levin is raising this, too. Why do we
pursue bilateral initiatives? So, I tried to list some of the
reasons here for you.
One, it levels the playing field for the United States.
Keep in mind Europe has 30 of these agreements. The United
States just has Canada, Mexico, Israel, and now Jordan. So,
when we do a free trade agreement with Chile, we are catching
up with the EU and Canada that are already on their way to
reducing their barriers.
Second, it creates a competitive dynamic to liberalize.
Keep in mind if we only operate in the WTO, if one country
decides to get up on the wrong side of the bed and slow down
the negotiations, we are stuck. I don't want to be stuck. I
don't want to give anybody a veto over U.S. trade policy. So, I
want to be in a position to say we are moving forward in each
of these areas aggressively. If somebody else isn't ready to
move, catch up when you can because we are going to keep going.
Then we found another effect, which is that one of the most
striking aspects some of you encountered when you were with us
in Africa was the AGOA process and our discussion of free trade
with the Southern African Customs Union has led other African
countries to say: What reforms do we need to make to be able to
move toward trade liberalization with the United States?
We can also use these agreements to connect to sectoral
reforms. For example, in our Morocco Free Trade Agreement, we
are working with the World Bank to try to reform the
agriculture sector in Morocco. It applies to us, too. If we can
cut subsidies from Europe and Japan, then maybe we can also cut
some of our farm subsidies and we can reform our sector.
It encourages regional integration and investment, and
here, if you look closely at the Central American case or the
Southern African case, in the case of Southern Africa, keep in
mind this agreement doesn't only deal with Southern Africa. It
deals with Botswana, Namibia, Lesotho, and Swaziland. Well,
Botswana, for example, is a very well-run economy, and the
leadership there has had a multi-party democracy for some 40
years. It is only about 1.8 million people. They are not going
to make it on their own. They have got to be able to connect to
other economies, the same with Lesotho, the same with Namibia.
It is also true in Central America. We have got for the
first time five countries that have had very different
political traditions trying to work together to unite their
economies all because the United States is offering them a goal
of liberalization with the United States. I took note of the
point that Mr. Rangel made, and I know he has written me about
this in terms of some further connection. This is an idea that
we can discuss, I have discussed with my negotiators. As we
have talked about, we have got some issues we want to move the
Dominican Republic on. You have tried to help us with this.
They are moving. So, I think we try to look at these ideas,
and, frankly, I think you and others have raised the same point
about Panama.
Part of this, it is also true--we have talked about this
with Southern Africa. We don't want it to hurt our negotiations
with the Southern African Customs Union or hurt AGOA, so we
need to find a way that pulls along the most advanced but also
gives the opportunity of others to benefit from it. That is a
good point.
To help cement economic and political reforms, and here,
again, Central America--many of you have known the history of
this in terms of violence, fragile democracies. Part of what we
are helping is to develop open societies. It is true with the
Southern African Customs Union, too, where four of the
countries are democracies. Swaziland has problems. There is no
doubt about it. The best way to get at Swaziland's problems is
to try to work with the other countries in Southern Africa to
improve them.
It also creates allies for us with the WTO and the FTAA
talks, because as we work closely with these other countries,
we learn their interests and we develop ways to cooperate.
Frankly, these other agreements break new ground and set
higher standards. Many of you have an interest in the digital
economy. The Chile and Singapore agreements, which all of you
have access to on the Web site and you and your staff saw the
documents before the negotiations and you all have access now,
as well as the 700 cleared advisers, demonstrate that what we
did in the digital economy offers some very important
possibilities for the United States, because this is an area of
intellectual property (IP) that frankly has moved beyond what
occurred in the Uruguay round, in services, in e-commerce, and
indeed in environment and labor, where this Committee has, I
know, struggled about how to move ahead in environment and
labor and trade, and now for the first time we have got some
serious environment and labor provisions that I think can fill
a pattern for the future.
Now, on the bilateral initiatives, just to review where we
are, with Singapore and Chile we concluded them in the fourth
quarter of 2002. We hope for consideration in 2003. In essence,
with Chile--I will be happy to go into this in more detail. The
key part is it opens up a level playing field from the start.
About 85 percent of the goods are tariff-free from duty day 1;
75 percent of U.S. agriculture exports will have zero duties
within 4 years. We have removed the price band system that has
plagued a lot of our agricultural exporters, and this again
shows an interesting development in these smaller agreements.
We are basically getting the Chileans to accept U.S.
standards for meat inspection and dairy, which is an
increasingly important area with trade. It is not just the
tariff barriers. It is issues like this.
Equally important, this free trade agreement with Chile--
and I was somewhat surprised by the effect of this. It sent a
very important message throughout Latin America because,
frankly, some people thought we would never get this thing
done. Now, when they realize that we can get it done and we
hope with congressional passage, it creates incentives
elsewhere.
With Singapore, we had some particular issues related to
government-linked corporations. They have corporations that
have special government ties. We wanted to make sure we had
open competition. It is a major port, and we have some special
provisions dealing with customs transparency to combat illegal
transshipment. We also have some very important provisions in
terms of express delivery and biotech patents. In both these
agreements, we have set a high standard for services. We have
what is called the negative list, which means everything is
covered unless you remove it, which is not the way it is done
in the WTO.
In the area of regulatory transparency, we have got some
breakthrough possibilities that basically have these countries
accepting the key principles of the Administrative Procedures
Act in terms of notice for regulations and comment and so on
and so forth.
Moving forward, we have launched the Central America
negotiations. Mr. Brady has been helpful in terms of forming
together a caucus on this. We are going to try to get this done
over the course of 2003. There are negotiations going on right
now, and Mr. Portman's city of Cincinnati was kind enough to
host us. This is the area where we will follow up with Mr.
Rangel on the docking issues.
In Morocco, we launched that in January of 2003. We hope to
get that done by the end of this year, building on the
agreements we have had. Mr. English has been very helpful in
forming together a group to support that as well, and I believe
Mr. Tanner is also a part of that effort.
Southern Africa, we have launched in January of this year.
Those of you who took the trip to Africa saw its importance.
This one I think is going to take a little longer because we
are going to work with these five countries together, but we
hope to try to get it done by the end of 2004.
Australia, again, we launched in February. Here a key issue
is the sanitary and phytosanitary issues on agriculture which
we continue to work on. Again, I hope we get this done in 2004.
Just a quick sense of a couple other issues. Clearly, we
have a lot of follow-through on the China and Taiwan WTO
accession. I was in China last week. It is a country of
enormous potential, enormous change, but also enormous work to
do, and this is an area where I think we can send important
messages together.
Russia's accession to the WTO is an item that moves ahead
with fits and starts. The most recent efforts of Russia to
block some of our agricultural products to me are not a
positive move. It is an area where the gains can be great if we
can be successful.
The enforcement actions of a host of topics in WTO and
NAFTA, compliance with WTO rulings and trade retaliation. Some
of you have covered some of this in your opening statement. My
statement covers it. I am happy to answer more questions.
I will just make this general point. During the Uruguay
round negotiations, this Committee and the Congress urged the
creation of the dispute settlement system, and it does serve
U.S. national interests because we are the biggest trading
power in the world and, frankly, a lot of these cases and the
disciplines benefit us. Sometimes we lose, and when we lose,
frankly, we have got to figure out a way to come into
compliance. I am not only talking about the big ones that some
of you mentioned, like FSC, but there are some other issues
that have been hanging around for a few years, and, frankly, it
doesn't help the United States to be a scofflaw. We have got to
figure out a way to try to get these done.
Small business is an area that I think has an increasing
opportunity to be linked with trade. Just to take the CAFTA,
the Central American negotiations, it turns out that 78 percent
of America's exporters to Central America are small- and
medium-sized enterprises, and they represent about half the
value. I now have a detailee from the Small Business
Administration on my staff to try to help make sure we
represent those interests and know about the goals of the small
business community.
Trade capacity building for developing countries. A lot of
you have helped us on this. I have talked with Mr. Rangel about
this in both Central America and Africa, and I want to thank
Mr. Kolbe. The Appropriations Committee has been very helpful.
We put together about $638 million a year now on trade
capacity building, and it is money well spent because it helps
these countries to be able to take part in the negotiations and
implement it. To me it is not a question of trade or aid. It is
a question of how you link trade and aid together.
Other legislative items, those of you that were in South
Africa certainly saw the interest in some additions for AGOA, a
possible AGOA III. Secretary Powell and I sent a letter up
about Laos for normal trade relations. It is the only least
developed country without normal trade relations, and it is the
only one we have normal diplomatic relations with that we don't
have normal trade relations.
Environment and trade and labor conditions and trade, I
know this will be a topic we continue to discuss. I am very
proud we now have these in our agreements. We are working on
cooperative efforts. We have actually got some of the non-
government organizations (NGOs) helping us now in terms of the
follow-through on these efforts. We are also trying to link
with the work of multilateral development banks. So, again, I
think we can connect trade to these issues in a way that isn't
protectionist if we do it right.
HIV/AIDS and access to medicines and funding. We can talk
more if you want about the trade related intellectual property
rights (TRIPS) and medicines issue. I assure you I find it a
frustrating one, too, as I mentioned to some of the Members. I
think part of the problem here is there is a big gap of trust
between some of the poorer countries and some of the companies
who are afraid that some of their patents will be taken by some
of the not-poor countries, and that is the gap we need to try
to close here.
I also think the fact that we have made clear that this
does not refer to HIV/AIDS, tuberculosis, malaria through our
Doha first position, second, the moratorium we put forward, and
the President's proposal for $15 billion of support for HIV/
AIDS.
Finally, on conflict diamonds, this is one that Members of
this Committee but also Chairman Wolf have had a strong
interest in. Just to bring you up to date, the Kimberley
process did come to an agreement on this. We agreed with all
the other countries in the WTO for the appropriate waiver. We
also got a UN resolution to be of help, and I again appreciate
the Chair's interest in trying to push this forward and move
the appropriate legislation to close this out.
Finally, I just want to thank all of you. I know we have
different interests on this and we have different views about
history. We will let that be decided by historians. I think
over the past couple years we have been able to address a lot
of the issues people have raised. I have certainly benefited
from the insights of the Committee. We may not always agree,
but I have certainly learned from the exchange, and we have
been able to solve some of these problems.
I remember when I first started out and the minority said,
``Mr. Zoellick, the three things you have to get done are
Jordan, Vietnam, and a steel 201.'' I did those. Then they
said, ``Well, now we have got to get environment and labor
done.'' Well, we did that. Now Mr. Levin, always keeping my
feet to the fire, has got a new set, but that is the way the
process goes. So, we will work with you.
Thank you.
[The prepared statement of Mr. Zoellick follows:]
Statement of the Honorable Robert B. Zoellick, Ambassador, U.S. Trade
Representative
Mr. Chairman, Representative Rangel, and Members of the Committee:
Thank you for the opportunity to testify today, for your support
and assistance, and the tremendous work of your staffs during this past
year. We are very grateful for your significant effort to pass the
Trade Act of 2002, including Trade Promotion Authority (TPA). We
greatly appreciate your leadership, Mr. Chairman, and value our
partnership with the Congress on trade matters.
Over the past year, working together, we have rebuilt America's
leadership on trade. We are now pressing aggressively to secure the
benefits of open markets for American families, farmers, workers,
consumers, and businesses. President Bush is advancing, in close
association with the Congress, an activist strategy ``to ignite a new
era of global economic growth through a world trading system that is
dramatically more open and more free.''
A key achievement this past year was the renewal of the Executive-
Congressional partnership embodied in TPA. With that authority restored
after a lapse of eight years, the Administration has begun to fulfill
the vision of open markets and development articulated at the launch of
new global trade negotiations in Doha, Qatar, in November 2001. The
United States has submitted far-reaching proposals to the World Trade
Organization (WTO), including plans to remove all tariffs on
manufactured goods, open agriculture and services markets, and address
the special needs of poorer developing countries.
Consulting closely with Congress, the Administration capped the
year by completing Free Trade Agreement (FTA) negotiations with Chile
and Singapore, which, when implemented, will open new markets for
American exporters while expanding choice and value for American
consumers. By lowering prices through imports and increasing incomes
through trade, America's newest trade agreements will build on the
success of the North America Free Trade Agreement (NAFTA) and the
Uruguay Round, which together already provide the average American
family of four with benefits amounting to $1,300 to $2,000--each and
every year.
As President Bush has noted, ``America is back in the business of
promoting open trade to build our prosperity and to spur economic
growth.''
The Bush Administration looks forward to maintaining a close
partnership with Congress in 2003 as we lay a firm foundation for a
more prosperous America by passing the free trade agreements with Chile
and Singapore; build upon our proposals to open markets in global trade
talks; advance negotiations on the Free Trade Area of the Americas
(FTAA); negotiate new FTAs with the five countries of the Central
American Common Market, Australia, Morocco, and the five countries of
the Southern African Customs Union; enforce U.S. trade laws; and
monitor and press China's and Taiwan's compliance with their WTO
obligations.
Realizing the Free Trade Vision
Following World War II, America successfully employed trade to help
shape a positive bipartisan agenda of growth, openness, and security.
With the end of the Cold War, however, the Executive-Congressional
partnership that fueled that historic progress lapsed, weakening U.S.
trade leadership.
To lead globally, President Bush recognized that he had to reverse
the retreat at home. He worked successfully with Congress to enact the
Trade Act of 2002. This Act included Trade Promotion Authority (TPA),
which re-established the authority necessary to credibly negotiate
comprehensive trade agreements by ensuring that they will be approved
or rejected, but not amended.
The Trade Act of 2002, however, included more than just TPA. As the
legislation moved through Congress, pro-trade Republicans and Democrats
worked closely with the Administration to incorporate trade-related
environmental and labor issues, while simultaneously addressing
concerns about sovereignty and protectionism. The Act nearly tripled
funding for the Trade Adjustment Assistance program--from $424 million
in 2001 to $1.3 billion in 2003--to provide income support, health
care, and training to Americans who need to acquire new skills or
require temporary assistance due to job transitions in the
international economy. The Trade Act also included a large, immediate
down payment on open trade for the world's poorest nations, cutting
tariffs to zero for an estimated $20 billion in American imports from
the developing world by renewing and expanding the Andean Trade
Preference Act, the African Growth and Opportunity Act, the Generalized
System of Preferences, and the Caribbean Basin Trade Preferences Act.
The Bush Administration is committed to active consultations with
Congress to ensure that America's negotiating objectives draw upon the
views of its elected representatives, and that they have regular
opportunities to provide advice throughout the negotiating process. The
Trade Act of 2002 established a new Congressional Oversight Group with
bipartisan representation from all the committees with jurisdiction
over legislation affecting trade. The Administration will continue to
consult regularly with Congress on U.S. trade policy, both through the
Oversight Group and through the committees of jurisdiction.
Even as it has rebuilt support for trade at home, this
Administration has been working abroad to open markets on all levels:
globally, regionally, and bilaterally. By moving forward on multiple
fronts, the United States is exerting its leverage for openness,
creating a new competition in liberalization, targeting the needs of
poorer developing countries, and creating a fresh political dynamic by
putting free trade on a global offensive.
Coming to office in the wake of the WTO's 1999 Seattle debacle, the
Bush Administration recognized the importance of launching new global
trade negotiations to open markets and spur growth and development. Our
leadership--in conjunction with the European Union, many developing
countries, and others--was instrumental in launching the Doha
Development Agenda (DDA), against long odds. The Administration also
played a key role in enlarging and strengthening the WTO by adding
China and Taiwan to its ranks. By adding these important economies to
the WTO, we are helping to ensure that China and Taiwan commit to a
rules-based, open system of trade that will expand opportunities for
Americans in these markets. Since 1995, the United States has helped
add 17 new members to the WTO--and efforts are in train to add Russia
and other nations in the future.
The United States is committed to the goal of completing the DDA by
the agreed deadline of 2005. To maximize the likelihood of success, the
United States is also invigorating a drive for regional and bilateral
FTAs. These agreements promote and reinforce the powerful links among
commerce, economic reform, development, and investment, thereby
strengthening security and the momentum for free and open societies.
Under NAFTA, U.S. trade with Mexico almost tripled and trade with
Canada nearly doubled; as important, all three members have become more
competitive internationally. NAFTA proved definitively that both
developed and developing countries gain from free-trade partnerships.
It enabled Mexico to bounce back quickly from its 1994 financial
crisis, launched the country on the path of becoming a global economic
competitor, and supported its transformation to a more open democratic
society.
In the months following the Congressional grant of TPA, the Bush
Administration completed FTA negotiations with Chile and Singapore,
began new FTA negotiations with the five nations of the Central
American Common Market, and announced FTA negotiations with the five
countries of the Southern African Customs Union, Morocco, and
Australia. We pushed forward the negotiations among 34 democracies for
a Free Trade Area of the Americas and will co-chair this effort with
Brazil until it is successfully concluded. The United States is once
again seizing the global initiative on trade.
Pressing Forward with Global Trade Negotiations
Since the launching of new global trade negotiations at Doha in
2001, the United States has offered a series of bold proposals to
liberalize trade in the three key sectors of the international economy:
industrial and consumer goods, agriculture, and services. The U.S.
leadership demonstrated by these proposals has been instrumental in
maintaining forward momentum in the negotiations and in keeping WTO
members focused on the core issues of market access.
Consumer and industrial goods. The U.S. proposal for manufactured
goods calls for the elimination of all tariffs on these products by
2015. This was the trade sector first targeted by the founders of the
General Agreement on Tariffs and Trade in 1947. After more than 50
years' work, about half the world's trade in goods is now free from
tariffs. It is time to finish the job.
The U.S. proposal would level the playing field first by
harmonizing disparate tariffs at lower levels and then eliminating them
altogether. We envision this happening in a two-stage process.
The first phase would take place between 2005 and 2010. During that
time, WTO members would eliminate all non-agricultural tariffs
currently at or under 5 percent. This step would completely eliminate
tariffs on more than three-quarters of imports into the United States,
the European Union, and Japan in just five years. It would
significantly boost trade among the major industrialized nations and
spur developing countries' exports to developed nations.
During the 2005-2010 period, countries could also eliminate non-
agricultural tariffs in highly traded goods sectors--such as
environmental technologies, aircraft, and construction equipment--
through a series of zero-for-zero initiatives with trade partners that
are ready to commit to greater levels of openness. In addition, for all
other duties the United States is proposing a ``Tariff Equalizer''
formula, which would bring all remaining non-agricultural tariffs down
to less than 8 percent. In order to achieve greater equity, the highest
tariffs would fall farther than the lower tariffs.
The second phase of the U.S. proposal would be carried out between
2010 and 2015. During those five years, all WTO members would make
equal annual cuts, until their tariffs on goods are eliminated. With
zero tariffs, the manufacturing sectors of developing countries could
compete fairly. The proposal would eliminate the barriers among
developing countries, which pay 70 percent of their tariffs on
manufactured goods to one another. By eliminating barriers to the farm
and manufactured-goods trade, the income of the developing world could
be boosted by over $500 billion.
The U.S. proposal for a zero-tariff world is a major tax cut that
would directly save America's working families more than $18 billion
per year on the import taxes they currently pay in the form of higher
prices. The dynamic, pro-business, pro-consumer, and pro-competitive
effects of slashing tariffs would mean that America's national income
would increase by $95 billion under the U.S. goods proposal. Together
with the tax cut from lower tariffs, that would mean an economic gain
of about $1,600 per year for the average family of four.
Agriculture. America's farmers are a key to our economic vitality.
Dollar for dollar we export more wheat than coal, more fruits and
vegetables than household appliances, more meat than steel, and more
corn than cosmetics.
The U.S. goal in the farm negotiations is to harmonize tariffs and
trade-distorting subsidies while slashing them to much lower levels, on
a path towards elimination. The last global trade negotiation--the
Uruguay Round--accepted high and asymmetrical levels of subsidies and
tariffs just to get them under some control. For example, the Round set
a cap on the European Union's production-distorting subsidies that was
three times the size of America's, even though agriculture represents
about the same proportion of our economies.
The 2002 U.S. Farm Bill--which authorized up to $123 billion in all
types of food-stamp, conservation, and farm spending over six years,
amounts within WTO limits--made clear that the United States will not
cut agricultural support unilaterally. But America's farmers and many
agricultural leaders in Congress back our WTO proposal that all nations
should cut tariffs and harmful subsidies together. The United States
wants to eliminate the most egregious and distorting agricultural
payments-export subsidies. We propose cutting global subsidies that
distort domestic farm production by some $100 billion, slashing our own
limit almost in half. We would cut the global average farm tariff from
60 percent to 15 percent, and the American average from 12 percent to 5
percent. The United States also advocates agreeing on a date for the
total elimination of agricultural tariffs and distorting subsidies.
Services. The United States is by far the world's leading exporter
of services. We have submitted requests to our WTO partners that would
broaden opportunities for growth and development in this critical
sector, which is just taking off in the international economy. Services
represent about two-thirds of the U.S. economy and 80 percent of our
employment, yet they account for only about 20 percent of world trade.
Services liberalization would open up new avenues for trade, benefiting
both the United States and our trading partners. The World Bank has
pointed out that eliminating services barriers in developing countries
alone could yield them a $900 billion gain.
As WTO negotiations have progressed, we are making significant
progress in a number of other areas covered by the Doha declaration,
including:
Capacity Building. The United States is committed to expanding the
circle of nations that benefit from global trade. We listen to the
concerns of developing countries and assist in their efforts to expand
free trade. This past year, we devoted $638 million--more than any
other single country--to help developing economies build the capacity
to take part in trade negotiations, implement the rules, and seize
opportunities. We have also acted in partnership with the Inter-
American Development Bank and other multilateral institutions to
provide new capacity-enhancing resources and expertise.
In addition, the Bush Administration is emphasizing the important
contributions that small businesses make to the U.S. and global
economies. Small businesses are a powerful source of jobs and
innovation at home and an engine of economic development abroad. By
helping to build bridges between American small businesses and
potential new trading partners, these enterprises can become an
integral part of our larger trade capacity building strategy. Working
with the U.S. Small Business Administration, we have established an
Office of Small Business Affairs at the Office of the United States
Trade Representative (USTR) that is charged with insuring that American
small business concerns are incorporated into our trade policy
pursuits.
Intellectual Property. We agreed at Doha that the available
flexibility in the global intellectual-property rules could be used to
allow countries to license medicines compulsorily to deal with HIV/
AIDS, tuberculosis, malaria and other epidemics. We are also committed
to helping those poor regions and states obtain medicines they cannot
manufacture locally. To keep faith with our Doha obligations, the
Administration has issued a pledge: while we pursue a global
understanding on how these life-saving medicines can best be provided
to countries that cannot produce the medicines themselves, the United
States will not challenge in dispute settlement any WTO member that
uses the compulsory licensing provisions of the TRIPS Agreement to
export such drugs to a poor country in need. The Administration
believes we must strike the necessary balance between protecting life-
saving research and patents and helping those truly needy that face
infectious epidemics.
Trade Rules. The international rules that govern unfair trade
practices should be improved, not weakened. Indeed, the DDA explicitly
states that any negotiation of trade remedy laws will preserve the
basic concepts, principles, and effectiveness of existing agreements,
as well as their instruments and objectives. This clear mandate will
enable the United States to press for trade remedies to be applied in a
manner consistent with international obligations. Inappropriate and
non-transparent application of these laws can damage the legitimate
commercial interests of U.S. exporters.
The Environment. Work has progressed well over the past year on the
DDA's trade and environment agenda. The United States has urged new
disciplines on harmful fisheries subsidies, prompting discussions in
the Rules Negotiating Group on the inadequacy of existing rules in
preventing trade distortion and resource misallocation in this
important sector. The Bush Administration has stood firm against
efforts to use so-called non-trade concerns, including using
unjustified trade-distorting measures under the guise of environmental
policy, to undermine the agenda for agricultural liberalization. At the
same time, we helped move discussions forward on increasing market
access for environmental goods and services in several WTO fora. WTO
members also began to identify avenues for increasing mutual
supportiveness of multilateral environmental agreements (MEAs) and the
WTO, particularly with respect to cooperation and communication between
these institutions.
Electronic Commerce. The United States is actively engaged in the
work program on electronic commerce, now being conducted under the
auspices of the WTO's General Council. In 2002, two meetings were
dedicated to e-commerce and focused on classification and fiscal
implications of electronically transmitted products. As the work
progresses, the United States will push for a set of objectives to form
the basis for a positive statement from the WTO about the importance of
free-trade principles and rules to the development of global e-
commerce.
Transparency in Government Procurement and Efficient Customs
Procedures. The Administration also continues to push for the
reciprocal removal of discriminatory government procurement practices
in a wide range of multilateral, regional and bilateral fora, including
the WTO. The Administration is urging the conclusion of an Agreement on
Transparency in Government Procurement that would apply to all members
of the WTO. The United States is also taking part in negotiations on
new WTO rules to facilitate trade by making procedures at international
borders more transparent and efficient.
Labor Issues. The United States has continued to press for
increased cooperation between the WTO and the International Labor
Organization (ILO). We charted important progress in 2002: the creation
of the ILO's World Commission on the Social Dimensions of
Globalization, which is undertaking a thorough analysis of the
implications of trade and investment liberalization on employment,
wages, and workers' rights. We look forward to the Commission's 2003
report.
The Administration's commitment to mutually supportive trade and
labor policies has also benefited greatly from a partnership between
USTR and the Department of Labor's International Labor Affairs Bureau
(ILAB). ILAB has directly supported the work of the ILO, focusing
particularly on promoting the 1998 ILO Declaration on Fundamental
Principles and Rights at Work and the International Program for the
Elimination of Child Labor (ILO/IPEC). ILAB is working with the ILO and
other international organizations to assist countries in implementing
core labor standards and is also providing technical cooperation to
strengthen the capacities of developing countries' Labor Ministries to
implement social safety net programs and combat the spread of HIV/AIDS.
Realizing that child labor can never be fully eliminated until poverty
is vanquished, the Administration and ILO/IPEC have focused on the
eradication of the worst forms of child labor, including bonded or
forced labor, child prostitution, and work under hazardous conditions.
We have also bolstered the U.S. trade and labor agenda through ILAB
analyses of labor laws and the worker rights situation of our trading
partners.
Commitment to Progress within the WTO. To help maintain the
momentum after the Doha agreement, WTO members agreed that Mexico would
chair the mid-term review of progress at the September 2003 Ministerial
in Cancun. This meeting will provide WTO members with the opportunity
to chart a course for the final phase of negotiations. We welcome the
leadership role that Mexico is playing by hosting this important
meeting.
As negotiations progress, the United States will be placing special
emphasis on a continued effort to ensure the involvement of the poorest
and least developed nations, in order to assist them in securing the
benefits of trade and to help keep all WTO members effectively invested
in the process. In 2002, we reaffirmed the U.S. commitment to the
principle of special differential treatment for least developed
countries in order to better integrate them into the global trading
system, and devoted unprecedented resources to help such countries
build the capacity to take part in trade negotiations, implement the
rules, and seize opportunities. We have acted in partnership with the
Inter-American Development Bank to integrate trade and finance, and we
are urging the World Bank and the IMF to back their rhetoric on trade
with resources.
Monitoring China's and Taiwan's Compliance with WTO Obligations
In 2001, the United States played a key role in breaking through
logjams to complete the historic accessions of China (after a 15-year
effort) and Taiwan (after a 9-year effort) to the WTO. This achievement
built on the work of four U.S. Administrations and several Congresses.
To achieve a successful result, we solved many multilateral issues,
including those relating to agriculture, trading rights, distribution,
and insurance, while navigating the political sensitivities to enable
China and Taiwan to join the WTO within 24 hours of one another.
Throughout 2002, the Bush Administration worked closely with other
countries, as well as the private sector, to monitor China's and
Taiwan's compliance with the terms of their WTO membership. On December
11, 2002--the first anniversary of China's accession to the WTO-USTR
published a report, pursuant to section 421 of the U.S.-China Relations
Act of 2000, updating Congress on compliance by China with its WTO
commitments.
Overall, during the first year of its WTO membership, China made
significant progress in implementing its WTO commitments. It gained
ground by making numerous required systemic changes and by implementing
specific commitments, such as tariff reductions, the removal of
numerous non-tariff barriers, and the issuance of regulations to
increase market access for foreign firms in a variety of services
sectors. Nevertheless, we have serious concerns about areas where
implementation has not yet occurred or is inadequate--particularly
agriculture, intellectual property rights enforcement, and certain
services sectors.
An extensive interagency team of experts closely monitors China's
WTO compliance efforts. This effort is overseen by the Trade Policy
Staff Committee (TPSC) Subcommittee on China WTO Compliance, which is
composed of experts from USTR, the Departments of Commerce, State,
Agriculture, Treasury, and the U.S. Patent and Trademark Office. It
works closely with State Department economic officers, Foreign
Commercial Service officers and Market Access and Compliance officers
from the Commerce Department, Foreign Agricultural Service officers and
Customs attaches at the U.S. Embassy and Consulates General in China,
who are active in gathering and analyzing information, maintaining
regular contacts with U.S. industries operating in China and
maintaining regular contacts with Chinese government officials at key
ministries and agencies.
When confronted with compliance problems in 2002, the
Administration used all available means to obtain China's full
cooperation, including intervention at the highest levels of
government. Throughout the year, USTR worked closely with affected U.S.
industries on compliance concerns, and utilized bilateral channels
through multiple agencies to press them. The Administration also
broadened enforcement efforts by working on China issues with like-
minded WTO members through the Transitional Review Mechanism and on an
ad hoc basis. Through these efforts, the Administration made progress
on a number of fronts. For example, we addressed and continue to work
on a series of problems arising from China's new biotechnology
regulations that threatened U.S. soybean exports--$1 billion worth in
2001--and other commodities. In the services area, the Administration
successfully pressed China to modify new measures that threatened to
restrict access by American express delivery firms, and we made
progress in dealing with the concerns of U.S. insurance companies
regarding China's use of excessively high capitalization requirements
and other prudential standards. USTR also established a regular
dialogue on compliance with China's lead trade agency, MOFTEC, in
September 2002. This dialogue is designed to bring all relevant Chinese
ministries and agencies together in one forum to facilitate the
resolution of outstanding contentious issues.
Taiwan's accession to the WTO has increased access for a wide range
of U.S. goods and services, including agricultural exports, during
2002. However, we continue to track potential compliance problems with
Taiwan's WTO commitments, while we work to address existing problems
regarding market access for agriculture goods, intellectual property
rights protection, and Taiwan's telecommunications services market.
Throughout the year, the Administration worked closely with U.S.
industries and other agencies on these compliance and other market
access concerns. We used all available bilateral channels to press the
Taiwan authorities to address shortcomings in these areas.
The Administration will continue this crucial work in 2003, both to
address unresolved concerns and to tackle any new problems that arise.
The backing we have received from the Congress--in terms of resources
and attention--has been and will remain fundamental to the achievement
of our mission. We will work closely with U.S. businesses, farmers, and
labor groups--and with China and Taiwan--to address problems and take
action when necessary.
Advancing Russia's Accession to the WTO
The United States has begun a new era in its relations with Russia.
Whether in the realms of security, foreign policy, or economics,
President Bush has emphasized the need to move beyond Cold War
strictures and stereotypes.
To take another step towards closing out the history books of the
Cold War, the President has urged the Congress to finally end the
application of the Jackson-Vanik amendment to Russia. It has been over
a decade since the unification of Germany in 1990 and the dissolution
of the Soviet Union in 1991. Furthermore, Russia has been in full
compliance with Jackson-Vanik's emigration provisions since 1994. As we
move ahead, the Administration will continue consulting closely with
various groups on the protection of freedom of religion and other human
rights in conjunction with this action.
In 2003, we will continue our intensified effort to negotiate the
terms of Russia's accession to the WTO on commercially meaningful
terms. President Putin has made WTO membership and integration into the
global trading system a priority. We will support Russia as it promotes
reforms, further establishes the rule of law in the economy, and
adheres to WTO commitments that support a more open economy. This
effort needs to include action by the Duma to establish a fully
effective legal infrastructure for a market economy.
To achieve a successful WTO accession, Russia must abide by
multilateral trade rules, and the United States and 144 other member
nations will insist on that course as talks proceed. Working closely
with the Congress, the Administration will stress the need for Russia
to offer fair market access in important U.S. export sectors--in
agriculture and financial services, for example--and to adhere to
international standards in areas such as food safety. Unfortunately,
Russia's actions on poultry and other meats have sent a negative signal
about the seriousness of its commitment to join the WTO. If Russia
continues down this path, it risks losing the benefits of WTO
membership--and even current levels of market access for its exports.
LAdvancing Hemispheric Trade Liberalization: The Free Trade Area of the
Americas
On the regional front, the United States has been pressing ahead to
create the largest free trade zone in history, covering 800 million
people and stretching from Alaska to Tierra del Fuego: the Free Trade
Area of the Americas (FTAA). This endeavor will be trying and
difficult, yet when completed it will be historic--a fulfillment of a
U.S. vision dating to the 19th Century.
In November 2002 in Quito, Ecuador, we energized the FTAA
negotiations by agreeing on a firm schedule and deadlines for specific
offers to cut tariffs and reduce barriers. Ministers recommitted
themselves to the 2005 deadline for completion of negotiations,
delivered new instructions to negotiating groups, released an updated
draft negotiating text, agreed to tariff reductions from applied rates
rather than WTO bound rates, and launched a Hemispheric Cooperation
Program to assist in building trade capacity for our poorer partners.
Upon the close of the Quito Ministerial, the United States and Brazil
assumed co-chairmanship of the FTAA process, providing an opportunity
for cooperation with a key partner and economic power as the pace of
negotiations accelerates. This month, the United States advanced bold
market access proposals for manufactured and consumer goods,
agriculture, services, government procurement, and investment. We will
also host the next Ministerial meeting in Miami in November 2003.
President Bush, like his counterparts throughout the Americas,
knows that the FTAA will be crucial in our quest to build a prosperous
and secure hemisphere. Free trade offers the first and best hope of
creating the economic growth necessary to alleviate endemic poverty and
raise living standards throughout the Americas. The scope of our
endeavor is grand: The FTAA will be the largest free market in the
world, with a combined gross domestic product of over $13 trillion.
Hemispheric openness is important in its own right, but it will
also have a multiplier effect on growth by encouraging fuller
participation by those countries in the Americas that have been
bystanders in the global trading system. FTAA negotiators are
developing provisions that will provide trade capacity building and
technical assistance to smaller economies in the Americas, especially
in the Caribbean. Our FTAA offers also take into account the special
circumstances of these small island nations by building on existing
patterns of preferential openness.
Fundamental freedoms and human rights are core principles of the
Summit of the Americas process, as reiterated in Quito this year. The
FTAA will strengthen democracy throughout the Hemisphere--a proposition
that is not just theory, but fact. Time and time again, the world has
witnessed the evolution from open markets to open political systems,
from South Korea to Taiwan to Mexico. Free trade will likewise bolster
young democracies in the Americas and the Caribbean.
During the Quito summit, the governments of the Americas also
affirmed their commitment to the observance of internationally
recognized labor standards. This echoed the agreement by the
hemisphere's heads of state at the Third Summit of the Americas to
``promote compliance with internationally recognized core labor
standards. The Inter-American Conference of Ministers of Labor (IACML)
is responsible for implementing the labor-related mandates of the Third
Summit of the Americas and represents a parallel process for addressing
the labor implications of economic integration. The Department of Labor
represents the United States in the IACML and co-chairs the working
group charged with examining the labor dimensions of the Summit of the
Americas process.
As we continue building support for the FTAA, it will be important
to point to the successful record of America's first regional trade
agreement, the decade-old NAFTA. Throughout the months ahead, we will
continue to publicize NAFTA's substantial benefits and consider
additional ways to deepen integration throughout the Americas. NAFTA
has been a case study in globalization along a 2,000-mile border; it
demonstrates how free trade between developed and developing countries
can boost prosperity, economic stability, productive integration, and
the development of civil society.
Pressing Other Regional and Bilateral Agreements
Whether the cause is democracy, expanding commercial opportunity,
security, economic integration or free trade, advocates of reform often
need to move towards a broad goal step by step--working with willing
partners, building coalitions, and gradually expanding the circle of
cooperation. Just as modern business markets rely on the integration of
networks, we need a web of mutually reinforcing regional and bilateral
trade agreements to meet diverse commercial, economic, developmental
and political challenges.
In 2002, the Bush Administration completed free trade negotiations
with Chile and Singapore. Both of these agreements offer increased
opportunities for U.S. businesses, farmers, and workers and send a
message to the world that the United States will embrace closer ties
with nations that are committed to open markets--whether in the Western
Hemisphere, across the Pacific, or beyond the Atlantic. As we moved
these FTA negotiations toward completion, we worked closely with the
Congress--and the Senate Finance and House Ways and Means Committees in
particular--to determine how best to address the concerns and interests
of the Congress and the American people. For example, the Chile and
Singapore agreements successfully incorporate new approaches to
governing e-commerce, labor, investment, and the environment that were
articulated in the Trade Act of 2002.
In 2002 we also notified Congress and then launched FTA
negotiations with a number of new countries:
LWith Morocco, a leading moderate and reformist Arab
nation that offers commercial opportunity, which can serve as a model
and hub for a region that can gain enormously from economic reforms,
and has been a staunch partner in the global effort to defeat
terrorism.
LWith the five nations of the Central American Common
Market--Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua--to
encourage economic development and democracy in a region that has shown
its potential by already representing $20 billion trade with the United
States and which has made great progress over the decade.
LWith the five members of the Southern African Customs
Union (Botswana, Lesotho, Namibia, South Africa, and Swaziland), which
will be America's first free trade agreement with Sub-Saharan African
nations. The 48 countries of sub-Saharan Africa represent a largely
untapped market for American business. As these countries progress
economically, they will require substantial new infrastructure in
sectors as diverse as energy, agriculture, and telecommunications--
areas in which U.S. firms lead the world. Thanks to the President's
leadership on Africa, there is today a unique convergence of
opportunities for us to promote African development and expand
commercial opportunities for American businesses.
LAnd with Australia, our 14th largest trading partner and
a growing economy, a key U.S. ally, and an important center in the
network of American companies doing business in the Asia-Pacific
region.
These regional and bilateral FTAs will bring substantial economic
gains to American families, workers, consumers, farmers, and
businesses. They also promote the broader U.S. trade agenda by serving
as models, breaking new negotiating ground, and setting high standards.
Our agreements with Chile and Singapore, for example, have helped
advance U.S. interests in areas such as e-commerce, intellectual
property, labor and environmental standards, regulatory transparency,
and the burgeoning services trade.
As we work intensively on these FTA negotiations, the United States
is learning about the perspectives of our trading partners. Our FTA
partners are the vanguard of a new global coalition for open markets.
These partners are also helping us to expand support for free trade at
home. Each set of talks enables legislators and the public to see the
practical benefits of more open trade, often with societies of special
interest for reasons of history, geography, security, or other ties.
The Bush Administration's FTA initiatives have helped shift the debate
in America to the agenda of opening markets, and away from the
protectionists' defensive agenda of closing them.
Our regional and bilateral free-trade agenda conveys the message
that America is open to trade liberalization with all regions--Latin
America, sub-Saharan Africa, the Asia-Pacific, the Arab world--and with
both developing and developed economies. In October 2002, President
Bush laid the groundwork for future market-opening initiatives by
announcing the Enterprise for ASEAN Initiative. The EAI offers the
prospect of bilateral FTAs between the United States and those members
of the Association of Southeast Asian Nations that are ready to meet
the high standards of a U.S. FTA and also pledges to assist countries
in joining the WTO. This past year we also signed Trade and Investment
Framework Agreements with Sri Lanka, Brunei, the West African Monetary
Union, Tunisia, Bahrain, and Thailand. In addition, the United States
signed a Comprehensive Trade Package with Hungary in 2002 that lowered
barriers to $180 million worth of U.S. exports per year.
We look forward to discussing these initiatives with the
appropriate committees in Congress, and we will seek continued input on
these and other possible FTAs.
Over the coming year, we intend to press the goals articulated in
the Trade Act of 2002. The President's regional and bilateral free
trade agenda--combined with a clear commitment to reducing global
barriers to trade through the WTO--will leverage the American economy's
size and attractiveness to stimulate competition for openness, moving
the world closer, step-by-step, towards the goal of comprehensive free
trade.
Building New Bridges: Preferential Trade Programs and Capacity Building
A free and open trading system is critical for the developing
world. As President Bush has pointed out, ``Open trade fuels the
engines of economic growth that creates new jobs and new income. It
applies the power of markets to the needs of the poor. It spurs the
process of economic and legal reform. It helps dismantle protectionist
bureaucracies that stifle incentive and invite corruption. And open
trade reinforces the habits of liberty that sustain democracy over the
long term.''
Over the past year, the United States has matched its rhetoric on
helping developing countries through trade with action. First, the
Trade Act of 2002 renewed the Generalized System of Preferences (GSP),
which enables some 3,500 products from 140 developing economies to
enter the United States free of duties. We have invited countries to
submit petitions for products that should be added to the GSP list.
Second, the new Trade Act extended and augmented the Andean Trade
Preference Act (ATPA)--first implemented in 1991 by President George
H.W. Bush--by increasing the list of duty-free products to some 6,300.
ATPA is a vital program for the four Andean democracies on the front
lines of the fight against narcotics production and trafficking.
Third, the Act expanded the Caribbean Basin Trade Partnership Act
(CBTPA) by liberalizing apparel provisions, providing a vital economic
stepping stone for some of the poorest countries in our hemisphere.
Finally, we continued the important implementation of the far-
sighted African Growth and Opportunity Act (AGOA), which Congress
enacted in May 2000 and expanded with the ``AGOA II'' provisions of the
Trade Act of 2002. AGOA opens the door for African nations to enter the
trading system effectively, increases opportunities for U.S. exports
and businesses, supports government reforms and transparency, and
widens the recognition of the benefits of trade in the United States.
It extends duty-free and quota-free access to the U.S. market for
nearly all goods produced in the 38 eligible beneficiary nations of
sub-Saharan Africa. Moreover, by providing incentives for African
countries to open their markets and improve the environment for trade
and investment, AGOA has helped to boost American exports to the
region. U.S. merchandise exports to sub-Saharan Africa are up by 25
percent since AGOA's enactment, to nearly $7 billion last year, led by
aircraft, oil and gas field equipment, and motor vehicles and spare
parts.
The second annual AGOA forum in January 2003 provided an
opportunity to evaluate AGOA's achievements and address implementation
challenges. Gathering in Mauritius, members of Chairman Thomas'
delegation, Administration officials, and business representatives
learned more about AGOA success stories, such as new jobs and
investments in Cape Verde, Senegal, Rwanda, and Uganda. The real,
positive experiences of American businesses and their African hosts
provide models to emulate and help us better address the challenges
inherent in promoting growth and commercial opportunities in Africa--
particularly the challenge of maximizing and realizing tangible
benefits across all the countries in the region.
Moving forward, the Bush Administration is committed to expanding
America's economic links with Africa. Most important, we are asking
Congress to extend AGOA beyond its 2008 expiration date. We have opened
Regional Hubs for Global Competitiveness in Botswana, Kenya, and Ghana
in 2002--each staffed with technical experts who will provide support
on WTO issues, AGOA implementation, private sector development, and
other trade topics. We are adding a specialist to each Hub from the
Department of Agriculture to help African farm exports meet U.S. health
and safety standards. Finally, we have designated a new Deputy
Assistant Trade Representative who focuses exclusively on trade
capacity-building activities.
Through AGOA and our other preferential trade programs, the Bush
Administration will lend increasing support to developing countries
that desire to take part in trade negotiations, implement complex
agreements, and use trade as an engine of economic growth. We will
build on current partnerships among agencies of the U.S. Government--
such as AID, OPIC, and the Department of Agriculture--and with
multilateral and regional institutions. Continued advice,
encouragement, and support from Congress are vital to this endeavor.
Monitoring and Enforcing Trade Agreements
For the United States to maintain an effective trade policy and an
open international trading system, our citizens must have confidence
that trade is fair and works for the good of our people. That means
ensuring that other countries live up to their obligations under the
trade agreements they sign. Over the past year, we have successfully
resolved disputes and aggressively monitored and enforced U.S. rights
under international trade agreements and U.S. court rulings in ways
that benefit American producers, exporters, and consumers. Sectors that
have been affected include entertainment, high-technology, automobiles,
and agriculture.
In 2003, we will seek to resolve favorably other trade disputes in
a way that best serves America's interests. Among the most prominent
cases are: telecommunications and sweeteners with Mexico; softwood
lumber with Canada; beef with the European Union; and apples with
Japan.
The United States should also live up to its obligations under WTO
rules. In particular, the Administration needs the assistance of the
Congress to come into compliance in cases dealing with the FSC/ETI law,
the 1916 Act, the ``Irish Music'' copyright violation, the ``Byrd
Amendment,'' section 211 of the Omnibus Appropriations Act of 1998, and
hot-rolled steel. We recognize that each matter involves sensitive
interests. Yet America should keep its word, just as we insist others
must do. As the largest trading nation, the WTO rules serve U.S.
interests. We will work closely with the Congress to determine
approaches to resolve these issues.
We intend to continue addressing unjustified science and health
measures that impede farm exports, and undermine safe and productive
innovation in agriculture. We will be vigilant in defending the right
to market safe agricultural biotechnology products in Europe and
elsewhere--the continuation of a long tradition in agricultural
progress--which holds out great potential for mitigating the
environmental impact of food production, nourishing the world's
expanding population, improving health and nutrition, and bolstering
farmers' productivity and prosperity around the world, most especially
in the developing world.
The current EU moratorium on biotechnology is in violation of both
WTO rules and the EU's own laws. The Administration, leaders of
Congress, and our agriculture community have made clear that we believe
the EU should lift its moratorium on biotech products, and we are
working with others to determine the most expeditious way to get it to
do so.
Preserving Safeguards and Trade Laws Against Unfair Practices
One of the principal negotiating objectives of the Trade Act of
2002 is to ``preserve the ability of the United States to enforce
rigorously its trade laws, including the antidumping, countervailing
duty, and safeguard laws, and avoid agreements which lessen the
effectiveness of domestic and international disciplines on unfair
trade, especially dumping and subsidies, in order to ensure that United
States workers, agricultural producers, and firms can compete fully on
fair terms and enjoy the benefits of reciprocal trade concessions.''
Maintaining public support for open trade means providing
appropriate assistance to those industries that find it difficult to
adjust promptly to the rapid changes unleashed by technology, trade,
and other forces. We will continue our commitment to the effective use
of statutory safeguards, consistent with WTO rules, to assist American
producers. Used properly, these safeguards--such as Section 201 of the
Trade Act of 1974--can give producers vital breathing space while they
restructure and regain competitiveness.
For example, on March 5, 2002, in response to a unanimous finding
by the U.S. International Trade Commission (ITC) that imports were a
substantial cause of serious injury to the U.S. steel industry, the
President announced temporary tariffs on imports of certain steel
products. The ITC safeguard investigation was part of a three-pronged
initiative announced on June 5, 2001, that also included negotiations
at the Organization for Economic Cooperation and Development (OECD) to
encourage the reduction of excess global capacity and to eliminate the
market-distorting subsidies that led to current overcapacity.
The President's approach has given the U.S. steel industry and its
workers the chance to adjust to import competition while safeguarding
the needs of steel consumers. The Section 201 remedy preserved access
to specialty steels by excluding over 700 products from the increased
tariffs. In addition, the tariffs did not apply to imports from
countries that have committed to the highest level of reciprocal market
access--our NAFTA and other FTA partners. Most developing countries
have also continued to enjoy open access to the U.S. steel market.
Since the temporary tariffs took effect, domestic steel companies
have taken serious steps to restructure and increase productivity. As
of January 2003, these steps included: International Steel Group's
(ISG) purchase of the steelmaking assets of LTV Corporation and Acme
Steel; ISG's offer to purchase the assets of Bethlehem Steel; two
competing offers to purchase National Steel Corp.; the negotiation of a
groundbreaking labor contract between the United Steelworkers of
America and ISG; and numerous mergers and acquisitions in the minimill
sector.
We made important progress in the OECD steel negotiations in 2002.
Participants established a peer review process to examine global steel
capacity closures and decided to immediately develop the elements of an
agreement for cutting trade-distorting subsidies in steel.
Given America's relative openness, strong, effective laws against
unfair practices are important for maintaining domestic support for
trade. This Administration has used and continues to back the use of
these laws. At the same time, however, we recognize that the recent
proliferation overseas of anti-dumping laws in particular has resulted
in abuses against U.S. exporters by countries that do not apply their
laws in a fair and transparent manner. Our objective in the WTO
negotiations is to curb abuses while preserving the basic concepts,
principles, and effectiveness of unfair trade laws. Moreover, the
United States has insisted that any discussion of trade remedy laws
must also address the underlying subsidy and dumping practices that
give rise to the need for trade remedies in the first place.
We continue to advance an affirmative U.S. agenda, targeting the
increasing misuse of these laws, particularly by developing countries,
to block U.S. exports. From 1995 through the first half of 2002, there
were 105 investigations by 18 countries of U.S. exporters. The most
frequently targeted U.S. industries are chemical, steel, and other
metal producers, although U.S. farm products are increasingly being
blocked. The WTO negotiations will help us address significant
shortcomings in foreign anti-dumping and countervailing duty procedures
by more clearly defining the specific circumstances that give rise to
unfair trade, improving transparency in how anti-dumping laws are
applied, and strengthening due process.
Aligning Trade with America's Values
America's trade agenda needs to be aligned securely with the values
of our society. Trade promotes freedom by supporting the development of
the private sector, encouraging the rule of law, spurring economic
liberty, and increasing freedom of choice. Trade also serves our
security interests in the campaign against terrorism by helping to
tackle the global challenges of poverty and privation. Poverty does not
cause terrorism, but there is little doubt that poor, fragmented
societies can become havens in which terrorists can thrive.
Developing countries have much to gain by joining the global
trading system. From Seoul to Santiago, when trade grows, income
follows. The World Bank conducted a study of developing countries that
opened themselves to global competition in the 1990s and of those that
did not. The income per person for globalizing developing countries
grew by five percent a year, while incomes in non-globalizing poor
countries grew just over one percent. Developing countries that
embraced trade and openness sharply reduced absolute poverty rates over
the last 20 years, and the income levels of the poorest households have
kept up with the growth.
By knitting America to peoples beyond our shores, new U.S. trade
agreements can also encourage reforms that will help establish the
basic building blocks for long-term development in open societies,
including:
LThe rule of law: Trade agreements encourage the
development of enforceable contracts and fair, transparent governance--
helping to expose corruption.
LPrivate property rights: These are a necessary ingredient
for economic development because they encourage saving, investment,
exchange, and entrepreneurship. Trade agreements bolster property
rights by safeguarding the right to establish businesses, guaranteeing
that investments will not be appropriated arbitrarily, supporting
privatization, and fostering knowledge industries.
LCompetition: Free trade fosters competition, the hallmark
of successful economies. Developing countries suffer at the hands of
elites who cling to their positions by depriving ordinary citizens of
less-expensive, better-quality goods and services that can be had
through competition. Free trade agreements attack manipulated licensing
systems, state monopolies and oligarchies that keep affordable products
off store shelves.
LSectoral reform: Trade agreements drive market reforms in
sectors ranging from e-commerce to farming. For example, in our FTA
discussions with Morocco, we are examining how we can work with
Morocco's World Bank program to restructure its agricultural sector.
The United States has also advanced an aggressive agriculture reform
proposal in the WTO negotiations that would eliminate $100 billion
globally in trade-distorting farm subsidies and lead to better
agricultural policies in developed and developing countries alike.
LRegional integration: The lesson of the European Union
and NAFTA is that location matters, in economics as in politics.
Therefore, as FTA negotiations with democracies in Central America and
Southern Africa progress, we will explore how best to support
beneficial regional integration and promote growth clusters.
From its first days, the Bush Administration recognized that poor
countries cannot succeed with economic reform and growth if they are
eviscerated by pandemics. Flexibility on the implementation of
intellectual property protection, and lower-priced medicines, must be
part of a larger global response to health pandemics, involving
education, prevention, care, training, and treatment. The United States
is committed to supplying funds for HIV/AIDS, tuberculosis, and malaria
assistance, funding related research, prevention, care, and treatment
programs, much of which helps to address problems in developing
countries.
The United States was the first contributor--and remains the
largest--to the international ``Global Fund to Fight AIDS, TB and
Malaria.'' The seriousness of the Administration's commitment to battle
AIDS was recently underscored by President Bush's dramatic call for a
tripling of U.S. AIDS spending--to $15 billion over the next five
years--to establish an Emergency Plan for AIDS Relief. This
comprehensive program is designed to prevent 7 million new AIDS
infections, treat at least 2 million people with life-extending drugs,
and provide humane care for millions of people suffering from AIDS, and
to meet the needs of children orphaned by AIDS.
Free trade is about freedom. This value is at the heart of our
larger reform and development agenda. Just as U.S. economic policy
after World War II helped establish democracy in Western Europe and
Japan, today's free trade agenda will both open new markets for the
United States and strengthen fragile democracies in Central and South
America, Africa, and Asia.
LPromoting a Cleaner Environment, Better Working Conditions, and
Investment Protection
Free trade promotes free markets, economic growth, expanded
employment opportunities, and higher incomes. As countries grow
wealthier, their citizens demand better working conditions and a
cleaner environment. Economic growth gives governments more resources
and incentives to promote and enforce strong standards in these areas.
The Trade Act of 2002 gave us detailed guidance on the continued
incorporation of labor and environmental issues into U.S. trade
agreements, representing a delicate balance across the spectrum of
concerns. The Administration has been drawing on this guidance--and
would welcome additional insights--as we pursue these topics in our
current trade negotiations. Similarly, we are conducting discussions
with non-governmental organizations and the business community to
ascertain how we can address concerns posed about investment provisions
in trade agreements.
The Chile and Singapore FTAs incorporate Congressional guidance
into a robust environment and labor packages that place obligations
within the text of these agreements and emphasize the importance of
cooperative action. These FTAs encourage higher levels of environmental
and labor protection, and obligate the signatories to effectively
enforce their domestic labor and environmental laws. This ``effective
enforcement provision'' is subject to dispute settlement and backed by
equivalent penalties to press full compliance.
In the case of Singapore--a small developed country with limited
available land--cooperative efforts will focus on combating the illegal
wildlife trade and on building environmental capacity in Singapore's
Southeast Asian neighbors. With Chile, we recognized a need for broader
initiatives, both to address the special needs of a natural resource-
based economy and to build environmental capacity in the Southern Cone.
The U.S.-Chile FTA sets out eight initial cooperative projects and
calls for the negotiation of a separate environmental cooperation
agreement.
On labor, the Trade Act of 2002 directed the Administration ``to
promote respect for worker rights and the rights of children consistent
with the core labor standards of the International Labor
Organization.'' In our FTAs with Chile and Singapore, we reaffirmed our
respective obligations as members of the ILO and committed to uphold
the ILO Declaration on Fundamental Principles and Rights at Work. We
examined carefully the domestic labor laws in Chile and Singapore, and
verified that their laws did, in fact, adequately respect the ILO's
core worker rights. We also achieved a principal negotiating objective
of TPA by including labor provisions that obligate signatories to
effectively enforce domestic labor laws when they may affect trade. In
support of the goal to promote respect for worker rights, the United
States and Chile agreed to move forward on two labor technical
cooperation projects--labor justice reform and labor law compliance. In
2003, the United States will seek to negotiate labor and environment
clauses in our trade agreements with the five Central American
countries, Morocco, Southern Africa, and Australia.
The Chile and Singapore FTAs include an innovative system of
monetary assessments to help settle labor and environmental disputes in
a manner equivalent to how we resolve commercial disputes. In these
agreements, the first course of action in a labor, environmental, or
commercial dispute will be consultation. If this fails, however, all
disputes will be handled through the same settlement procedures. If
these procedures fail to bring an offending party into compliance,
fines are a possibility--the funds from which will be earmarked for
measures to address the underlying labor or environmental problems.
This system creates an incentive to comply to avoid fines, and also
serves to reduce the likelihood of future non-compliance by using funds
to remedy enforcement deficiencies. Only as a last resort--in cases of
non-compliance and a failure to pay a monetary assessment--will FTA
signatories have recourse to withdraw trade benefits. And those actions
must be, as Congress directed, ``appropriate'' to the severity of the
violation.
The Administration has also addressed Congressional concerns about
the intersections among investment, labor, and environmental
protections. The Singapore and Chile FTAs provide greater transparency
and accountability in the disputes investors can bring against host
governments and ensure U.S. investors abroad get the same level of
protection afforded under U.S. domestic law. These agreements
incorporate foreign investment negotiating objectives from the Trade
Act of 2002, including the authorization of amicus curiae submissions
and public access to investor-state arbitration hearings and documents.
In addition, the United States, Singapore, and Chile committed to
explore the development and use of appellate mechanisms in investor-
state dispute settlement and agreed on provisions aimed at eliminating
and deterring frivolous claims. Drawing upon U.S. legal principles and
practice, we clarified the obligations on expropriation and ``fair and
equitable'' treatment.
In the Doha Development Agenda, we are taking similar practical
steps to demonstrate that good environmental, labor, and investment
policies can be economically sound. In addition, we are working to
encourage a healthy ``network'' among multilateral environmental
agreements and the WTO, enhance institutional cooperation, and foster
compatible, supportive regimes. This precedent will help to
interconnect the WTO with other specialized organizations, such as the
ILO.
We know the imnportance of these topics for many Members of
Congress who want to ensure that the benefits of trade and openness in
spurring growth, productivity, and higher incomes are accompanied by
enhanced scrutiny and transparency of labor and environmental laws and
conditions. Some stress the need to safeguard America's sovereign
rights in setting our own standards, while other Members want to deploy
trade agreements to compel other nations to accept the standards we
prefer. Some believe that the influence and investment of U.S.
companies abroad will lead to higher standards and codes of behavior,
while others fear the reach of globalized companies. It is our goal to
use the guidance Congress has given to bridge the differences, build a
stronger consensus, and make a real, positive difference for America
and the world.
Conclusion: Pressing the Free Trade Agenda Forward
In the coming year, the United States will continue to make the
case for the win-win nature of trade. Expanded trade--imports as well
as exports--improves the well being of people everywhere. Trade
promotes more competitive businesses, as well as the availability of
more choices of goods and inputs, with lower prices.
America's economy depends on trade. Businesses, small and large,
sell and ship their products around the globe. At the same time, U.S.
manufacturers rely on imported inputs to production to stay competitive
with foreign producers. Over the past decade, U.S. exports accounted
for about a quarter of our country's economic growth. Our exports
support about 12 million jobs--jobs that pay wages 13 percent to 18
percent higher than the U.S. average because they have higher
productivity. One in three acres on American farms--accounting for over
$56 billion in annual sales--is planted for export. And opening foreign
markets is critical to the future growth of America's diverse services
sector.
President Bush understands the connection between ``a world that
trades in freedom'' and America's interests in promoting a strong world
economy, lifting societies out of poverty, and reinforcing the habits
of liberty. Having reestablished U.S. trade leadership around the
globe, the President is now working with Congress on an activist agenda
to expand economic freedom at home and abroad.
I appreciate the Committee's interest and support in trade and look
forward to working with you, Mr. Chairman, and other Members of the
Committee to advance a strong, successful trade agenda.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman THOMAS. Thank you, Mr. Ambassador.
I am in possession of a news release from the European
Union dated today. The European Commission submits to Member
States a draft list of products that could be subject to
countermeasures. The language goes something like this: This is
a necessary procedural step to launch countermeasures if the
compliance process does not deliver swift results.
[The information follows:]
EUROPEAN COMMISSION DELEGATION IN WASHINGTON DC
EU NEWS RELEASE
Press Contacts:
Willy Helin (202) 862-9530
Maeve O'Beirne (202) 862-9549
No. 13/03
February 26, 2003
Foreign Sales Corporations:
European Commission submits to Member States draft list of products
that could be subject to countermeasures
The Commission has today communicated to EU Member States a revised
draft list of products that could be subject to countermeasures in the
FSC case. The list has been prepared on the basis of comments received
from economic operators following the public consultation launched in
September and it covers products in the amount of U.S. $4 billion, as
awarded by the WTO last August. EU Trade Commissioner Pascal Lamy said:
``The EU's objective remains to ensure the repeal of this WTO-
incompatible legislation. We are encouraged by President Bush's
proposal for such a repeal in his budget for fiscal year 2004. In the
meantime the EU is following the necessary procedural steps to launch
countermeasures if the compliance process does not deliver swift
results.''
A final list will be drawn after consultation with EU Member States
in the coming weeks. When final, the Commission intends to notify the
definitive list to the WTO and request authorisation for the imposition
of sanctions.
The list of U.S. products which could be the object of
countermeasures has been prepared after an unprecedented public
consultation with economic operators. The several hundred submissions
received from economic operators have allowed the Commission to assess
and minimise the negative consequences that any eventual
countermeasures could create for European industry.
Background
On 30 August 2002 the European Union was granted by the WTO the
right to impose countermeasures in the form of tariffs on imports of
certain goods from the U.S. The tariffs can be up to 100 percent ad
valorem, to a maximum of U.S. $4 billion per year. On 13 September 2002
the Commission published a list of products proposed to be covered by
any retaliatory measures. In line with WTO practice, the list was set
at a higher level than the amount set by the arbitrator (U.S. $4
billion) in order to allow for exclusion of products following the
consultation procedure. The aim of the consultation, which lasted 60
days, was to minimise the negative consequences that any eventual
sanctions could create to EU industry; in that respect, the Commission
had included in the list products on which the U.S. import share was
low (below 20% import share). The products included cover a wide range
of goods selected from the 46 chapters of the Common Customs Tariff
already notified to the WTO in November 2000. The exact definition of
the CN codes can be obtained via Internet (http://europa.eu.int/eur-
lex/ OJ L279 of 23 October 2001).
The actual implementation of the trade sanctions will require
action by the Council under Article 133 of the EC Treaty. A Council
Regulation needs, therefore, to be adopted following a proposal from
the Commission. Under WTO rules, there are no deadlines to implement
sanctions.
The EU only needs to request authorisation from the WTO Dispute
Settlement Body (DSB). The DSB decision is only a formal step as
authorisation is granted unless the DSB decides by consensus to reject
the request. There are no legal deadlines within which the request must
be made to the DSB.
Swift, of course, is sometimes in the eye of the beholder,
but my question is directed to a story in the Financial Times
in which Trade Commissioner Lamy says, ``He praised Bill
Thomas, Chairman of the House of Representatives powerful
Committee on Ways and Means, for his determination to draft new
legislation.''
[Laughter.]
[The information follows:]
Financial Times
February 26, 2003
Lamy Hails Chirac Plan on Farm Subsidies Suspension
BRUSSELS
French president Jacques Chirac's call for rich nations to suspend
subsidies on farm exports to poor ones was a positive move that
strengthened the European Union's negotiating position in the Doha
world trade round, the EU's trade commissioner said yesterday.
Mr Chirac's proposal, made at last week's Francophone African
summit in Paris, was ``good news and a sign that the potential
contradiction between the French position on agriculture and the French
position on development is being seriously addressed,'' Pascal Lamy
said in an interview. ``It adds to our toolbox in this negotiation.''
But Mr. Lamy stopped short of promising to incorporate Mr Chirac's
proposal in the EU's formal negotiating position. He said Brussels had
already called in the Doha round for better farm trade terms for poor
countries and doubted whether the U.S. would accept Mr Chirac's demand
that his proposed suspension cover exports credits and food aid.
Until now, many observers have viewed Mr Chirac's outspoken defence
of Europe's common agricultural policy (CAP) as in conflict with his
claims to champion developing countries' interests and were surprised
by his admission last week that export subsidies harmed the latter's
economies.
However, the French president dashed hopes at the weekend that
France was softening its opposition to rapid CAP reform, accusing Franz
Fischler, agriculture commissioner, of ``obstinacy'' in pressing for
phased reductions in production-related EU subsidies.
Mr. Lamy, who visits Washington next week for talks with President
George W. Bush's Administration and leading Members of Congress, struck
a conciliatory tone toward the U.S. He said the two sides were co-
operating in the Doha round and stressed his determination to seek
amicable solutions to bilateral trade disputes.
His visit coincides with EU moves to draw up a final list of U.S.
exports worth Dollars 4bn (Pounds 2.5bn) targeted for retaliation if
Washington refuses to comply with a World Trade Organisation ruling
against the U.S. Foreign Sales Corporation's business tax-break law.
However, Mr. Lamy ruled out early retaliation, insisting the list
was only a precautionary measure, in case the U.S. failed to repeal the
law. He praised Bill Thomas, chairman of the House of Representatives'
powerful Ways and Means Committee, for his determination to draft new
legislation.
The trade commissioner said he was setting no deadlines for U.S.
action, or for compliance with WTO rulings against U.S. laws on anti-
dumping, copyright and trademarks. He did not want to take such a step
unless it became clear that the U.S. was unable or unwilling to
implement the rulings.
Nonetheless, he said, resolving some disputes, such as over the
Byrd amendment directing payment of anti-dumping duties to affected
U.S. companies, would not be easy. ``The worry is that things like this
pile up . . . we should remove them from the table one by one, and I'm
quite worried that we come to a situation where we have a logjam.''
By TOBIAS BUCK and GUY DE JONQUIERES
[Laughter.]
Chairman THOMAS. Before further damage to my reputation
occurs, what is your attitude about our ability to negotiate
away the FSC problem versus the need to move legislation and
the timeliness of moving that legislation?
Mr. ZOELLICK. Well, I agree that it is a powerful Committee
on Ways and Means. Well, we have had this discussion among many
of us a number of times. The reality is we have lost this case
four times, including the appeals. I know that the Committee
made an effort with the Extra Territorial Income (ETI) bill in
the last Administration to try a fix. It didn't work. I think
what Commissioner Lamy was making the point in this article,
Chairman, was that his interest is in compliance, not
retaliation. This step is putting together the list, and the
important part is, as we have all talked about, we figure out a
way to get us out of this box with something that we found in
violation.
As we have discussed, I personally believe the EC will hold
off for a while, but I don't know how long. I told you last
year I thought we could extend it through the end of the year
if we showed action, and the Chairman did step out. It is
clearly not an easy issue. You showed leadership by coming
forward with a bill. I think the best advice I can give is that
I think it is going to be important to move on this soon this
year to avoid retaliation.
Now, I don't necessarily believe you are going to get the
full $4 billion, but at some point they are going to start to
retaliate.
Some of you have asked on the tax policy issues at various
points, so I checked again what our tax policy people at
Treasury have said, who obviously have the lead on this. It is
that the Chairman's bill is an important first step, and I
thank you for it. Frankly, I would be in a much more difficult
position internationally if he hadn't gone forward with it.
Tax policy has pointed out that it would help us comply
with the ruling and it levels the playing field for U.S.
companies. There has been a task force of the Senate and House
that I know has tried to come up with ideas. I personally have
urged companies to make suggestions. As we have discussed, you
are open to various possibilities for amendments.
My bottom line, Chairman, is we can't make this go away,
and it has got to get fixed; and if it doesn't get fixed before
too long, I think we are going to face retaliation.
Chairman THOMAS. I thank the Ambassador. I want to
underscore the Ambassador's statement about the Kimberley
process. We are ready to go as soon as we have confirmation
that a waiver has been provided. The Chair intends to introduce
legislation and put it on the fast track and move it through
the House and the Senate. The difficulty, of course, is our
interpretation of the WTO and our need for a waiver as opposed
to others. My understanding is that a waiver is imminent, but
perhaps not yet delivered. As soon as it is delivered, the
legislation will move.
Some of us have been reading the Harbinson paper, Chairman
Harbinson, on agriculture. Obviously if you are reading for
content and looking for areas that are pleasing, the Chair
noted that there was no support for the geographic indicators
position of our friends who make champagne and other products.
Still, overall it was a kind of ambition-less project given
where we are and what we need to do. The Chair's interpretation
of what the European Union is doing in laying the groundwork
for accepting 10 new members and what appears to many of us a
fundamental clash with the common agricultural policy, and that
if they are going to absorb the new 10 in 2004, they need to
adjust the common agricultural policy in 2003; and how much
that would create a more positive atmosphere for the potential
of the agricultural subsidy solution through the Doha Round.
Where are you in terms of your comfort level that the
Europeans understand and will be able to address the common
agricultural policy modifications and, therefore, the obvious
linkage to changes to make Cancun and beyond successful in the
Doha Round?
Mr. ZOELLICK. Thank you, Mr. Chairman. Let me just start by
making sure we all have an understanding of what the Harbinson
text is.
Given that you have 144 members in the WTO, the way the
process often moves forward is the Chairman of a negotiating
group will consult with people and put out a text as a basis.
It is thankless task. I appreciate Chairman Harbinson's effort.
He is a fine professional. Frankly, we generally felt it wasn't
ambitious enough.
It would eliminate export subsidies, and that is a very
good thing. As I mentioned, I was pleased to see that President
Chirac now partially favors elimination of export subsidies,
and we encourage him to follow through for the rest of us in
the world and other developing countries.
We would actually like to get it done sooner. We propose
that it be done in 5 years. Harbinson talks about 9 years.
In the area of tariffs, we think there should be more
ambition in cutting tariffs. This is in part his effort to
compromise with countries like Japan that have tariffs on rice
of 500 to 1,000 percent and will still object. Frankly, we feel
that if we are going to cut subsidies, we are going to need
more tariff cuts.
Then in the subsidies area, I think the real challenge is
there is still a large gap between the European numbers and the
U.S. numbers. At the end of the Uruguay round, there was a
compromise made, as you always do when you try to close out a
deal. The nature of the compromise was you put a cap on many of
the subsidies that existed in the past. The European number for
these domestic subsidies that affect trade was $60 billion
plus. The U.S. number was $19.1 billion. The Japan number was
$30 billion.
Well, we have got to harmonize. We are willing to cut ours,
and our proposal would cut ours down to 10.5, but we have got
to get the European and Japanese numbers down, too. That gap is
still too big.
As for where it leads us, the meeting that I was at in
Tokyo was of 22 Ministers, about 7 or 8 days ago, and the
unfortunate part is that even though we have our disagreements
with the Harbinson text, we thought it was a starting point.
Our colleagues in Europe and Japan were more reluctant, and
that brings us back to the point that Chairman Thomas was
making about agriculture policy in Europe.
I think the fundamental need, if we are going to be
successful in Doha, is to have the Europeans be successful in
reforming the common agricultural program.
Now, the good news is that the Agriculture Commissioner,
Franz Fischler, has put forward a proposal that would take
advantage of the WTO rules to move a lot of the subsidies to
the green box. Now, I don't know whether it is enough to
frankly get Europe to support broad liberalization, but it is
an important start. Unfortunately, there are a number of key
member States that have resisted this.
So, on this one, frankly, my honest assessment is that
Europe and, to a degree, Japan are holding up the agriculture
negotiations. Without moving on the agriculture negotiations, I
think the Doha Agenda is going to find itself stuck.
Mr. CRANE. [Presiding.] Thank you, Mr. Ambassador. Mr.
Rangel?
Mr. RANGEL. Mr. Chairman, let me first thank you for the
cooperative spirit in which you have entered into these
international agreements by bringing both the majority and
minority members to the table to discuss our views on these
very complex international issues.
Second, I know that you do want and should want to stay out
of an partisan disputes that may exist with this Committee. I
know that you have gone out of your way to try to convince us
that this FSC problem is a tax problem and not a trade problem,
or some mumbling that you don't have jurisdiction but someone
else does, and the other person comes and they say it is a
trade issue.
I am still going to take the risk to say that if the Chair
says that he has a bill and he is going to move the bill, and
it turns out that this is a controversial, partisan dispute, I
don't see how in God's name this is going to help you to
convince the WTO that we are taking their charges seriously.
On the other hand, if there was an area that you can tell
your colleagues in the U.S. Department of the Treasury that the
$50 billion that would be available as a result of us repealing
existing tax laws in order to be in compliance with the WTO,
that we could find some way to encourage our manufacturers
through tax incentives to be more competitive as opposed to the
Chairman's idea that we reward those manufacturers or those
businesses that have decided to operate outside of the United
States, it just seems to me, whether you like it or not, that
you are going to have to explain these policies.
So, I do hope at some time--because I am not here to make
you feel awkward, but if you don't want to see a train wreck
here, I advise you to go to Treasury and ask them for some
guidance as to how we can make your job easier as we deal with
this politically packed argument of FSC.
Lastly, which I could expect an answer now, and that is
that I understand that the Administration is supportive of
normalizing or granting permanent normal trade relations with
Russia. I think you have discussed this with members of both
sides, that we want to put the issues that separated us in the
Cold War behind us. Is that an accurate statement?
Mr. ZOELLICK. Yes, sir.
Mr. RANGEL. Could you tell me why we would not want to
pursue that same foreign policy with Cuba and to put the Cold
War behind us and to treat these communists the way we do the
rest of these scoundrels in China and North Vietnam to break
down their hold on these people through their anti-capitalistic
way of thinking and to allow the rays of sunshine, democracy,
and free trade to prevail against these formerly evil empires?
Mr. ZOELLICK. Thank you, Mr. Rangel. You made it----
Mr. RANGEL. I have my flag pin on today just in case.
Mr. ZOELLICK. You made it easier for me because I do think
there is a very big difference between Russia and Cuba. While
Russia is not perfect as a democracy, it does have elections.
It has moved towards the rule of law. It has a much more open
economy than it did during the days of the Soviet Union. So,
they are making progress, and so----
Mr. RANGEL. What about China? Will you share with me the
progress? I have a substantial Chinese community in my
district. Could you tell me what progress--this is going to be
very interesting. Could you give me a paper on the progress
that all these communist countries are making? This is really
going to test our credibility. Now that we see the progress
made by the former Soviet Union, which really makes me feel a
lot better, because I didn't know this, would you find the same
progress being made in China?
Mr. ZOELLICK. Actually, Mr. Rangel, I first went into China
in 1980 when I lived in Hong Kong, and the China of today is
vastly different from the China of 1980. In terms of the
openness, of course, it is not a democracy. The question is: Is
the leadership moving in a direction and do you think the
process of openness and trade is something that they are
welcoming to try to open the system? I think that is the
difference.
Mr. RANGEL. Which comes first? Which comes first, though?
Do you wait for them to make the move, or is trade and commerce
supposed to open the door for the people to see the values of a
democracy?
Mr. ZOELLICK. Well, I understand. That is certainly a
reasonable argument. I think that the record of Castro has not
been one where any opening or any money has been used to open
up the society, and we have had some 40 years to test it.
Mr. RANGEL. Well, my last question on this issue is that--
would you suspect that there would be domestic political
objectives involved in this, to wit, the electoral college
votes in Florida? Would this be involved in your trade
decisions as to whether or not this is the proper time to do
it?
Mr. ZOELLICK. Mr. Rangel, as you are well aware, there are
views all throughout this Congress that are a combination of
politics and economics. I am frequently trying to deal with
concerns, for example, the Dominican Republic, where you have a
trade concern but you also have a political concern. They are
both in commonality. They are a shared concern. I respect that.
So, do other people, and that is a balance of what
Administrations and Congresses deal with.
I am sure you would share my view that Cuba is a society
that remains imprisoned in many ways in the violations of human
rights and the cruelties of Castro and the communist regime are
not something that anyone would remotely want to affirm or
endorse.
Now, you have a different way of approaching it than other
people do. People have different experiences. I respect that,
and I hope you respect that of mine and others.
Mr. RANGEL. So, what you are saying is my advocacy of free
and open trade with the Dominican Republic because of my broad
Dominican constituency is the same as those that would come
from Cuba who would want to close the trade relationship with
Cuba because of their differences with this communist
government, that that would be basically the same thing we are
talking----
Mr. ZOELLICK. Now, Mr. Rangel, that isn't what I said. What
I said is there is a mixture of political and economic
interests, and I said I respect it. I share your interest in
trying to help the Dominican Republic. It has also had its
political problems. It has its political problems today. It is
moving in the right direction.
You are trying to bring it in that way. I am trying to
bring it in that way. I haven't seen that in Cuba.
Mr. RANGEL. Well, I am not a candidate for President, but
if I were the President, I would have asked you to be willing
to serve as my Trade Ambassador. I am confident that your views
would be more flexible. Thank you.
Mr. ZOELLICK. Well, if you are ever elected President, Mr.
Rangel, I will be pleased to serve with you.
[Laughter.]
Mr. CRANE. The gentleman's time has expired. Now, Mr. Stark
is not here. Okay. I would like to yield to Mr. Matsui, who has
got an appointment, and he has a short, brief question, I
guess, for you, Mr. Ambassador.
Mr. MATSUI. Thank you very much, Mr. Chairman. I appreciate
this very much.
Mr. Ambassador, I want to just commend you. I know it is a
very difficult job out there in the international market now,
and you are obviously trying the very best you can in terms of
Doha and some of the other issues you have been working on.
Certainly on both sides of the aisle, we want to be active in
terms of helping you and supporting you.
I will say, however--and this is my only comment; I don't
even need a response from you--that it is a little
disconcerting, as Mr. Levin says, when you start off in your
second paragraph, ``Over the past year, working together, we
have rebuilt America's trade leadership''--or ``leadership on
trade.'' Now, maybe your staff did it. Who knows? Obviously you
read it; it is part of your statement. I would just like to
point out that we did have a 201 case in steel last year.
Obviously it has been--a lot of waivers have been given, so it
is probably about 7 percent effective now. We did have some
work on textiles that was taken care of during the discussions
on fast track. Certainly there has been a number of retreats in
the area of trade. I understand that because you had to get
bills passed, the fast track bill in particular. So, obviously
nobody would want to take issue with you on that.
The farm bill, obviously that is another one, a $100
billion farm bill. So, some of these issues are out there, and
I wouldn't want to have anybody think that there is a purist in
the White House in terms of the issue of open and free trade. I
would like to just take a moment because I think----
Mr. ZOELLICK. Could I respond to that point, Mr. Matsui?
Mr. MATSUI. Well, let me finish.
Mr. ZOELLICK. It is not a question?
Mr. MATSUI. If I can just finish.
Mr. ZOELLICK. Okay.
Mr. MATSUI. Ambassador Barshefsky and obviously Mr. Kantor
I felt did a reasonably good job, a very good job. In fact, I
think they were two of the best USTRs we have had perhaps in
the history of our country, and, you obviously have done a
great job as well given the very difficult times we have had.
I would like to just point this out. They passed NAFTA.
Obviously President George H.W. Bush was responsible to a large
extent in putting it together. We had a very difficult time
because of getting the rule passed, but we passed in December
of 1994 the Uruguay Round with over 350 votes. That wasn't an
easy thing to do with 350--340-some countries involved annually
who passed the PNTR--China trade, the most-favored-nations, and
then finally Ambassador Barshefsky negotiated a wonderful
agreement that the whole business community was supportive of
in terms of China PNTR, which we were all involved in.
We passed AGOA really with both Mr. Rangel and Mr. Crane's
leadership. We passed--negotiated the Cambodia textiles
agreement. We did negotiate the Jordan Free Trade Agreement and
a Vietnam bilateral trade agreement. Obviously these were
passed under the leadership of yourself and President Bush, but
these were negotiated by Ambassador Barshefsky and President
Clinton.
We had a basic telecom annex to the WTO--telecom, which was
a big deal to Americans; negotiated a financial services annex,
WTO service agreement; and we also had a number of intellectual
property agreements, but particularly with China, and that was
an extremely difficult one because I remember years and years
ago when Madam Wu came and basically denied that there was even
a problem. We negotiated an agreement with China.
So, I would hope that you would help us maintain, to the
extent we can, a bipartisan approach to all these issues. It
makes it very difficult when--it is almost as if the past 8
years is treated as if it were perhaps not as significant as
the last 2 years. I obviously have at least another 2 years to
go, so I would hope that in those 2 years you will show the
kind of leadership we saw over the last 8 years under President
Clinton.
You can respond if you want, but I just wanted to make that
observation, because I think it is important that we not
diminish predecessors, the people that came before you.
Mr. ZOELLICK. Well, thank you, Mr. Matsui. I don't think
anything I have said or have ever said has diminished the
people that came before me, who I have respect for. I am the
13th in a long line of people with a tough job. It is an
unlucky number. I feel I am successful if I now have both sides
of the aisle trying to press the case for why we should open
markets, because I often don't hear that.
I do believe we have restored American leadership on trade,
so they are my words. I am pleased if you are willing to debate
it, because I think the failure to have TPA for 8 years was a
big lapse. Many people around the world feel the same thing. I
think Seattle was a dismal failure, and I think we have
reversed that. I think that that doesn't mean that good things
didn't happen, particularly in the first years of the Clinton
Administration. I fought for and supported the efforts of the
Administration passing NAFTA and the WTO round. I was there in
the White House when we closed the agricultural agreement in
late 1992, and I think Mickey Kantor and his colleagues did an
excellent job in pushing that forward.
I then think things lapsed, and this, as I said, we can
debate. You could look at people who served in Democratic
Administrations like Fred Bergsten, who has written the same
thing. Why don't we just make our case and we will let history
judge. I think ultimately if you can support us on some of the
efforts to move forward, then we will even do better in the
future.
Now, you and I may have some differences about some of
these things. You and I may have some differences or Mr. Levin
and I may have some differences. I think the steel 201 was an
appropriate decision to make. I think it helped the industry
get back on its feet. I would point out, Mr. Matsui, that steel
imports to the United States actually increased last year from
the prior year. We have still given the industry a chance to
renegotiate and put itself back on its feet, and I think part
of a successful trade policy is dealing with some of these
domestic interests.
I also think in the case of textile and apparel that if you
actually look at the final bill that was passed from the Trade
Act of 2002, it ended up far expanding our textile and apparel.
You are focusing on one aspect of dyeing and finishing. You are
right, that was a compromise and it was a compromise because we
couldn't get enough Democratic votes. That is a reality. People
who supported us before for some reason wouldn't support us
this time even though we had environment and labor in the
agreements.
So, I hope we can move forward together, and let's debate
it. I think part of the democratic process is debating who is
moving forward free trade. All I will say is this: If you get a
chance to travel, as I have, I have no doubt around the world
that Africans, Latin Americans, people in East Asia, and indeed
our European colleagues feel this Administration has put the
United States back in the leadership role on trade. We will
debate it.
Mr. CRANE. Ambassador Zoellick, repealing ETI outright
would adversely impact over 3.5 million U.S. jobs and would
result in a rather substantial tax increase on U.S. businesses.
Given that the United States has lost more than 2 million jobs
since July of 2000 and the manufacturing sector has been
particularly hard hit, wouldn't you agree that this is the
wrong time to raise taxes on U.S. businesses?
Mr. ZOELLICK. Well, I think, Chairman Crane, the question,
as we have all talked about, is how we deal with the FSC
problem. Mr. Rangel has now left, but since we talked about
Cuba, I didn't get a chance to talk about his FSC position.
I think that Chairman Thomas came forward and did a very
courageous thing. We all know this is a tough problem. No one
is going to like the solution. He came forward with a mark to
try to suggest an approach to try to deal with it. Various of
you have constituencies that want to try to change the issue in
one way or another. What I have tried to do working with our
people at Treasury tax policy is offer suggestions. I think,
frankly, the Chairman's proposal makes a pretty good start.
Now, is it the final one? I am not a tax policy expert to be
able to say. I know that our Treasury people have made some
positive comments about it.
I do know this as the trade person: If we don't find a
solution, some of your industries are going to start to face
some of that $4 billion retaliation, and I have tried again and
again to say that as straightforwardly as I can while trying to
hold it off. Someday that day will come.
So, this is one of the differences between our
constitutional responsibilities. I can't pick the tax law. That
is going to be up to this Committee to move forward.
Mr. CRANE. Shouldn't we be turning over every stone in an
effort to ensure that our response creates incentives for
domestic job creation by U.S. companies and foreign
subsidiaries operating in the U.S. territory?
Mr. ZOELLICK. Well, I guess, sure.
Mr. CRANE. I understand that you and Singapore are
continuing to discuss the details for implementing the chewing
gum provisions in the FTA, and I am concerned that a strict
proscription requirement for chewing gum would not provide any
commercially meaningful market access for consumer chewing gum
and at the same time would give Singapore an excuse to allow
sales of medicinal chewing gum such as nicotine gums only. What
is the status of these discussions?
Mr. ZOELLICK. Well, Chairman, as you probably know, the ban
that Singapore put on dates back to 1992. It is not trade
protectionism. It applies to oral gum from any country. For the
United States, it is worth $2 million in annual sales. In the
final stages of negotiation, we were able to pry it open a bit,
as you and I have discussed. We checked with Wrigley before we
did so, and we consulted them frequently. They supported that
text.
As your question suggests, I think Wrigley is now unhappy
with the way that Singapore proposes to try to implement it.
There are some 3,000 pharmacies and health clinics that the gum
will be available for. We have urged Wrigley to go to Singapore
to discuss the implementation.
I will also point out that I checked into the situation of
Wrigley with Singapore before this, and it turns out that when
it sold gum in Singapore some 12 years ago, it did so from a
plant in Singapore. My understanding is that if they want to
establish that plant again and re-export from Singapore, the
FTA would certainly not interfere with any exports of gum for
the region.
So, I wish we could have totally overcome it, Mr. Chairman.
We have got an opening here in the process. It wasn't a
particular aspect of trade protectionism, but it was something
we did try to open up. At the end of the day, I hope at some
point the ban will be removed.
Mr. CRANE. In the past, I have strongly supported
negotiations for FTAs with Egypt and New Zealand, and I
understand the U.S. Chamber of Commerce recently included both
countries in its top 10 most coveted bilateral FTAs. Do you
have any plans to initiate FTA negotiations either with Egypt
or New Zealand?
Mr. ZOELLICK. Chairman, we have got a pretty full plate for
the 200 people we have at USTR right now. We have had
discussions with both countries. With Egypt, we have something
called the Trade Investment Framework Agreement. Frankly, we
have been trying to work with the Egyptian Minister of
Economics and Trade, Minister Boutros-Ghali, to try to overcome
some of the impediments that Egypt has had to a trade regime in
the past. This involves some problems that U.S. investors have
had. It also involves trying to implement some of their current
WTO obligations, like in the customs area. We have actually
worked with some of our aid people to try to connect our aid
program to this as well.
I have been encouraged, Chairman. We have made some good
progress. Egypt has floated the pound. They passed a new
intellectual property law. They are going to join the basic
telecom agreement of the WTO. This is one that as time moves
forward, if they continue to make progress, I hope we can try
to figure out ways to support that. We will certainly look at
the possibility of an FTA as a means to do that.
Just to be fair with you and the other members of the
Committee, one of the other issues here is a workload issue. We
are at the point here where--if we are going to start others,
we are going to either need some more resources from one place
or another or be able to finish some we have got.
On New Zealand, when we sent the letter to the Congress
initiating the discussions on Australia, we noted that we would
have consultations with the Congress about the interests with
New Zealand. Your input and that of others is very valuable as
we approach that.
We have some sensitive issues with New Zealand, frankly,
with the agriculture community, and part of what we have to do
is build support for these agreements. So, I have talked with
the New Zealanders about ways that we could try to strengthen
the support going forward. So, it is a possibility, but it is
not on the front burner at present.
Mr. CRANE. I understand the Administration is seeking
permanent normal trade relations for Russia, and given Russia's
recent imposition of quotas and tariffs on rate quotas on
poultry, beef, and chicken, why should Congress reward such
actions by granting PNTR? Would granting PNTR now undermine the
U.S. negotiating position on these and other issues in the WTO
accession talks?
Mr. ZOELLICK. Well, let me distinguish two points,
Chairman.
First, as I referenced in my opening comments, I think that
the Russian action on poultry and some of the other meat issues
is a bad sign, and I think they ought to recognize it. I think
that it is certainly going to make our job harder doing
anything with them in terms of WTO accession. I think if need
be, at the appropriate point we ought to look at all options
that we have with countries that aren't members of the WTO to
respond appropriately.
When you refer to PNTR, our focus is on Jackson-Vanik, and
I think that is a different issue. This was referenced by Mr.
Rangel as well. As I think you know, I served Secretary Baker
from 1989 to 1992 at the end of the Cold War. Jackson-Vanik
came up a lot during that period. I do think Jackson-Vanik is a
vestige of the Cold War.
Jackson-Vanik was passed to focus on immigration, primarily
Jewish immigration from Russia. It has achieved its original
purpose. Russia has been complying fully with Jackson-Vanik
over the course of the past 9 years, and indeed it hasn't even
been subject to any annual review during that process.
For the sake of our WTO negotiations, we have leverage. We
can say yes or no with them coming in, and so will others along
the way. Here is the problem we now run into if we keep
Jackson-Vanik on the books. To the Russians, it looks like a
sign that we think the Cold War is still going on, because we
have 28 other types of negotiations for WTO accession and we
don't have anything similar that we are holding over other
countries.
So, we do believe we should repeal Jackson-Vanik, but I
would distinguish that from saying that means they get an easy
ride to come into the WTO. If they keep doing things like this
on meat and poultry, it is going to be a long time, in my view.
Mr. CRANE. The Trade and Development Act of 2000, which
includes landmark reforms to improve trade relations with
Africa and with countries in the Caribbean Basin region, was
signed into law on May 18, 2000. The Treasury Department has
yet to issue final implementing regulations to guide U.S.
businesses and trading partners who are attempting to do
business under these new programs.
I think this is unacceptable performance that makes the
United States vulnerable to charges that our Customs Service
lacks transparency and fails to provide basic information to
traders trying to comply with the law.
Is there anything we can do to get the Treasury Department
to issue the regulations?
Mr. ZOELLICK. Well, I think your question will help, and I
will try to follow up, Chairman.
Mr. CRANE. Thank you, Mr. Ambassador. Mr. Shaw?
Mr. SHAW. Thank you, Mr. Chairman. Mr. Ambassador, I want
to talk to you for a moment about a trade dispute involving Rev
Power Corporation, which was owned by one of my constituents,
Mr. Robert Aronson. Many of my colleagues on this Committee are
familiar with the facts of this dispute and have joined me in
writing to ask the Chinese Government and the previous
Administration for help in resolving this matter, but
ultimately to no avail. I have even taken this up personally
with the Ambassador from China myself.
Allow me to briefly state the facts of the matter. In
December of 1989, SFAIC, a Chinese-owned corporation,
confiscated a factory owned by Rev Power. In response, Rev
Power sought and in 1993 won a $4.9 million arbitration award
from the Arbitration Institute of Stockholm against SFAIC.
I have a longer statement, which I would ask be made a part
of the record, that contains more of the facts of this case. In
a nutshell, the Chinese courts refused to enforce the arbitral
award, and the officers of the State-owned Chinese corporation
then proceeded to deplete the company of its assets. This was
flagrantly done despite the fact that China is required to
enforce arbitral awards under the 1958 New York Convention on
recognition and enforcement of such awards.
This debt to Rev Power by the Chinese Government has been
outstanding now for a decade and, with interest, exceeds $11
million. I contacted the previous Administration about this
matter in writing on four occasions, with little result.
Moreover, during a previous hearing, I asked your predecessor
for her personal assurance that the Office of the U.S. Trade
Representative would vigorously pursue this matter with the
Chinese, but nothing happened.
I would ask that you personally look into this matter with
the goal of resolving the problem. To be succinct, China is
ignoring its international treaty obligations, thus hurting
small business. I would urge you to confront your Chinese
counterpart in hopes of rectifying this longstanding injustice.
Mr. ZOELLICK. Thank you, Mr. Shaw. I will do so and will
follow up with you to get the details.
Mr. SHAW. All right. Well, I appreciate that. I would like
now to switch for one moment to the Caribbean region. Tomorrow,
I, along with Mr. Crane and Mr. Rangel and fellow Members of
the House, Senator DeWine and Senator Graham in the Senate,
will introduce legislation to amend the Trade and Development
Act of 2000 by granting duty-free status to Haitian apparel
articles assembled or knit to shape from fabrics and yarns from
countries in which the United States has a free trade or
regional agreement.
The Haitian economy is in desperate need of a lifeline. I
believe it is tremendously important that we seek avenues to
promote job creation in Haiti, which, I might add, is the last
least developed country in the Western Hemisphere. I would like
your thoughts on the situation in Haiti and specifically the
view of the Administration toward the crisis in Haiti.
I personally believe that you cannot try to grow a
democracy where you have no economy, and I think we need to
work on both avenues in order to try to bring that country
around.
Just last night, a boatload of Haitians landed in my
district, on Singer Island, which is up in Palm Beach County,
and I think most of them were rounded up, if not all of them.
It shows how desperate these people are, and we have seen the
news clips of the ship arriving in Dade County, Florida, and
these people jumping off of the boat and doing all of these
things.
Obviously, we have to control our borders, but we also, I
believe, have to address the desperate situation in Haiti.
Mr. ZOELLICK. Thank you, Mr. Shaw. I would be pleased to
take a look at the bill after you introduce it and will be
pleased to discuss it with you further.
I think that the efforts the Congress has made in the
Caribbean Basin to try to open U.S. markets have been very
important for the reasons you say. It is not only a question of
democracy. It is a question of survival for a number of these
countries to be able to have some opportunity to make a
livelihood.
We have had a challenge in the apparel and textile area for
reasons you know, and let me just take the opportunity to make
a slightly larger point about this since that is what your bill
deals with.
There is no doubt that our apparel industry has struggled
with some of the trade liberalization. I think there has been
some 700,000 jobs lost over time. One of the points they have
made to me is that what they want is reciprocity. In other
words, they want other countries to open markets at least the
same way we open, which strikes me as fair. So, one way we have
tried to balance opening our side is to try to do a better job
of getting others to lower some of their barriers.
The other development, Mr. Shaw, is that we have tried to
integrate some of our textile and apparel business more. Where
a lot of our focus now is increasingly on the textile side, the
apparel functions can be done in the Caribbean. I think that is
an important development because, as you probably know, all our
quotas come off in 2004. I think the most fierce competition is
going to come from China, and then there is the question of how
the United States and the Caribbean and Central America can be
able to compete together.
So, that is the context in which I would be pleased to look
at the bill.
Mr. SHAW. Thank you very much. Perhaps by getting a head
start on this, we can at least get an industry that is started
up in that part of the world prior to the Chinese invasion into
the market, as you made reference to.
Thank you, Mr. Ambassador. Thank you, Mr. Chairman.
Mr. CRANE. Thank you. Mr. Levin?
Mr. LEVIN. Welcome again, Ambassador. Your last comment, I
very much agree with it in terms of integrating the Caribbean
market in terms of competition with China and otherwise. You
know, it makes me comment again on what you discussed and Mr.
Matsui and you discussed. You said let history be the judge,
and I simply want to urge that you let history judge.
The comments about re-establishing, the problem with it is
it draws the wrong line. The clear majority of people on this
Committee and within this institution favor expanded trade. The
issues now are within the ambit of the expansion of trade and
how you do it and what the terms are.
A number of us struggled hard on CBI to make it happen, and
we had to overcome some opposition, to put it mildly. It wasn't
so easy. It is not a question of our hurt feelings. It is a
question of drawing the line correctly.
A couple other quick comments. WTO decisions, I favored the
Uruguay Round agreement, and I still do. I think, though, that
when WTO wanders off beyond the language of the WTO, it begins
to undermine support for WTO within this country.
The FSC, very briefly, we said in the TPA, it set out a
principal negotiating objective, and I think this was in both
versions which granted TPA, but we had some differences. A
principal negotiating objective of the United States calls for
modification of WTO rules which favor nations that rely
primarily on value-added service, sales, excise, and other
indirect taxes so that U.S. companies are not competitively
disadvantaged.
I think what--and this has been the basis of the
disagreement, I think. I think Europe is not mainly interested
in compliance. They are mainly interested in the leverage it
has given them. The question is how we react to that leverage.
Quickly, on Chile and Singapore, I think the 90-day
provision means the public should be able to participate for 90
days. Only a few people have access to the documents that are
held under secrecy, and that is what happened in previous
cases.
As to bilaterals, I agree with you, we should look at them.
I think there needs to be a pattern, and also when they break
new ground--they can break new ground, and we are going to talk
about CAFTA in terms of breaking new ground.
So, let me just ask you just a quick question about some
old ground, and that relates to Vietnam. When you renewed the
Cambodia-U.S. textile agreement--and I know there was some
pressure on you not to do that. In fact, we urged you to
reaffirm it. You cited the trade and labor standards in a
complementary way. Yet we are now negotiating a textile
agreement with Vietnam, and we have been told that USTR isn't
pursuing--not the same but a similar or some meaningful kind of
incentive provision with Vietnam. Vietnam competes with
Cambodia.
So, talking about pioneering or trying to break new ground,
why the decision to leave that out of the negotiations?
Mr. ZOELLICK. Mr. Levin, you really raise three points, and
I will try to be brief on each of them.
On the border tax issue, as we have discussed, one of the
reasons why we have to proceed a little carefully with this is
that it is in the exact part of the rules negotiation which
your earlier statement said that you wished we didn't
negotiate. So, it is a little bit of a tactical gymnastic
exercise to introduce something in a negotiation which you
represent we should have not started at all, but at a minimum
then try to proceed slowly.
We do still have time to propose it, and, frankly, one of
the reasons we didn't go forward was, as we have had in our
other exchanges, we were concerned that if the European Union
thought that we would have that as an alternative to try to
deal with the legislative route, it would actually move more
quickly to retaliation, which none of us would want to have.
Also, I would draw to your attention a paper I came across
recently--from a professor from the University of Michigan, I
might add, and Harvard Business School--that has pointed out
that, first off, economic theory has always said that a value
added tax (VAT) doesn't increase exports. These two professors
decided to test it, and they took 132 countries in the year
2000 and 168 countries between 1950 and 2000, and they found
that a VAT was actually associated with fewer exports.
Now, I realize there are many views, but I found this to be
rather striking because, frankly, it makes me somewhat cautious
to decide what we are going to give away to try to change
border taxes that economic theory and now economic evidence
suggests wouldn't do what you think it does. So, we are going
to need to have a further dialog on that one, I hope.
On the text, I received your letter on this, too, so I want
to make sure the record is clear. First off, the text has been
available to the Committee and the staff and the 700 cleared
advisers, as I think you would acknowledge. We hope to make the
Singapore text public in early March, and I hope the Chile text
will be by late March or early April. So, this will mean 2 or
more months before we sign the agreement or 3 or more months
before Congress takes action. There is a reason for this. These
are long agreements. They are 300 pages, plus 500 pages of
annexes. We want to try to make sure we have got the minimum
amount of differences with our counterparts and make sure the
negotiators' intent is covered.
You mentioned past practice, and you have talked frequently
about the Jordan agreement. The Jordan agreement wasn't even
made public until it was signed, so we will be about 2 or 3
months ahead of the Jordan agreement.
Mr. LEVIN. That is not a fast track----
Mr. ZOELLICK. In the case of the Canada Free Trade
Agreement, which I worked on, which was under fast track, there
was a summary provided to Congress at the time, and about 2
months later the text came. In the Uruguay Round, about 4
months after notification it took for the details to come in.
So, in summary, what TPA does--it doesn't address this
point. It just says you make 90 days of notification. I think
the key is you as Members of Congress and your staff have the
text now. The cleared advisers that we work with, over 700,
have the text now. The public will have it months before the
President signs it.
Mr. LEVIN. Why shouldn't the public have 90 days?
Mr. ZOELLICK. Pardon?
Mr. LEVIN. Why shouldn't the public have 90 days? You can
time----
Mr. CRANE. The time of the gentleman----
Mr. ZOELLICK. I suspect the public will have more than 90
days before the agreement is done.
Mr. CRANE. We will let the Ambassador complete the answer.
Mr. ZOELLICK. So, the question, Mr. Levin, is simply--you
have got a balance here. We are trying to--for example, let me
give you the set of problems that arise. You have a text that
is developed that has been translated from English to Spanish
and back to English. We want to make sure before releasing it
to the public that we have got to try to get as many of those
ironed out as possible. I don't have thousands of lawyers on my
staff. We are trying to move through those agreements with the
Chileans and Singaporeans. We will get the Singaporeans done
first because it is all in English. It will probably take
another month later for the Chileans.
For the question of public transparency, as I said, this
agreement will be public months before the President signs it
and many months before the Congress considers it. So, I think
there will be fair time for due deliberation, with due respect.
As for your question on Vietnam--but, look, I agree with
you, try to get them out as quickly as possible, Mr. Levin. I
push on this as hard as I can because I want to get it out as
quickly as I can. So, there is no effort to try to avoid it. It
is just that legal work can get done at a certain pace, and
believe you me, I hit this every day at my staff meeting to try
to get it out earlier, as the colleagues behind will testify.
On Vietnam, what we are in the process of trying to do is
now negotiate the textile quotas. As we examined the
differences between Cambodia and Vietnam, here were some of the
conclusions we made.
In the case of Cambodia, they actually had a pretty good
labor law, so, the incentives are linked to performance under
the labor law. Vietnam doesn't have that, so that is one basic
problem.
Another basic problem is that Cambodia, most of the
industry is textiles and apparel. In Vietnam, our labor
interests are much broader because textile and apparel is just
one part of the industry. So, what we are discussing with the
Vietnamese is a possible labor clause. What we are trying to do
is meld it with some projects that we are doing with the U.S.
Department of Labor and the International Labor Organization
with the assistance of some NGOs. This is a good example of how
we can try to bring NGOs into the process. We are trying to
bring in Social Economy International and RAP and try to make
this economy-wide, not just for textile and apparel.
So, that is the approach that we are trying to take, and it
frankly fits one of the points that you made before and made
today, which is one size doesn't fit all. We will experiment.
As you said, I thought the Cambodia approach worked well enough
that we should continue it. Our judgment as of now is that the
Vietnam approach needs a different solution.
Mr. CRANE. The time of the gentleman has expired. Mrs.
Johnson?
Mrs. JOHNSON OF CONNECTICUT. Thank you. Mr. Zoellick, it is
a pleasure to have you. It is a pleasure to have a chance to
hear how many things you are moving forward and how you are
regaining some initiative on trade issues. I am going to try to
make my questions brief because I know my colleagues are--there
are just many behind me.
I, too, am concerned about the problem of the repeal of the
ETI making major manufacturers in America permanently non-
competitive in the international arena. So, what advances have
you made--and this may overlap with Mr. Levin's question.
Frankly, I couldn't quite tell. What advances have you made on
what was a specific negotiating objective in TPA to modify the
WTO rules that favor nations that rely on value-added taxes,
sales, excise, and other indirect taxes? In other words, on
that specific objective of changing the border tax adjustment,
what progress have you made on that and its legislative
history? If you could be brief, because I have two more
questions.
Mr. ZOELLICK. Okay. I think my answer to Mr. Levin, if you
get a chance, will cover a lot of it. In essence, we are
waiting in this area of the negotiations. We will have time to
put something forward if you want, in part because if we put
something forward, we think it should best match with whatever
the legislative approach that Congress is taking is. Some
people----
Mrs. JOHNSON OF CONNECTICUT. I understand that. Some of us
are very concerned that you are putting no pressure on Europe.
This is the bottom line. You are putting no pressure on Europe
on the things that they are doing that put our companies at a
disadvantage, while we try to struggle through something that
is going to put major manufacturers--not just aerospace but
Caterpillar, Microsoft and stuff--at what will be, may be, and
certainly for some of their sub-suppliers, may be a terminal
disadvantage because the period of down will be so steep and
prolonged.
The other question I wanted to ask you along that same line
was: When we did the bananas thing, Europe was given, I think,
5 years to comply and a couple of waivers. Now, how can they
expect us to comply overnight even if we do repeal the ETI and
we get some protocol that we can all tolerate? You know, isn't
there going to have to be a transition period at least as long,
if not longer? This is a major, complicated part of our code
affecting major interests, not affecting just bananas. So, if
they had 5 years for bananas, are you prepared to work for a
transition of some proportional and appropriate length?
Mr. ZOELLICK. First, Mrs. Johnson, one big difference is
the United States had retaliated. So, after we solved the
bananas problem, we took off sanctions. The Europeans haven't
put the sanctions on.
As for a transition issue, I have heard that discussed, and
I am willing to work with this Committee with any ideas that
you try to come up and try to sell them. I think the Europeans
know this is not an easy issue. That is what Commissioner
Lamy's comments suggested today. I think if we can move in good
faith toward a resolution, I am certainly willing to work with
you together to try to sell whatever we can come up with. That
has been part of my message.
I don't have a tax policy solution for you. I am not the
Assistant Secretary for Tax Policy. I know it is tough on many
of the industries, although, as I said to Mr. Levin, there is
certainly an economic question of whether it is bad for the
U.S. economy. I know for individual companies it is tough.
So, I am pleased to try to work with you if we come up with
a solution that involves a transition.
Mrs. JOHNSON OF CONNECTICUT. Then, lastly, would you be
willing to meet with me and some of the small manufacturers
that are steel users? I think it really is important, first of
all, for us to think through how does our law, our trade law--
because this was very useful in the eighties--give us the
ability to moderate change during a period of surges in imports
and things like that, to give our own manufacturers time to
adjust? Then I think that some of you need to get a more vivid
picture of what has happened to steel users as a result of the
steel decision, and I hope their interests will be taken into
account as you look at accelerating the re-evaluation of the
steel decision.
Mr. ZOELLICK. Yes.
Mrs. JOHNSON OF CONNECTICUT. Thank you.
Mr. CRANE. Mr. Houghton?
Mr. HOUGHTON. Thank you very much. Just a quick question
about the dairy business. The farmers in my area continue to be
concerned about imports and various products through loopholes
and trade agreements, things like milk protein concentrates,
things like that. You don't spend a lot of time on this, but it
is very important to our area because the dairy production is
going down, farms are going out of business, and we just don't
like that dumping practice.
Mr. ZOELLICK. There are a couple of--there are different
issues in dairy, and one of the things I was pleased about, Mr.
Houghton, is that we have got the support of the dairy industry
for our Chile agreement, because we tried to take account of
some of their interests, but also, as I mentioned, account for
U.S. standards with our exports.
In the case of the milk protein concentrates, this issue
has been presented to me in two ways, Mr. Houghton. One is that
there has been some effort to try to change our tariff
obligation, and the problem with that is we would have to
compensate in some way, and I think other countries would
probably want it in a similar area. So, I am not sure that gets
you where you want to go.
The second way it has been presented is that at times there
have been discussions about the customs classification issue,
and that is something that, again, really goes to the question
of whether people are trying to circumvent with a different
categorization, and that is something that I believe one should
always try to look at. It is the U.S. Bureau of Customs and
Border Protection, not me, but I would certainly be pleased to
try to work with you on it.
Mr. HOUGHTON. I would like to continue that. Thanks very
much.
Mr. CRANE. Mr. Neal. Oh, he is not here. Mr. McNulty.
Mr. MCNULTY. Thank you, Mr. Chairman. Thank you,
Ambassador, for your testimony today.
Amo Houghton comes from the western part of upstate New
York. I come from the eastern part of upstate New York. We all
represent a lot of dairy farmers, and there has been a
tremendous decline in the number of family farms in general in
this country in recent years, and dairy farmers in particular.
So, we have a deep concern about that.
Now, the WTO ruled in favor of the United States over
Canada regarding the dumping of over-quota milk by Canada into
the United States, and you have hailed that decision as being a
great victory for dairy farmers. So, I just wanted to ask you
three quick questions on that.
When do you expect the Canadian Government to comply with
the ruling? That is number one.
Number two, what penalties might the WTO assess against
Canada for their practices?
Number three, and probably most importantly, is there any
chance at all that any of these monetary penalties from Canada
milk dumping will find their way to the dairy farmers who were
affected?
Mr. ZOELLICK. Okay. Let me take the first and second
question together. Under the WTO rules, we have the right to go
to seek a retaliation. Obviously our first effort is to try to
get them to change the practice.
Mr. MCNULTY. Right.
Mr. ZOELLICK. I think we are making headway with that, and
I discussed this, I think, with my staff this week, and I think
we have set the next couple months as a period for them to try
to come up with a solution. I forget whether it was through
April, but it is over the course of the next couple of months,
and we will follow up with you on that.
I believe there is willingness on Canada's part to end this
export subsidy program, which is what we really want to try to
do.
Failing that, we go to the WTO and we get retaliation. The
amounts, as I recall, were not that large in the larger trading
scheme. I think they were $30 million or something, but we will
get back to you on that, the amount of the subsidy. So, again--
--
Mr. MCNULTY. Are we willing to do that if----
Mr. ZOELLICK. Oh, sure.
Mr. MCNULTY. Okay.
Mr. ZOELLICK. Oh, yes, definitely. Then the third point is
that the way that the penalties work would be a withdrawal of
trade benefits. So, the $30 million would be blocking their
trade of $30 million. It is not $30 million of cash. That is
different than it is under some other procedures that you might
have under a WTO case.
We will follow up with you, Mr. McNulty, but I think the
Canadian Government has been pretty good about trying to come
into compliance with these. It is a difficult political issue
for them, but I think they are on the path to try to do that.
Failing that, we won't hesitate to get retaliation.
Mr. MCNULTY. Thank you, Mr. Ambassador, and I appreciate
your commitment to helping to preserve these family farms. Mr.
Chairman, I yield back the balance of my time.
Mr. CRANE. Thank you, Mr. McNulty.
Let me remind everyone that we have got to break at 1
o'clock sharp, so let's try and keep the questions as short as
possible and the answers as short as possible so as to
accommodate everybody here at the dais.
Mr. McCrery?
Mr. MCCRERY. Thank you, Mr. Chairman. Mr. Ambassador, on
the softwood lumber issue with Canada, I understand that formal
talks have been recessed. Is there any date at which those are
to resume? Will there be informal talks while we are waiting on
the formal talks to resume?
Mr. ZOELLICK. Well, Mr. McCrery, let me explain where the
state of that is. The private timber interests represented by a
coalition went and got the countervailing duty suit, basically
27 percent. It hasn't done more for them. It has probably done
more for the lawyers. Lumber prices have still come down, and
that is in part one of the unintended consequences, which is
that it led to more cutting.
So, what the U.S. Department of Commerce has sought to do--
and we work closely with them on this--is to try to keep our
eye on the underlying, long-term issue of getting the provinces
to change the subsidies practices. So, the Commerce
Department--and Under Secretary Grant Aldonas has had the lead
on this; he has done a very good job--has tried to come up with
what is called the standards for a changed circumstances
review. That is proceeding, and he has taken input from our
lumber interests and also talked to the provinces. They have
very different practices. I think British Columbia is in the
forefront of trying to do something, and they are the biggest
player in this.
What the talks were aimed at was another part of that,
which would be if we actually could work out an interim
agreement which might put on an export tax that, as they
reduced, as they changed the practices, you would remove the
export tax. That is where the gaps were too wide given sort of
the export tax that our industry was seeking and what they were
willing to pay.
So, on the interim agreement, I expect discussions will
continue, but I don't want to be over-encouraging because the
gap was pretty far. Meanwhile, we will continue to work with
the Commerce Department on this changed circumstances review to
get at the underlying practices. It is a case where I think we
have all learned that that action alone won't help the
industry. We have to figure out a way to try to get at these
underlying subsidy practices.
Mr. MCCRERY. Thank you. I would like to bring up a topic
that you haven't talked about much, which is prescription
drugs, not in the context that you have discussed them, but it
is my opinion that the United States is basically subsidizing
much of the rest of the world with respect to prescription drug
prices because prescription drug prices in many developed
countries are controlled by the government, and whereas we have
basically a free market here in the United States.
So, I am just wondering if you have thought about that. You
don't have to answer this now. I just want you to think about
it. Could this be an issue that we could discuss with our
trading partners in the future to try to get them to share some
of the burden of providing prescription drugs to the world's
population without us bearing most of the financial load?
Now, a question on steel, and then I am going to yield to
my good friend from Louisiana, Mr. Jefferson. I would like for
you to be a little more specific to Mrs. Johnson's question. Is
it your opinion that it is appropriate for the International
Trade Commission's midpoint review to specifically include a
public examination of the impact of the tariffs on steel
consumers?
Mr. ZOELLICK. There is a special process by which we can
ask for this. I think it is called a Section 337, and the
Chairman has inquired about this. I would like to further more
about this with the Committee, but it is one that I am
positively disposed toward. I think as a general matter, in
looking at all these issues, you have to look at their overall
effects on the economy.
Mr. MCCRERY. Thank you. It would be helpful, I think, for
the U.S. International Trade Commission (ITC) to include that
in----
Mr. ZOELLICK. Section 332. I am sorry. I used the wrong
number.
Mr. MCCRERY. It would be helpful for the ITC to
specifically include that in their midpoint review. Now, for my
last minute, I would like to yield to Mr. Jefferson.
Mr. JEFFERSON. I thank the gentleman for yielding. I think
as usual, though, he has covered the subject.
My question was along the same line. In Louisiana, we have
lost, to the extent we can trace it, something like 300 or 400
jobs. Across the country, there are others who estimate that we
have lost 200,000 jobs by steel users. Many people who are in
the steel manufacturing business just have lost their jobs
because of pressures created by the shortages that have been
artificially created in this area. It is critical to us that
this matter be looked at from the point of view of those people
who are in the steel manufacturing business, the folks who lost
their jobs, and the prices that have also gone up for people
who have had to use steel products.
All these are questions which I think ought to be covered
in the ITC study, and I am glad to hear that you feel that it
is important to recommend to the President that he ask the ITC
to include this range of concerns in the study that it takes.
Mr. ZOELLICK. Mr. Jefferson, I didn't quite say that, but I
was leaning in that direction.
Mr. JEFFERSON. You said you were leaning in that direction?
Is that what you said?
Mr. ZOELLICK. I said I didn't quite say that, but I was
leaning in that direction in terms of the specific point about
recommending to the President----
Mr. JEFFERSON. Do you think it is a good idea or what?
Mr. ZOELLICK. Well, I personally think it is a good idea
that we as an Administration, whether or not the ITC looks at
it, take account of the role of users of steel as well as
producers of steel. I want to talk with some of you more about
the 332 idea, but as I said--which would be to ask the ITC to
take a look at it. That was done in some of the past 201 cases,
with wire rod and line pipe and others. I have a positive
attitude toward it. I am just not in a position to say it yet.
Mr. JEFFERSON. The reason I----
Mr. CRANE. The time of the gentleman has expired. Mr. Camp?
Mr. CAMP. Thank you, Mr. Chairman.
Ambassador, I am sort of following up on this same point,
and I think we are all interested in this ITC study and the
tariff impact on steel users, and I think particularly the
automobile industry--I noted that the Wall Street Journal had a
quote yesterday that said, ``More Americans lost their jobs in
2002 to higher steel prices than the total number employed by
the U.S. steel industry itself.'' If that is true, I think that
is very troubling, particularly in the automobile industry.
I guess I would urge not only a definition of steel user
but also consumer, because, for example, what is this doing to
the cost of a Ford Explorer? That is certainly having a direct
impact on our economy, and I would be interested in the
Administration taking a look at this ITC study, incorporating
those concepts in it as well.
Then I have another question because I know you have
responded to this several times, but I am aware that at the
Mexican border there are a number of rail cars that contain
beans from around this country that have not been allowed to
pass into Mexico. So, in essence, there is a closing of the
border that I would think--that I understand violates the trade
agreements between our countries. I understand you sent a
strong letter to the Mexican Government about this situation. I
just wondered if you could update me and the Committee on this
issue and where things might be.
Mr. ZOELLICK. Well, on the first point on steel, I take all
of your points, and because Mr. Jefferson's time was cut off,
let's talk about what you would like to try to have in this. I
will make one general point on this, though, which is that it
is interesting that steel imports to the United States actually
increased a little bit last year from the prior year. So, the
exemptions that we made and particularly for the Port of New
Orleans, where a lot of the steel is coming up from Brazil in a
slab form, I think that helped to at least alleviate some of
this.
On dry beans, I agree with you, and basically the best that
we have been able to find out, allegedly it has been--the
Mexicans told us it was because of some mixture of beans from
other countries. Frankly, we are not persuaded. I am intending
to follow up with the Mexicans, if I can, this week.
Mr. CAMP. Okay. Thank you. Thank you, Mr. Chairman. I yield
back.
Mr. CRANE. Let's see. Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman. Ambassador, thank you
very much. It is a pleasure to have you here again. Let me
begin by congratulating you on the work that you did on IP
matters with regards to TRIPS and just in strengthening our
ability to protect intellectual property. I think that what you
did in the Singapore and the Chile agreements I hope will
become a template that we can use in other agreements as well.
It seems like countries are beginning to more and more
recognize that if we are going to make progress just in general
trade matters, we have to deal with intellectual property. So,
I thank you for that.
Mr. ZOELLICK. Thank you.
Mr. BECERRA. I hope you will listen to the entreaties of
many of the Members of this Committee and in Congress with
regard to the issue of the Dominican Republic when it comes to
a free trade agreement with Central America, and also with
regard to New Zealand as we move forward with discussions with
Australia. I believe a number of us feel very strongly about
the necessity of bringing a country like New Zealand, which is
so closely tied to Australia, and to us, into the mix, along
with a country like the Dominican Republic, which says it
really would like to go further than the CBI provisions in
trying to deal with us on a trade basis.
I would like to just mention--I have a question, though I
will until the end, but I know we will run out of time if I
don't mention these others points.
On the labor provisions on Chile's and Singapore's free
trade agreement, I still find it a bit unsettling that we have
a two-tier process for dealing with our workers and Singapore's
and Chile's workers when it comes to violations of the law and
the agreement and how we go about ensuring that workers and the
environment are protected, as opposed to, whether it is
intellectual property or capital or other resources, we
continue to provide more protections to property than we do to
workers. I still feel that we should move a lot farther along
in trying to ensure that countries abide by all their existing
laws and our particular agreements. So, I hope that you will
keep that in mind.
I do, by the way, thank you for the work that was done to
ensure that at least for Singapore and Chile, which do have
fairly good labor laws, that they will be required to enforce
those. I just hope that they don't regress.
Prospects for a Central America Free Trade Agreement, I
hope that you will try to strive for stronger provisions with
regard to labor and environment within those negotiations,
simply because we know that in Central America the labor
standards are not where they are in Chile or in Singapore. We
know that there are numerous problems, and if I have an
opportunity, I will read some passages by our own U.S.
Department of State Country Report on Human Rights for some of
those countries and some of the other reports that have been
issued that show that there is still a lot to be done in
Central America when it comes to protecting workers' rights to
collectively bargain and to deal with our environment.
On immigration matters, it is a novel approach which I
guess we find in the Singapore and Chile free trade agreements
to now allow for a temporary professional worker provision
similar to our H1-B visa program, where you can import workers,
professional workers into this country. I hope we have a chance
to examine that a little bit more because I know there is a
great concern in this country that we will be displacing
American workers. I am afraid that there may be some provisions
that don't provide the same safeguards as even the H1-B
program. I know that you worked hard to try to ensure that we
had something similar to the H1-B program, so I thank you for
that.
I will just repeat what I said before. It seems like we are
willing to protect capital, which we should, intellectual
property, which we should, and even now go the novel step of
including in a trade agreement immigration provisions which
allow us to import workers into this country. We are still not
willing to do as much for workers, protecting workers in either
country, part of this agreement, in making sure that their
rights are protected and they are not abused.
So, I think we are moving forward in the right direction in
some of these areas, but I would hope that we would be able to
address some of these labor and environmental concerns.
The question I would like to see if I can get an answer on
is----
Mr. CRANE. Quickly.
Mr. BECERRA. It involves Trade Adjustment Assistance
Program for Workers (TAA) and health coverage. Evidently, the
Administration has reinterpreted what was to be a health system
or a health coverage system which would provide tax credits to
employees who might be displaced as a result of trade.
According to the Administration, if you are out of work for
3 months and you haven't had your health insurance continue,
you may not be eligible to qualify for TAA tax credits to
continue that health insurance, which I don't believe was our
intent. Our intent was that if you get displaced and you had
health insurance with your employer, you would continue to have
it. If it takes more than 3 months to apply and be certified
for TAA coverage, if you have been for more than 3 months
without that health insurance coverage, you then lose your
benefits. I am hoping you can give us some clarification on
that.
Mr. ZOELLICK. On the TAA issue, Mr. Becerra, that is run by
the U.S. Department of Labor, but I try to follow up closely
with them because I believe part of the terms of our overall
deal was to have a good TAA package. So, I will follow up on
that and try to get an answer for you on that. Two of the other
points here, if I could beg your indulgence, that Mr. Becerra
mentioned are ones that come up a lot, so I would like at least
to try to give a quick sense of them.
First, on the Chile and Singapore treatment of labor and
environment, what I think we tried to do with this, Mr.
Becerra, was to refine and customize what we did in Jordan, and
let me explain what I mean by that. Contrary to what some
people have said, we have the same basic procedures for all the
disputes, so that means the consultations, the panels, the
timeframe.
Now, it is the case that for Chile, we set up a special
process to get labor and environmental experts as part of the
panel, which I think is a good thing, and in the case of
Singapore some preference for their expertise, so that if it is
a dispute you have got technical experts. For all these
disputes, the first objective is to eliminate the violation.
Now, again, we made a slight difference for labor and
environment, and that is, in a trade dispute if you are found
in violation, you can offer compensation. You can offer trade
opening somewhere else. We didn't want to grant that for labor
and environment because we wanted to solve the environment and
labor dispute. So, that is a difference that I think works
again in labor and environment's advantage.
We also said that the labor and environment penalty will
not be based on just the trade effects, because that is how you
would do it under a trade issue, because we thought the trade
effects might be too small. So, we wanted to actually put in
some other variables that could deal with labor and
environment.
Then it is true that we come up with a monetary remedy
first for labor and environment, but there, again, our logic
is--our real focus was to try to channel the money back for
labor and environment as opposed to just block some trade in
some area. If they don't pay, then we can use the withdrawal of
trade benefits to collect the money, again, so as to fix the
labor and environmental problem.
On the commercial side, you start out with withdrawal of
trade benefits, but you have an option of a fine. So, that is
why we tried to draw some parallelism here. We also added some
improved transparency. So, we will have months, again, to look
at this, but I actually think what we tried to do here was to
customize and meet some labor and environmental needs in a more
specialized way, and we partly did that because we are all in a
learning process, and as you say, we would hope to try to apply
some of this to CAFTA as well, the Central American. Along with
it, as you properly point out, we want to try and we are
working with them now to try to upgrade their labor standards,
because we know in some countries like Guatemala we have had
some problems in that.
The temporary entry issue is another one that has been
raised a lot, and here I really think it would be important why
we are doing this. A lot of you represent service businesses,
and we are hearing a lot more from service businesses. They
need to get people in and out of countries. So, there are a lot
of U.S. companies that wanted us to get temporary entry.
We do not deal with citizenship. We exclude that. We do not
deal with permanent residency. We do not deal with permanent
employment. We had a lot of briefings and consultations, and
there were three key points that came up to us that we managed
to insert in the final negotiations. One is we do have a labor
attestation, which we will model after the H1-B. We can work
with the Congress on how we do that.
When we work language in these agreements, we sometimes
want to leave it a little looser, because what if Congress
changes its mind in the future. We want to be able to
incorporate that.
Second, we put on numerical caps, 1,400 for Chile, 5,500
for Singapore, and I might note in contrast we have no limits
on people going to Chile and Singapore. So, in some ways, the
H1-B is something you give the rest of the world, you got
nothing else in return. Here we get full access to these
countries with limits.
Third, we also ensured that we could collect money, and I
talked with Mr. Sensenbrenner about this, Chairman
Sensenbrenner, not just to cover the costs but to cover some of
the other expenses that you have used for H1-B. Here, again,
the current amount is $1,000, but that law expires. So, we
didn't want to just be linked to that law, so I think we have
language here that, for example, some of that money is
allocated to different uses. What if Congress changes the uses?
So, I think we met those interests, but I know that they
are points of sensitivity, and so I am glad you gave me a
chance to expand on them.
Mr. CRANE. The time of the gentleman has expired. Ms. Dunn?
Ms. DUNN. Thank you, Mr. Chairman. Welcome, Ambassador.
I want to ask a question on the Chilean FTA also. My
understanding is that it includes language providing legal
status on temporary copies of computer programs and other works
currently protection under the Copyright Act. Since we are all
aware that the Chilean FTA could potentially set a precedent
for future trade agreements, I would like to get your thoughts
or your comments on the intellectual property rights (IPR)
provisions in the Chile FTA, and specifically on protection of
temporary copies of computer programs.
Mr. ZOELLICK. Okay. Well, as Mr. Becerra mentioned, I was
particularly pleased at what we got in the intellectual
property area. In the closing rounds of both these
negotiations, I probably spent over half my time on these
issues because it is a newer area.
Just to give you some flavor of this, we have got an
understanding in both cases that you will have statutory
damages, because often it is difficult to prove the exact
amount of damages. So, they were going to change their domestic
laws for statutory damages. Criminal penalties for end user
privacy, remedies for technical circumvention measure. Here we
tried to build off the Digital Act passed by Congress. Also,
provisions to ensure that any government software be used
respecting IPR.
Now, I think the issue that you referred to, if I
understand it, Congresswoman, is the question of digital
property protection where you don't have hard copy. This was
something that, again, I think is a very major advance in that
the question is: When somebody downloads something to their
computer, whether business software or music or video, do you
have an intellectual property right even though you have never
created any paper aspect of it? We have established that in
both these agreements because, otherwise, you could just
network it out to somebody else.
So, I think that is a very important development in both
agreements. I hope it will be something we can spread
worldwide.
Ms. DUNN. Good. Thank you. I also want to ask you about an
issue that we have discussed before, the TRIPS agreement out of
the Doha Declaration, the TRIPS agreement that has to do with
public health. Many of us are concerned about balancing the
need for supporting developing countries' approach to solving
their health care needs, but also we believe that the
commitment to TRIPS is very important and should not be broken.
You have been a great leader in helping the least developed
countries get access to low-cost medicines for infectious
epidemics like HIV/AIDS and tuberculosis and malaria. I am very
concerned that we not dismantle the IPR by expanding this
exception to other countries that should not qualify.
So, the TRIPS Council was supposed to report back to the
General Council before the end of last year on a solution for
helping poor countries with access to drugs, and I am wondering
if you could give us an update on the current negotiations on
this issue.
Mr. ZOELLICK. Certainly. This was a particularly
frustrating issue because I feel there should be a resolution
here, but you have a real problem of lack of trust with some
poor countries that recall the suits brought by pharmaceutical
companies against South Africa on HIV/AIDS, but on the company
side, worry about some middle-income countries that, frankly,
have stolen their patents.
What we did at Doha--and this has been confused in some of
the reporting--was to take the flexibility that exists in the
TRIPS agreement and say that countries have the right to
compulsory license certain drugs dealing with HIV/AIDS,
tuberculosis, malaria, national emergencies, and it says public
health crises. We would have been in a position to do that as a
country if we needed to do it for anthrax.
The one issue left over was what happens if you are a
country that is too small to compulsory license in your own
country, so you need to go outside. Then the problem that
developed was that some NGOs in some countries said, well, gee,
this covers everything. It covers obesity drugs. It covers
health drugs but aren't ones related to infectious disease--
asthma, cancer, whatever. Then some countries said, well, if
some countries have this, we all need to have it, so expand it
in two directions.
This played into the distrust factor, I am afraid, and so
what we tried to do was to clarify that it should be only for
HIV/AIDS, tuberculosis, malaria, epidemics, but including ones
that might arise in the future. That was not accepted by other
countries, and so we basically did that by a moratorium to
reassure countries. Now the question is: Can we partially get
at this issue by clarifying that fewer countries would have
access to it. I don't know, Ms. Dunn, because this is an issue
that continues to plague us. It is not about HIV/AIDS. It is
not about Africa now. I would certainly like to do our best to
try to solve it, and I welcome any suggestions.
Mr. CRANE. Mr. Collins?
Mr. COLLINS. Thank you, Mr. Chairman.
Mr. Ambassador, we hear a lot--and you brought it up a lot
today--about free trade. There has been an issue of--instead of
using the terminology of ``free trade,'' I have heard even you
and I have heard the Secretary of Commerce use the words ``fair
trade.'' I think that is more or less what the American people
are looking for, too, the terminology of ``fair trade,''
because fair trade is an exchange of goods between countries,
not just a one-way exchange that sometimes free trade is given
the image of.
I don't know of anyone in the district that I represent
that doesn't take a lot of pride in producing a product or
delivering a service and hopefully that product or service will
be purchased somewhere, whether it be domestically or in
another nation. So, I would really like to hear you emphasize
more the fairness than what we have done.
Speaking of fairness, we are competing in a global market.
You and I have had this discussion on a number of occasions.
There are some areas that we are not competitive in with other
nations, and one of those, as we have discussed--and it was
part of the TPA Act--and that is dealing with currency. There
is often concern that currency in other nations where we have a
lot of trade, particularly China, is not valued at what the
currency should be valued at. When we have the dollar that is
valued more so higher than their currency, it puts an imbalance
in the trade.
The provisions in the TPA require that we discuss currency
valuations up front, not as an afterthought or an after-
reaction to a devaluation or contingency not valuing the
currency as it should be. What have you done there? What is
going on in the negotiations, the trade agreements that you are
bringing forth now that involves currency?
Mr. ZOELLICK. Well, Mr. Collins, this is an area that the
President has been pretty adamant about currencies being the
province of the Secretary of the Treasury just because you get
people commenting on it, you send different messages.
I would say at this point that clearly currencies do have
an effect, and as we have seen, there has been some effect on
the dollar, particularly with the euro, which I think will have
some positive effect in terms of our trade competitiveness.
In the case of China, the Chinese have fixed their currency
at a certain level. There have been reports about whether that
is over- or undervalued. In the 1997 financial crisis, it
actually was a kind of point of stability for the region.
The Chinese have talked about moving toward a more flexible
exchange rate system at the appropriate time, and that would
leave it more subject to market changes. I frankly don't expect
that to happen in the near term because, given their economy,
they don't want to have happen to them what happened to the
rest of East Asia in 1997. It is a point I will just share with
you that when Secretary Snow came on and we were talking about
some of the issues on the agenda, I had mentioned, in addition
to the domestic tax issues, this is one that we need to talk
about for the Treasury to work with, because I know it affects
a lot of industries.
Mr. COLLINS. Well, it does and it is a big concern. I hope
we are not going to be timid about our discussion of currency
within our negotiating of trade agreements, fair trade
agreements.
One other area that I would like to bring to your attention
is the area of poultry in Russia. You have been trying to,
attempting to get a change of heart from the Russians about the
poultry and what they have done with the moratorium on U.S.
products for poultry. Georgia, the poultry capital of the
world, is really hurting from the fact that they have an
embargo on our poultry products.
What is an update there?
Mr. ZOELLICK. Well, first off, I appreciate your support on
this. We have worked very closely with the poultry industry,
and poultry, many people don't know, was I think our biggest
export to Russia.
When we worked with you before, we had a problem with
sanitary and phytosanitary standards, which we achieved a
resolution, and the Russians were here inspecting some of the
plants. The most recent action has been that they have put on a
safeguard, a limit of the amount, and they have done some
things in the other meat quota area. This just happened a short
time ago. We have communicated to them, but so has the rest of
the world, our unhappiness with this. As I alluded in another
question, my own view is that we need to get things opened up
for these producers, or else we need to look at all the options
that we have to let them know what the other side of the coin
looks like.
Mr. COLLINS. Well, there are a lot of jobs, particularly in
the South, in Georgia, that pertain not only to poultry but to
textiles, and I want to encourage you to continue to work on
the efforts for our people.
Mr. CRANE. Mr. Doggett?
Mr. DOGGETT. Thank you, Mr. Chairman.
Ambassador Zoellick, I never cease to be impressed by your
ability to give lip service to openness in international trade
while engaging in what seems to me to be utter contempt for
openness, for genuine public access, and for meaningful public
participation in the process that produces our trade
agreements.
If your accomplishments are so beneficial to American
families, it would seem to me that you would want to share them
with the public instead of to hide them. The specifics of these
recent agreements that you negotiated are certainly not any
secret to the foreigners you negotiated them with. They are not
any secret to the 700 industry advisers that were selected to
discuss this process with you. They have been kept secret from
the American public, and even from most of their elected
representatives here in the Congress who have little more than
your happy talk about the success of the negotiations upon
which to rely at this point.
In the Singapore agreement, to be specific, the position of
Singapore was basically that they would accept whatever you
proposed on labor and environment standards and on ensuring
that investment enforcement provisions don't undermine American
health and safety laws. Unfortunately, what you offered was
very, very modest in changing anything on these important
topics.
Typical is the provision that you testified about on page
30 of your testimony that Chile and Singapore agreed to discuss
``appellate mechanisms in investor-state dispute settlement. .
. .'' As best I can determine, what you secured through hard
negotiation on this very important topic is to get exactly what
we had before the negotiations began, and that is the right to
talk about inconsistent investor-state decisions at some time
in the future.
Looking more closely at this issue with which you and I
have had a long history, on March the 6th of last year I
requested your office to supply all notices of intent to
arbitrate under Chapter 11 of NAFTA, whether the filing
culminated in arbitration or not. That is because too often
these notices of intent are notices to intimidate government
officials to abandon health and safety regulations, whether
they lead to arbitration or not.
On May 2, I reiterated my initial request, and no reply was
received.
On September 10, I met with you personally in the Capitol
after you met privately with this Committee and asked that you
act on that request.
Finally, I received a letter following that meeting which
did me the great service of printing the Web site of the State
Department, which was available to any citizen, and totally
ignored my request to get those notices that had not yet led to
arbitration.
I wrote you about that on September 30, and, of course, you
have not responded to this date.
I have a threefold question, because I believe this history
of denial and lack of cooperation hardly demonstrates a
commitment to what you call improving the transparency of
investor-state dispute procedures.
I realize that you and your staff view this as much less
important than chewing gum in Singapore, but it seems to me
that now a year later after my request, with the fast track
debate over, that I would simply ask you if you will provide
within a month a copy of all notices of intent to arbitrate--or
all notices of intent to which USTR has access that have been
filed at any time under Chapter 11.
Second, I would ask you if I understood correctly your
prior testimony that you committed that the American public
will have at least 90 days to review the Chile and Singapore
text before the President signs these agreements, and if I
misunderstood, exactly how much time will the public have
before the Presidential signature.
Third, and finally, you ridiculed the concern over the
privatization of services, but exactly when will USTR make
available to the public what is apparently the response to the
European proposal for privatization that it plans to make in
March? When will that be available for the public to see?
Similarly, when will the public see the position of USTR set
forth on the investor provisions, the investor protection
provisions that the Europeans have asked to have placed on the
agenda at Cancun?
Mr. ZOELLICK. Well, that is a rich list. I will do my best,
Congressman.
Mr. DOGGETT. Thank you.
Mr. ZOELLICK. First, on the investor-state issue and on the
environment and labor issue, we followed the guidance of the
majority signed by the President in the TPA bill. For example,
we have improved an investor-state--the transparent investor-
state dispute settlement hearings, provisions to have
elimination or deterrence of frivolous claims, including
additional attorney's fees and costs in something like a
12(b)(6) motion; efficient selection of arbitrators and
expeditious disposal of claims; appellate body or similar
mechanisms we have done through four different steps. I am
afraid you are incorrect because we do have provisions that
allow tying into future multilateral appellate mechanisms and
oblige the parties to consider the establishment of an
appellate body within 3 years.
One of the issues we face, Mr. Doggett, is we have very few
of these cases, and so in a case of judicial economy, there was
a question of whether you should form an appellate body if you
don't have any cases. We thought we could review that after 3
years.
In terms of the availability of the materials, they should
be available to you as a Member of the Committee on Ways and
Means.
Mr. DOGGETT. Well, they have not----
Mr. ZOELLICK. If I could keep going----
Mr. DOGGETT. Let me----
Mr. ZOELLICK. In fairness to me----
Mr. DOGGETT. Let me interrupt----
Mr. ZOELLICK. As a witness to this Committee----
Mr. DOGGETT. They have not been made available.
Mr. ZOELLICK. Mr. Chairman, could I answer?
Mr. DOGGETT. You know they have not been--my question is
just: Will you make them available? If you won't, just say you
won't.
Mr. ZOELLICK. You have asked so many things to make
available. Let me--can I continue----
Mr. DOGGETT. This is the same thing I asked you last
March----
Mr. ZOELLICK. To follow up on your questions, Mr. Doggett?
Mr. DOGGETT. If you feel you can't make them available,
just say so.
Mr. ZOELLICK. Mr. Doggett, we gave you copies of all
notices involving the United States. The State Department Web
site has notices not involving the United States. So, that is
not an area which I deal directly with. We gave you all the
notices that we have involving the United States.
You have given me a long list. Unless you prefer just to
give a speech, I would like to try to continue to respond to
your question----
Mr. DOGGETT. No, just that one----
Mr. ENGLISH. Regular order, Mr. Chairman.
Mr. CRANE. Yes.
Mr. DOGGETT. Just that one question. The notices----
Mr. ENGLISH. Regular order, Mr. Chairman.
Mr. DOGGETT. Arbitration has not been----
Mr. ENGLISH. Regular order, Mr. Chairman.
Mr. CRANE. Mr. Portman?
Mr. PORTMAN. Thank you, Mr. Chairman. I have waited for a
couple hours to have the opportunity to ask the Ambassador some
appropriate questions about trade, but I feel that having been
subject to that prosecutorial questioning from my colleague
that I should give the opportunity to further respond to him.
If we have time at the end, I have some questions, I would like
to ask you. Please proceed to answer the questions from Mr.
Doggett, should you----
Mr. ZOELLICK. Well, in addition, as we were in the process
of saying, Mr. Doggett, in terms of the variety of other
provisions, for example, the investment provisions with the EU
in the process of negotiations, all we have at this point is
the mandate that came out of Doha. We have just had very
preliminary discussions. I will point out that in none of those
discussions are we looking at an investor-state mechanism. It
is looking at a much more basic process of trying to create
rules, for example, transparency and non-discrimination in
investment.
In the areas of our 90 days, I don't recall making a
representation about 90 days other than the fact that TPA has a
90-day notice requirement before the President signs. As I
explained, I believe that we will make all the materials public
in Singapore in early March, Chile will be done in late March
or early April. So, since the signing, the earliest would be
around May 1. That will have a time before signing, and we also
would have a period before the Congress takes action. So, I
think there will be plenty of time for public exposition, and I
believe you and your staff should have availability now, as do
the 700 cleared advisers.
The reason is what I tried to say earlier. We have got a
lot of pages of text. We are trying to reconcile any
differences before we make it public. Some people have raised
issues in the course that we have been able to try to clarify.
So, it is a process that has been done before, and I think it
is a reasonable balance in terms of trying to clarify the
documents before public release. Frankly, some of you have
raised issues that we are trying to deal with in the same
course.
So, I hope I have been able to answer many of your
questions. It was a long list, and I apologize if I couldn't
cover them all.
Mr. PORTMAN. Mr. Ambassador, thank you for that answer, and
I think you have shown to me an extraordinary detail of the
subjects, command of the subjects. I am very impressed with
your energy and enthusiasm you bring toward opening markets. It
is not something that is shared by all Members of this
Committee. The benefits of trade can only be obtained by the
United States and our trading partners if we do indeed focus on
opening markets and not creating more obstacles.
Just quickly, I had a number of questions. I will change it
and make it a few comments, if that is all right. The Doha
Round, I congratulate you on what you have done on reducing
agricultural subsidies, particularly establishing caps. I
encourage you to continue to work on the issue of genetically
modified organisms. I know we have not filed a case, but that
is a very important one to our country, and I think it is one
that also has implications for Africa and other less developed
countries in terms of our food aid.
With regard to FSC and ETI, I know you are not a tax policy
person, nor should you take over Treasury's role. I encourage
you to stay as involved as possible in that, and particularly
looking at some of the more fundamental issues of border
adjustability and really our international tax system. Our
current system of worldwide taxation rather than territorial is
a big disadvantage to our companies, and I think we ought to
take advantage of this opportunity the Europeans have given us
to look more carefully generally at our international tax
system and coming up with more competitive ways, which are
entirely consistent with WTO and which would help our exporters
and our manufacturers in particular.
We are honored in Cincinnati to have the latest round of
the Central American Free Trade Agreements. We think it is
going well in Cincinnati, but if you could possibly tell us why
you think it makes sense to extend some of the NAFTA-type
benefits to our Central American trading partners, why this is
beneficial to the United States, that would be most helpful.
Mr. ZOELLICK. Thank you, Mr. Portman.
Well, with the Central American countries, we have a
situation now where about 70 percent of their products come in
duty-free under the Caribbean Basin Act. So, one of the things
we would like to try to do is get better reciprocity. Many
people are unaware, I think, that we already export about $9
billion worth of trade to Central America, import about $11
billion. So, this is an opportunity to improve markets for the
United States.
You might ask: Well, why do the Central Americans want to
have a more reciprocal arrangement? That is where actually a
number of the points that have come up in the discussion are at
the heart of it, which is that they see this as a way of
improving their standards, their rule of law. By opening their
service market and integrating more effectively, they expect to
get more regional growth. So, it is a good example of how this
can become a win/win venture, and particularly in some areas in
the apparel industry where the CBI has already developed some
linkage between U.S. textile and their apparel to help compete
with China.
Also, there is another part, which is that these are
countries that have fragile democracies. Blood has been
spilled. I remember the negotiations in the late eighties and
early nineties. It really is a chance to try to help strengthen
the foundations for open societies, and that is where some of
the other issues we will try to deal with in terms of
environment and labor can also help us because I think we can
strengthen the rule of law in those areas, too.
Mr. PORTMAN. Thank you, Mr. Ambassador, Mr. Chairman.
Mr. CRANE. Mr. English.
Mr. ENGLISH. Thank you, Mr. Chairman. I will try to keep my
questions brief.
Mr. Ambassador, I met previously with your staff to raise
issues about a very strategic sector in American manufacturing,
and that is the tool and die industry, which is heavily
concentrated in my district, Mr. Manzullo's district, and
several parts of the Central States of the United States.
Clearly, part of the problem facing the tool and die industry
is the general slowdown in the economy, but a significant part
is trade-related.
Do you see an opportunity for your office to raise tool and
die issues within some of the existing negotiations that
currently you are participating in?
Mr. ZOELLICK. Yes, Mr. English. I think they primarily
would relate to the goods sector, and what we have been trying
to do--this goes to the points about sort of fairness in
trade--is that our tariffs are generally low in these areas.
Many other countries' are still high. So, our proposals in the
WTO to try to eliminate tariffs would frankly give us
additional opportunities, but in the meantime, some of the free
trade agreements that we have discussed also allow us to open
markets where barriers are higher, for example, in Morocco,
where you are helping us, where it is like a 20-percent average
tariff.
Mr. ENGLISH. Thank you. Let me say in response to some of
the remarks earlier by my colleague, Mr. Levin from Michigan, I
would like to offer the opinion that USTR, while it was a very
strong agency under your predecessor, has, nevertheless,
clearly been given the support in this Administration to go
forward and to open some new areas. One of the areas where I
think the Administration has been particularly proactive on
trade has been steel. If I may say so, I recognize that the
Administration has been willing to expend a great deal of
political capital in support of the domestic steel industry.
This has, I know, been controversial, but I believe it was very
important for you to do it on behalf of the entire
manufacturing sector in the United States.
In your view, looking at the steel 201, do you believe that
this investigation, which is now being reviewed by a WTO panel,
was conducted in accordance with our international obligations?
Do you believe that the remedy that the President provided
comports both with our domestic law and with WTO Agreements?
Mr. ZOELLICK. We do, and that is being contested in the
WTO, and we will have determinations later during the course of
the year. In the meantime, like you, I am pleased that the
industry has taken some advantage of this, as you have seen in
the case of ISG and Bethlehem.
Mr. ENGLISH. Yes.
Mr. ZOELLICK. Some of it has involved changes in labor
contracts, which I have talked about with the head of the
United Steelworkers. They are not easy, but they are the key to
making this work.
Mr. ENGLISH. At the Cancun ministerial, undoubtedly the
issue of the WTO antidumping code is going to be raised again.
I salute the Administration for its repeated commitment to
defend our right to have antidumping laws and to police our
markets.
What do you anticipate will be the agenda on antidumping
when the WTO has an interim meeting in Cancun?
Mr. ZOELLICK. Mr. English, the way that we negotiated this,
this actually is at a slower pace than some of the other items.
It is what I cross-referenced in the other discussion. So, we
are at an initial stage of identifying issues here. One of the
issues that we have tried to identify is an offensive agenda
because these procedures are increasingly being used against
the United States. There were some 105 investigations of the
United States in past years, and I have a list of items where
we are concerned about the inconsistent procedures, the lack of
transparency, no due process, public record, so on and so
forth. So, one area that we are making--a point we are making
is people have to clean up other operations before we go to
other changes.
Second, as you worked with us on, you can't just deal with
the rules unless you deal with the underlying problem. So, we
have to deal with some of the problems of subsidies around the
world. This is also linked to the area of fish subsidies, so
you find a country like Japan that is very interested in
changing some of the rules but not in dealing with the whole
question of fish subsidies. So, that is going to be connected
to it.
So, the heart of our position has been that we need to
preserve the strength and effectiveness of U.S. laws in this
area. At the same time, we are increasingly finding that U.S.
exporters are also finding themselves vulnerable to some of
these actions. We have had a number of actions with Mexico and
agricultural exporters recently.
So, we are going to try to push an offensive agenda, and,
frankly, Mr. English, the point I just made a week ago was we
are not going to be moving forward on these issues until we get
the ones that have earlier deadlines, like agriculture, goods,
and services, which are supposed to be done before Cancun.
Mr. ENGLISH. Thank you. My time has expired, and I thank
the Chair. I particularly thank you, Mr. Ambassador, for coming
before our Committee and outlining such a strong vision for
trade policy.
Mr. CRANE. Mr. Weller?
Mr. WELLER. Thank you, Mr. Chairman. Mr. Ambassador, it is
good to see you this afternoon--no longer this morning. You
have put some good time in today responding to our questions,
and I thank you for that.
I also want to commend you for being an effective spokesman
for free trade and economic opportunity around the globe, which
is good for Americans.
I have several questions, and I am going to submit some of
them in writing to you, and I would appreciate if you could
respond in a timely way. I would appreciate that because my
time is limited and I realize we are past the scheduled
conclusion of our hearing.
We have some negotiations under way, and many times when
these negotiations are under way, some of the tough issues,
particularly agriculture, which is important in portions of my
district, as many districts across this country, tend to be the
most complicated and the toughest issues. At the same time,
with Australia and the upcoming WTO negotiations, we have those
tough issues, but there are other issues such as the area of
intellectual property and digital downloading and content
issues and information technology issues. How can we ensure
that we do not lose sight of those priorities as well as some
of the tougher issues, that they are all included in a timely
way and negotiations not get bogged down?
Mr. ZOELLICK. Well, on the first one, the agriculture area,
when I took this position, the President emphasized the top
priority that he wanted to put to agriculture trade. So, that
was the genesis of the proposals that we have come up with
because we found that we could get support in the agriculture
community to make cuts if we could get others to cut, too. So,
my chief agriculture negotiator is in Geneva right now
following up on this Harbinson paper. So, frankly, Mr. Weller,
unless we get movement by Europe and Japan on these agriculture
issues, I just see the thing not moving forward. We are just
firm about that, and it is backed by the fact that there are
many other countries, developing countries, Cairns Group
countries, that are emphasizing the same point.
As for intellectual property, we are making our biggest
dent in this area with some of these bilateral free trade
agreements, because the intellectual property rules really came
out of the Uruguay Round, and since that was finished in the
early 1990s, you have had a tremendous change in the whole
industry. So, as I answered to Ms. Dunn's question, we are
actually able to update the rules more effectively and then try
to spread them through other agreements. So, that is one reason
why I think we have gotten some strong support and appreciation
for the headway we are making in these first agreements,
because we hope to spread it.
Mr. WELLER. Some of the questions I have to submit are
similar to Ms. Dunn's questioning, so rather than duplicate her
areas of interest, I will submit those in writing.
Let me just conclude with just this last question. It has
been suggested that some of our bilateral agreements, that the
order of priority has been a part of our foreign policy rather
than from a commercial and economic standpoint. I was just
wondering: How do you set the priorities for determining which
of our trading partners to initiate bilateral trade agreement
negotiations? What type of input do you get from the private
sector?
Mr. ZOELLICK. Well, I appreciate your asking that because
Mr. Levin, I think, or Mr. Matsui made a general reference to
this, too.
We can't do all at once, one thing we thought was important
was to try to make sure we proceeded with different regions so
we didn't look like we were just looking at one region. So, you
will see we are moving ahead with Central America, Africa,
North Africa and the Arab world, as well as Australia. We also
have developed--as well as developing countries, to emphasize
that.
A third point is really their willingness to accept these
changes. Our free trade agreements have a higher level of
complexity than you get in the normal WTO negotiations, as my
answer to your question on intellectual property succeeded. So,
we need partners that are willing--not just say they want to do
it, but are really willing to undertake these obligations and,
frankly, as we talked about with the Dominican Republic, that
can show us a little record as we move forward. The Dominican
Republic has been strengthening its cooperativeness on this.
We also look to how to give us leverage. So, for example,
with the FTAA, part of the signal is we want to do it with all
34 countries, but if some go slow, we will keep going with
others. Part of it is also in the case of the Southern African
Customs Union. This was a goal established by Mr. Crane and
others as part of the AGOA bill, so it was urged by Congress to
set a model to start to do free trade agreements with Africa.
Frankly, the Caribbean Basin Act did the same thing for Central
America. So, those two had urgings from Congress.
So, it is a balance of that plus resources and willing
partners.
Mr. WELLER. Thank you, Mr. Chairman.
Mr. CRANE. Ms. Jones?
Ms. TUBBS JONES. Thank you, Mr. Chairman.
Good afternoon. This is my first opportunity to make
inquiry of you, and I want to focus in on the steel industry. I
come from the city of Cleveland where steel was the
undergirding of our economy for many, many years. I am
wondering whether or not--and I am a supporter of steel
tariffs, so I recognize to some extent it has an impact on
other people using steel. I view it as an opportunity for the
United States to come up with an overall steel policy, or how
do we engage the steel industry in our country to be able to
support it and at the same time move into the 21st century.
Can you tell me, have you had any thoughts or discussions
about what else do we do to assist the steel industry in this
country from your perspective in addition to tariffs to help
them be successful?
Mr. ZOELLICK. Well, I am glad you asked that because when
we launched the initiative, we actually had a number of prongs,
and one that I haven't referred to today is we have also tried
to deal with some of the issues on the international front.
Both are questions of capacity, but some of the subsidies. We
have made some progress in these discussions in the
Organization of Economic Cooperation and Development on
subsidies practices, and it is my hope that we may be able to
take some ideas of disciplines and integrate them into the Doha
negotiation we are discussing. So, part of it is an
international component.
A second part of it, as the question I think Mr. Becerra
asked, is that it is a question of how you help with the
adjustment, and part of this was done through the Pension
Benefit Guaranty Corporation. There were also some provisions
in the Trade Adjustment Assistance to help.
Then I guess the one other point is that while we wanted to
provide the opportunity, we felt it was important to let the
private sector--and by private sector, I don't just mean
business; unions--come to the conclusions themselves, because
it shouldn't be directed by us. It should be something they
come to. This is an area where particularly in the case of
Cleveland, I am pleased to see the development with ISG. I know
that following on the LTV this has not been an easy course, but
I have talked to both the companies and the steelworkers
involved, and they believe--and from what I have seen--they now
have the basis of a competitive company moving forward.
This is now spreading to Bethlehem, and now the question is
whether some of these same ideas will also spread to National
Steel, because there are now two bidders for National Steel:
U.S. Steel and AK Steel.
So, I guess what we were trying to do, Ms. Tubbs Jones, was
to create a framework and a breathing space for this to happen.
Like you, I believe it is starting to happen. So, therefore, I
hope that we can count this as a success at the end of the day.
Ms. TUBBS JONES. My final question--Mr. Chairman, I thank
you for the time--is what do we do--I heard you mention the
Pension Guaranty board. What do we do--or if this is out of
your bailiwick, then say it is out of your bailiwick in terms
of dealing with the other legacy cost of health care and so
forth. Have you thought about that at all?
Mr. ZOELLICK. It is generally out of my bailiwick, but the
one thing that----
Ms. TUBBS JONES. You have an idea anyway. Go ahead.
Mr. ZOELLICK. Well, it did come up in the process of
passing the Trade Act, and the point that Mr. Becerra
addressed--and the Chairman has looked at some of these in some
other areas, have focused on particular some ways to try to
help on the health care side. Then also I think some of the
work that Mr. Portman and--I am trying to remember who else was
working on this. Mr. Cardin had focused also on some of the
long-term pension issues, too.
Ms. TUBBS JONES. Lastly, I would just ask you, as you are
thinking through this process, to talk about or think about the
impact that all of this has on small businesses operating in
the city of Cleveland and across the country and how we can
assist with that.
I thank you, Mr. Chairman. I yield back the balance of my
time. Thank you for testifying.
Mr. CRANE. Mr. Hulshof?
Mr. HULSHOF. Thank you, Mr. Chairman.
Mr. Ambassador, thanks for your patience. About two and a
half hours ago, the Ranking Member made a point to urge you to
work in a bipartisan fashion, and I certainly share that
thought. That would be the preferred path. Yet to somehow
suggest or insinuate, as I think he did, that a 218-217 vote on
the House floor somehow weakens our credibility abroad, I find
that proposition to be absurd. I think TPA is a good example of
something that was very divisive in the House, and yet a tool
that you have been using aggressively, and I support you on
that.
Another comment I would make with Mr. Matsui taking you to
task for your language of rebuilding America's leadership on
trade, without making derogatory comments about your
predecessor, Ms. Barshefsky worked well and we worked with her
on this Committee. Yet I do commend you on your strong stance
regarding agriculture. A former Member of this Committee, Mr.
Wes Watkins of Oklahoma, and I were the ones, in fact, who
worked to put a chief ag negotiator within your office. So, I
want to commend you on the progress you have made.
Having said that now, let me ask you about progress on
biotechnology and phytosanitary guidelines. Again, each one of
us has interesting issues that we bring to you, and this is one
that you and I have talked about before, not only because corn
and soybeans are a big part of my district, but because the
University of Missouri in Columbia is a premier biotechnology
institution, making some great strides in life sciences. I am
increasingly troubled by the efforts of some of our trading
partners to use biotechnology that has been scientifically
proven to be safe as an excuse to block access of our American
products abroad.
No one wants an all-out trade war, and yet I am here to
tell you publicly that I would support a formal complaint
against the European Union or other trading partners because of
their reluctance.
So, a general question and then a specific one, the
specific one first, perhaps. Were you able to get any sort of
commitment from China as far as a final safety approval on our
U.S. soybeans exported to China? Then the more broad question:
What is the latest on biotechnology and phytosanitary
guidelines? I will yield you the balance of my time to respond.
Mr. ZOELLICK. On the first one, I got a positive response
from the Chinese, and I raised the issue with both When Jiabao,
who is the incoming Prime Minister, and also with my trade
counterpart, and this is an issue, as you probably know, that
the President raised with Jiang Zemin. What that means now, as
you undoubtedly know, is that the Ministry of Agriculture said
we need to do additional field tests. Therefore, the temporary
permit system that runs through September, we are worried about
whether that is extended or we address the issue in time so
that there is not uncertainty. I pointed out, since I am from
Illinois where soybeans are grown, that it takes time to grow
the crop and you need some certainty as you move forward.
In those meetings, again, I got a sense that the problem
would be solved, but I never pocket it until I see it. As we
followed up--my staff followed up as I went on to other parts
of China--they affirmed that sense. So, we have got more work
to do, but I come away with a positive sense on that one.
Not so in the European context, and my views on this
subject are very clear. I will take some note that I was
pleased that the French Academies of Science and Medicine also
supported the use of biotech and thought the moratorium should
be lifted.
Here is where I think we stand on this: There is a united
sense that this is a moratorium that has been in place for four
years. It violates the WTO rules. It violates the EU's own
rules.
My concern about this, frankly, increased even more when I
saw not just its effect in Europe, but its effect of spreading
around the world, in Africa in the most poignant case. You can
see it in all different markets. It is being used as an excuse
for protectionism in some cases, and in some it is just ill-
informed fear.
I adamantly believe that this development is important for
issues of nutrition and health and environment and productivity
for farming. Therefore, my sense is that we are agreed about
the need to get the moratorium lifted. Right now we are working
with other countries in terms of determining the best way to
proceed. That has to be part of the strategy, which is that
this is not just a question of bringing a legal case or not. We
need to bring a public case, because we have to make the
argument--and, frankly, this is some of the things that I have
been spending my time doing--with scientists and others to
explain that we are not forcing something on somebody. This is
a tremendous opportunity for the world. One positive sign that
I got after my earlier comments was I read a report of African
scientists in Brussels that were saying the United States
should bring a case; this is a terrible thing that Europe is
doing to Africa. As I was coming back from China, there was a
meeting of Asia Pacific Economic Cooperation countries in
Thailand talking about biotech.
So, part of what I think we have to do here, frankly, is we
have got to reverse the momentum, and my view is that at the
appropriate point, legal action should be part of that if the
Europeans don't change. We also have to win the public debate.
Mr. CRANE. Mr. Pomeroy?
Mr. POMEROY. Thank you, Mr. Chairman. Mr. Ambassador, it is
a pleasure to listen to you. You carry around more darn detail
than I think any other official in Government who I have heard
testify here, and I really admire that.
Continuing with the questions of my colleague on
agriculture matters in trade discussions, we very much
appreciate the action brought by the USTR against the Canadian
Wheat Board. If I understand, part of the process involves
consultation between the governments so that indeed the first
formal consultation has been held. Would you bring us up to
date?
Mr. ZOELLICK. You are right, Mr. Pomeroy. As you and I
discussed, there are different elements of this, and one
element is bringing the WTO case. We are in the consultation
phase. We posed various questions. We are to get this
information back from Canada. If the issue isn't resolved to
our satisfaction, then we are free to go on to the next stage
in the WTO process in terms of bringing the case.
In addition, knowing of your interest in this, I thought
you would be pleased that this paper that we referred to, the
Harbinson paper, also took up this issue of State trading
enterprises and monopolies. While it is, again, a draft paper
the European Union hasn't agreed to, it shows another element
of our strategy, which is it incorporated a number of the
arguments that we said we wanted to make about the problems of
State trading enterprises and using the Canadian case as an
example.
Then the third element is that we talked about filing of, I
think it was, a countervailing duty or antidumping case, and
that is also proceeding.
Mr. POMEROY. So, the discussions to date--I have been
amazed at how intransigent they have been, for example, keeping
their books closed. Any headway that you care to illuminate at
this time, or is it really at a point in the discussions where
this may not be strategically beneficial to discuss in this
forum?
Mr. ZOELLICK. There is some discussion in Canada, as you
are probably aware, in the Wheat Board itself, and there were
some elections that this debate came up. So, I think we have
stirred a little debate in Canada. I don't want to mislead you
in terms of their willingness to change absent the pressure I
think we need to put on them.
Mr. POMEROY. Great. Now, as we proceed with Australia, what
about the Australian Wheat Board?
Mr. ZOELLICK. Well, in the letter that we sent to Congress
putting out our objectives, we included that State trading
enterprises part of it. It is my understanding--but we can get
back to you--that the Australian enterprise has changed a lot
of its practices. It doesn't operate in the same way as the
Canadian Wheat Board in terms of it gives private sector the
ability to go outside it. So, some of the concerns we have had
in Canada do not apply to Australia. I do know we flagged it as
an issue that we want to discuss in the negotiations.
In addition, what you and a number have also raised is in
the case of Australia we are also trying to focus on a lot of
the sanitary and phytosanitary issues. We have made some
initial headway on that, and that is going in parallel in the
negotiations.
Mr. POMEROY. Sugar--what is the state of sugar discussions
with Mexico?
Mr. ZOELLICK. We made some progress with the Mexicans about
trying to arrange a balance here with our sweetener interests,
because we have got cane sugar, beet sugar, but we also have
high-fructose corn syrup that is being disadvantaged by now a
discriminatory tax.
We are not there yet, and, part of this is that we have got
some balance on our own side in terms of the sweetener
interests, which are slightly on different sides of the issue.
One of the questions also would be sort of the term of this
agreement and how it fits into the present arrangements,
because, as you probably know, one of the dangers here is the
tier two aspect of prices can start to kick in before long, and
so you are going to have an aspect of Mexican sugar that could
come in under tier two, even though we haven't--the tier one
issue was never subject to dispute settlement.
So, I would like to try to get this done. It is one that Al
Johnson and I are continuing to try to work on. We have had a
little bit of a throw-off in that my counterpart in Mexico, who
was the Economic Minister, just became the Foreign Minister,
but he is trying to keep the trade portfolio with him. So, I
hope to follow up with him, if possible, even this week.
Mr. POMEROY. I believe time is really of the essence in
terms of joining the issues and getting something done. I am
very fearful about the future without some agreement relative
to domestic sugar production.
Finally, with agriculture constantly being such a difficult
component of your talks, trade adjustment assistance for
farmers ought to be very helpful, I think, to you in terms of
allaying some of the fears in farm country. The U.S. Department
of Agriculture (USDA) is charged with bringing a package
forward. They were to have had a report early in February.
Nothing yet. I am wondering if you have an information in terms
of USDA's advancing anything particularly relative to trade
adjustment assistance for farmers.
Mr. ZOELLICK. I don't. I remember Chairman Grassley had an
interest in this, too, and since I am going to see him next
week, I will try to check with USDA in the meantime.
Mr. POMEROY. Thank you, Mr. Ambassador. Thank you, Mr.
Chairman.
Mr. CRANE. The time of the gentleman has expired, and, Mr.
Ambassador, I think we have made your deadline. We want to
express appreciation to you for your appearance today, and we
look forward, in a pretty heavy schedule, to working with you
throughout this entire session. So, thank you for being here
today, and all our colleagues.
With that, we stand adjourned.
[Whereupon, at 1:29 p.m., the hearing was adjourned.]
[Questions submitted from Messrs. Rangel, Herger,
Jefferson, and Doggett to Mr. Zoellick, and his responses
follow:]
Question Submitted by Representative Rangel
Various countries have blocked the U.S. efforts to obtain
commitments to liberalize trade in AV services in the WTO. Your office
has had success in liberalizing trade in AV services in bilateral trade
agreements. What is your strategy for moving this important issue
forward in the multilateral arena?
Response:
Considerable controversy surrounded audiovisual (AV) services at
the conclusion of the Uruguay round. Since then, we have worked in
consultation with our industry to create a more receptive environment
in which to negotiate AV and AV-related issues. In addition, in the
current services negotiations, the United States is helping to build a
coalition of developed and developing countries with strong commercial
interests in liberalizing AV services. Such a coalition has the
potential for becoming a force in preventing a de facto carve-out of AV
services in the current negotiations.
The United States is pursuing several avenues in seeking to
liberalize AV services. First, as stated in the U.S. WTO negotiating
objectives paper for AV services, our primary objective is to ensure
``an open and predictable environment that recognizes public concern
for the preservation and promotion of cultural values and identity.''
Consistent with this objective, we have requested that virtually all
countries schedule commitments that reflect their current levels of
market opening. Only in a few instances do we expect to request
countries to remove existing restrictions on AV services.
Ensuring that countries schedule existing regulation of the AV
sector will serve to enhance transparency and preclude extension of
existing regulations to new activities, which are important objectives
given the rapid technological changes taking place in this sector. Such
predictability is also important in a sector where timing is essential
for commercial success. In addition, scheduling commitments in the AV
sector will underscore that GATS disciplines apply to AV services, as
they do to virtually all services.
Second, we are seeking to increase demand for and access to content
by encouraging countries to schedule commitments for transmission
services (i.e., the pipes). As part of this effort, we are leading the
way by offering to make new commitments in the GATS negotiations,
including with respect to cable service.
Third, in WTO accession negotiations, including those with the
Baltic States and China, we have succeeded in obtaining commitments in
areas related to, although not technically part of, AV services, such
as ownership and operation of cinema theaters. While less sensitive
than services considered ``audiovisual,'' such commitments are
nonetheless important to our industry.
Question Submitted by Representative Herger
Ambassador Zoellick, I want to commend you for the ambitious trade
agenda you outlined in your testimony before the Ways and Means
Committee. As you know, open markets are incredibly important to
America's farmers and ranchers, many of whom sell as much as half of
what they produce overseas. In my district in Northern California, we
produce large amounts of rice, almonds, dried plums, and other products
that rely on the elimination of export barriers--both tariff barriers
and non-tariff barriers--in order to successfully export to foreign
markets. I want to commend the Bush Administration and you personally
for your efforts to lower barriers to the sale of our products
overseas. I look forward to working with you and the President on the
host of bilateral and multilateral Free Trade Agreements currently
being negotiated.
I also want to point out that there are sectors of the agriculture
economy--such as the canned fruit industry for example--that have been
forced to deal with extraordinary market distortions as a result of EU
subsidies, and are now also facing an elimination of U.S. tariff
protection against competitive suppliers. Many of us who represent
producers or products that are highly sensitive to import competition
believe it is important that our trade agreements recognize these
products as import-sensitive and treat them appropriately.
Ambassador Zoellick, is this view consistent with your negotiating
objectives and could you please outline how USTR plans to address the
concerns of import-sensitive products in future free trade agreements?
Thank you for your responding to my inquiry.
Response:
With the Administration's support, the Congress appropriately
highlighted in the Trade Act of 2002 (TPA) the need to give special
consideration in trade negotiations to import sensitive agriculture
products. Consistent with TPA, we have identified U.S. import sensitive
products for which the U.S. International Trade Commission prepares
probable economic effect advice prior to negotiations on market access
and on which USTR consults with Congress throughout the negotiating
process. In addition, a key negotiating objective in our multilateral,
regional and bilateral trade negotiations, consistent with TPA, is to
provide reasonable adjustment periods for U.S. import sensitive
products. In the case of the U.S.-Chile FTA, for example, canned fruit
products received the longest protection for phasing out the U.S.
tariff. We will continue to ensure that special consideration is given
to import sensitive agricultural products.
Question Submitted by Representative Jefferson
The duty drawback program is the last remaining export promotion
program that provides our exporters the needed competitive advantage
for competing in the global marketplace against our trading partners
who have significantly lower costs of production, even when we enter
into free trade agreements. Thus, drawback would be phased out on its
own as tariffs are eliminated through the negotiating. Could you please
advise whether one of USTR's negotiating objectives during the
negotiations for the CAFTA, FTAA and future trade agreements, will be
the maintenance of full duty drawback rights for U.S. exporters in each
FTA?
Response:
The United States and other countries have traditionally sought
elimination or curtailment of duty drawback and deferral programs under
free trade area agreements. Under duty drawback programs, duties on
imported inputs are refunded when these inputs are used in a good that
is exported, and duties are deferred when inputs are processed in free
trade zones and then exported. During the NAFTA negotiations, there was
a strong consensus in the United States, including among most Members
of Congress and U.S. labor unions, that failure under the agreement to
curtail Mexico's use of duty drawback and deferral programs would have
an adverse impact on the United States by allowing Mexico to become an
export platform into the United States rather than encouraging North
American economic integration. The original U.S.-Canada FTA also
contained such restrictions.
In an FTA, companies that produce goods in the United States for
sale in the U.S. market cannot benefit from the refund or deferral of
duties on inputs, whereas (absent negotiated restrictions) companies
could get such refunds if they establish in the partner country.
Disciplines on drawback under an FTA are about ensuring an equal
opportunity for domestic input suppliers in each of the countries and
encouraging economic integration between the FTA partners. In addition,
availability of duty drawback and deferral programs for third country
inputs lowers the incentive to source inputs from the FTA partner
country. Finally, with duty drawback and deferral programs in place,
countries' incentives to lower their duties and open their economies
are reduced, to the detriment of their populations. Since the United
States has much lower average duty rates than other countries, our
companies benefit from these programs less than their competitors in
other countries.
Questions Submitted by Representative Doggett
Doggett Request:
1. LAll correspondence from NAFTA investors, their attorneys, or
other representatives regarding an intent to file a claim under NAFTA's
Chapter 11 against the United States, Canada, or Mexico.
Zoellick Response: (check the box as appropriate)
LUSTR has none of these documents.
LUSTR has documents that fulfill this request,
but will not provide them to you because (all/some)
(circle one) are protected by secrecy obligations.
(Please identify the secrecy obligations.)
LUSTR will provide all the requested documents
to you by the following date: ------------------------
(note date, including year).
Zoellick's Response 1:
Response is being made under separate cover.
Doggett Request:
2. LAll documents transmitted with such requests (the notices of
intent to arbitrate).
Zoellick Response:
LUSTR has none of these documents.
LUSTR has documents that fulfill this request,
but will not provide them to you because (all/some)
(circle one) are protected by secrecy obligations.
(Please identify the secrecy obligations.)
LUSTR will provide all the requested documents
to you by the following date: ------------------------
(note date, including year).
Zoellick's Response 2:
LResponse is being made under separate cover.
Doggett Request:
3. LAll notices, regardless of whether arbitration was later
initiated. (Those notices where arbitration was already initiated and
that are already on the Department of State website need not be
included.)
LUSTR has none of these documents.
LUSTR has documents that fulfill this request,
but will not provide them to you because (all/some)
(circle one) are protected by secrecy obligations.
(Please identify the secrecy obligations.)
LUSTR will provide all the requested documents
to you by the following date: ------------------------
(note date, including year).
Zoellick's Response 3:
Response is being made under separate cover.
[For questions 1-3, an attachment is being retained in the Committee
files.]
4. LDetermining the total number of notices of intent to arbitrate
under NAFTA.
(a) LHow many total notices of intent to arbitrate have been
filed under NAFTA Chapter 11?
(b) LIn how many of these cases was arbitration later initiated?
(c) LIf the USTR declines to provide separate numbers for (a)
and (b), how can the USTR claim to be effectively monitoring NAFTA?
Zoellick's Response 4:
(a) LThirty-four Notices of Intent to Arbitrate have been filed
under NAFTA Chapter 11.
(b) L Arbitration was initiated in seventeen times.
5. LOpen trade. In the February 26, 2003 full Ways and Means
Committee hearing you indicated that the public will likely not get 90
days to review the Chile and Singapore Free Trade Agreement before they
are signed by the President, as was done with NAFTA. As you know, the
time for meaningful public review if before the President signs because
once the agreements are signed by the President the terms of the
agreements are locked.
(a) LI will guarantee public review of the U.S.-Chile FTA for:
(check one)
90 days plus 2 weeks as was allowed for
public review of NAFTA
60 days
30 days
Under 30 days
I am not willing to make any guarantee of
public review.
(b) LI will guarantee public review of the U.S.-Singapore FTA
for: (check one)
90 days plus 2 weeks as was allowed for
public review of NAFTA
60 days
30 days
Under 30 days
I am not willing to make any guarantee of
public review.
Zoellick's Response 5:
The proposed U.S.-Singapore FTA was publicly released on March 7.
The proposed U.S.-Chile FTA was publicly released on April 3. These
agreements will be in the public domain for at least 1-2 months before
signature and 3-4 months before Congressional action. As you may be
aware, the U.S.-Jordan FTA was not available to the public until it was
signed.
6. LOn March 31, 2003, only 1 month from now, the U.S. response is
due to EU proposal that could open public services, including municipal
water service and the postal service, to foreign investors.
(a) LHow long have you had EU request?
(b) LI will guarantee public review of the U.S. response for
(check one)
two weeks
one week
I am not willing to make any guarantee of
public review.
Zoellick's Response 6:
The U.S. presented its offer in the WTO services negotiations on
March 31, the date mandated in the Doha Ministerial Declaration. The
offer was made public and posted on USTR's website that same day.
We have rejected any request by the EU or others to privatize
public services. As I stated in October 2002, trade agreements are not
the appropriate vehicles to pursue privatization in the United States.
It is the responsibility of the Congress and other relevant Federal and
sub-federal authorities to make determinations about any new
privatization in the United States. In addition, in the ongoing GATS
negotiations, we have not requested that our trading partners privatize
any service sectors.
With respect to municipal water supply, the offer specifically
excludes water for human use. With respect to postal services, the U.S.
offer applies only to services open to private sector participants
(``express delivery services'') and does not give foreign service
suppliers the right to acquire or invest in government monopolies
supplying services. Specifically, the offer proposes no commitments in
the monopoly area of the U.S. Postal Service and would in no way
privatize any aspect of U.S. traditional postal activity.
In preparing the offer, we conducted extensive consultations
mandated by the Congress through trade advisory groups representing
business, labor, environmental, and sub-federal interests. Moreover,
because services often are regulated at the sub-federal level in the
United States, we went beyond our statutory requirements and
communicated directly with a wide array of sub-federal level officials
to make them aware of requests we have received and to solicit their
views. In January, we sent to all 50 states plus a number of elected
officials and associations of state, county, and municipal governments
a package of materials summarizing all requests, including the EU
request, received as of that date that implicated state-level laws and
regulations.
We did not ask states to change their laws; we conveyed the
requests and asked states to let us know if they had removed
(liberalized) any laws or regulations for which we had listed GATS
limitations on their behalf in earlier WTO negotiations. In those
cases, we asked for their concurrence to include that liberalization in
our offer. We have prepared our GATS offer based on states' responses.
Where responses have not yet been received, we have not acted.
7. When will the USTR release to the public the U.S. position on
investor-protection provisions that will be on the WTO agenda for
Cancun?
USTR's Response 7:
The United States has not yet offered an investment negotiating
proposal for the Cancun Ministerial. The Administration plans to
consult further with Congress, with domestic stakeholders, and with key
WTO members before developing and presenting a negotiating proposal.
During the Doha Ministerial, WTO members agreed that negotiations
on investment would begin after the next ministerial. The Doha
Ministerial Declaration also asked the WTO Working Group on Trade and
Investment (WGTI) to examine seven issues in the period between the
ministerials. These issues include the scope and definition of
investment; transparency; non-discrimination; modalities for pre-
establishment commitments based on a GATS-type, positive list approach;
development provisions; exceptions and balance-of-payments safeguards;
and consultation and the settlement of disputes between members.
Several countries have presented papers to assist exploration of
these seven issued in the WGTI. The United States has submitted only
one formal paper. The United States took the position that investor
protections should cover portfolio as well as direct investment.
8. I understand that in response to a recent lawsuit under the
Freedom of Information Act where the court ruled that USTR release
certain documents from the U.S.-Chile negotiations, your office is now
considering a move to classify such documents in the future in order to
thwart the public's right to view them.
(a) LCan you confirm that this is true?
(b) LIf this is true, what documents are you considering
classifying?
(c) LPlease provide any USTR guidelines regarding when public
access to documents should be barred by classifying them.
Zoellick's Response 8:
USTR's policy is to achieve the greatest possible degree of
transparency in our trade negotiations while optimizing our ability to
strike the best possible deals in America's trade interests. As I am
sure you can appreciate, in order to achieve the most favorable results
for America's workers, farmers, and firms in our trade negotiations, we
need to be able to provide our trading partners with assurance that
they can exchange views and proposals with us in confidence.
For that reason, it is longstanding USTR practice to maintain the
confidentiality of trade negotiating texts. As you may know, the
Freedom of Information Act provides that the government may keep
confidential a wide range of government records, including agency
deliberative records. In a recent lawsuit, a Federal court ruled that
the negotiating texts we exchanged with Chile could not be considered
agency deliberative records. However, the court also upheld the
longstanding principle that classified documents can be kept
confidential, and specifically affirmed USTR's classification of
documents related to our negotiations with Chile.
The Executive Order governing national security information
specifically contemplates that information sent to or received from
foreign governments on a confidential basis may be classified. We have
included with this response a copy of the Executive Order, and have
noted the portion relating to ``foreign government information,'' for
your convenience. Pursuant to the Executive Order, USTR classifies
negotiating texts on the basis that they contain ``foreign government
information,'' when it is our expectation and that of our trading
partners that the texts will be kept confidential.
At the same time, to achieve the greatest possible degree of
transparency concerning our trade negotiations, USTR routinely makes
available to the public summaries of our negotiating positions in every
area of the negotiation. In addition, as the negotiations progress we
consult with the Ways and Means Committee, other Congressional
Committees of jurisdiction, the Congressional Oversight Group, the more
than 700 members of our official trade advisory committees, and a broad
spectrum of groups from the NGO and business communities. These
consultations are precisely what Congress called for in last year's TPA
legislation.
9. Government Procurement. Would a U.S. law disqualifying a bid on
a government procurement contract solely because the good was
manufactured with child labor violate any existing trade agreement to
which the U.S. is a signatory? Assume that foreign company bidders
would be excluded from bidding if their goods were manufactured with
child labor.
Zoellick's Response 9:
The main international agreement relating to government procurement
in the United States is the WTO Agreement on Government Procurement
(``the GPA''). Not all WTO members are Parties to the GPA. The GPA is
binding only on WTO members that are Parties.
Outside of the GPA, WTO rules expressly carve out government
procurement. Thus, basic WTO principles, such as most-favored-nation
treatment and national treatment, do not apply to government
procurement, unless covered by the GPA.
The GPA (Article III:1) commits Parties to ``provide immediately
and unconditionally to the products, services and suppliers of other
Parties offering products or services of the Parties, treatment no less
favorable than: (a) that accorded to domestic products, services and
suppliers; and (b) that accorded to products, services and suppliers of
any other Party.''
A law that prohibits a supplier of a GPA Party from bidding on a
U.S. contract, based on the process by which the goods it proposes to
supply were manufactured, could be interpreted as a violation of GPA
Article III:1. That is because products of a GPA Party would be treated
less favorably than like products of other GPA Parties or like products
of domestic manufacturers. For this purpose, products would be compared
based on their physical characteristics, not based on the processes by
which they were manufactured.
It is conceivable that the process by which a good is manufactured
would be relevant to an analysis under Article XXIII:2 of the GPA. That
provision is similar to GATT Article XX. Under certain specified
conditions, it permits a GPA Party to impose or enforce measures
``necessary to protect public morals, order or safety, human, animal or
plant life or health or intellectual property; or relating to the
products or services of handicapped persons, of philanthropic
institutions or of prison labour.''
It might be argued that a prohibition on procurement of goods
manufactured by child labor is designed to protect human life or health
(i.e., the life or health of the children in the Parties where the
goods are manufactured). However, Article XXIII:2 probably would be
interpreted as referring the life or health of humans in the Party that
is doing the procuring.
Provisions similar to the foregoing GPA provisions are contained in
Chapter 10 of NAFTA, as well as in proposed FTAs with Singapore and
Chile.
10. Would such a child labor law violate any proposed agreements,
including under (a) the FTAA, and (b) WTO?
Zoellick's Response 10:
As noted in the response to question # 9, disciplines similar to
GPA disciplines are contained in proposed FTAs with Singapore and
Chile. In fact, Singapore is already a Party to the GPA. Thus, the FTA
simply incorporates by reference disciplines that already apply between
the U.S. and Singapore under the GPA. The U.S. is likely to seek
similar disciplines in other FTAs, including the FTAA.
Regarding the WTO, please see the response to question 9. It should
be noted that, under a mandate contained in the GPA itself, that
agreement is being revised for greater clarity. The basic disciplines
described above are likely to be preserved.
11. Investment provisions in Chile and Singapore FTAs. In your
written testimony to the Ways and Means Committee, your comments
concerning investment provisions in trade agreements did fully and
completely address the congressional mandate in the Trade Act of 2002
that investment rules must not grant foreign investors greater
substantive rights that U.S. investors are afforded under U.S. law.
(a) LPlease explain for each agreement how you ``clarified the
obligations on expropriation'' and ``fair and equitable'' treatment.
Zoellick's Response 11(a):
The expropriation provisions in the Chile and Singapore FTAs
contain several innovations to comply with the objectives set forth in
the Trade Act of 2002:
Only Direct and Indirect Expropriations Covered, Not Measures
``Tantamount'' to Expropriation: Some litigants in NAFTA cases have
claimed that NAFTA's expropriation provision covers (1) direct takings;
(2) indirect takings; and (3) a new category of measures ``tantamount''
to expropriation. The Chile and Singapore FTAs eliminate this confusion
and clearly state that only direct takings and indirect takings (i.e.,
measures ``equivalent'' to direct takings) are covered. This is
consistent with U.S. law and the traditional bilateral investment
treaty expropriation provision, which has not been controversial.
Scope of Coverage: Consistent with U.S. takings and due process
protections, the Chile and Singapore FTAs clarify that only property
rights or property interests in an investment are entitled to
expropriation protection. This provision addresses the concern that
panels may define certain economic interests that are not ``property,''
e.g., market share, as an investment that can be expropriated. This
provision is not in NAFTA.
Regulatory Authority: The Chile and Singapore FTAs clarify that
nondiscriminatory regulatory actions designed and applied to protect
the public welfare generally do not constitute indirect expropriations.
This is consistent with U.S. law. This clarification is not in NAFTA.
Penn Central Factors for Indirect Expropriations: The Chile and
Singapore FTAs state that, in determining whether an indirect (i.e.,
regulatory) expropriation has occurred, panels must examine the factors
cited by the U.S. Supreme Court in Penn Central, the seminal U.S.
Supreme Court case on regulatory expropriation. Further drawing on Penn
Central, the provision instructs the panel that the determination of
whether an expropriation has occurred requires a case-by-case, fact-
based inquiry. This provision is not in NAFTA.
The fair and equitable treatment provisions in the Chile and
Singapore FTAs also contain several innovations to comply with the
objectives set forth in the Trade Act of 2002:
Minimum Standard: In line with the NAFTA clarification, the Chile
and Singapore FTAs make it clear that the general treatment protection
prescribes ``the minimum standard of treatment'' under customary
international law. The FTAs further clarify that this standard includes
all customary international law principles that protect the economic
rights and interests of aliens. This clarification ensures that the
decisions of arbitration panels are rooted in international law
principles that the United States has advocated and adhered to for
decades, and are not based on subjective determinations of the
arbitrators. This clarification is not in NAFTA.
Due Process: The Trade Act of 2002 requires the Administration to
seek to establish ``due process'' standards consistent with U.S. law.
The Chile and Singapore FTAs define fair and equitable treatment to
include the obligation not to ``deny justice'' in criminal, civil, or
administrative adjudicatory proceedings in accordance with ``due
process'' protections provided in the principal legal systems of the
world. The due process protections in U.S. law are consistent with this
standard. This provision does not appear in NAFTA.
Define Customary International Law: The Chile and Singapore FTAs
include a statement of the FTA parties' understanding that customary
international law must be rooted in the practice of nation-states that
they follow from a sense of legal obligation, and is not subjectively
determined by the panel. Like the clarification of the minimum standard
of treatment, this clarification ensures that the decisions of
arbitration panels are rooted in international law principles that the
United States has advocated and adhered to for decades, and are not
based on subjective determinations of the arbitrators. This provision
does not appear in NAFTA.
(b) LDoes this ``clarification'' differ in any way from the
obligations under Chapter 11 of NAFTA?
Response 11(b):
See answer to 11(a).
(c) LDo the agreements include the recognition by a majority of
Supreme Court justices that a regulatory action requiring the payment
or expenditure of money cannot constitute a taking? See Eastern
Enterprises v. Apfel, 524 U.S. 498 (1998), as confirmed in Commonwealth
Edison Co. v. United States, 271 F.3d 1327 (Fed. Cir. 2001) (en banc),
cert. denied (2002).
Response 11(c):
The Chile and Singapore FTAs reflect an understanding that
determining when a person should be compensated for adverse
consequences flowing from regulatory action is inherently a case-by-
case, fact-bound inquiry. That understanding is consistent with
principles of U.S. law as articulated by the U.S. Supreme Court,
including in the Eastern Enterprises case. The Court, in this case and
others, has shunned absolute, bright-line tests on this subject.
Certain guiding principles on the question of compensation for
regulatory action can be drawn from U.S. cases. Consistent with the
objectives of the Trade Act of 2002, those principles have been
incorporated into the Chile and Singapore FTAs. Thus, the FTAs direct
arbitration panels to refer to those principles in determining whether
a foreign investor is entitled to compensation by a host government.
12. LTobacco.
(a) LPlease provide a list of all tobacco-trade matters since
July 2002 that have involved your office.
(b) LPlease provide a list of all foreign governments in the
above list.
(c) LPlease provide a summary of the dispute involved for all
the items in the above list.
(d) LPlease confirm or deny that USTR consulted with any Federal
agency regarding whether the policy would adversely affect public
health.
(e) LPlease provide me with a copy of the Federal agencies'
recommendation regarding the effect on public health.
Zoellick's Response 12:
USTR's Office of Congressional Affairs will respond in writing to
this request.
[For question 12, attachments are being retained in the Committee
files.]
[Submissions for the record follow:]
American Drawback Service, LLC
Englewood Cliffs, New Jersey 07632
Dear Sir or Madam,
I wish to comment on any restrictions to drawback in free trade
agreements. I am a licensed customs broker and the president of the
American Drawback Service, LLC. I am also retired from U.S. Customs. I
believe my viewpoint comes from a background of practical experience.
It is now the common view of those involved with the NAFTA
agreement that is poorly conceived, drafted, and implemented from an
operational perspective. It is ineffective and cumbersome from the
government view and actually keeps companies from taking full advantage
because of its complexity. It actually seems to do more harm than good.
Using that as basis for the future is a terrible idea, which should not
be supported.
I assure you allowing full drawback possibilities for shipments
around the world regardless of any trade agreements only helps
producers and exporters. This is historically accurate and especially
important in these downturn periods. It is my direct experience with
clients that Americans continue to have jobs with the refunds generated
who would otherwise be unemployed. This is the historical benefit and
it is especially true now. You should be looking to expand the
possibilities, not diminish them. That would be the height of
counterproductive and absolutely not the congressional intent.
Furthermore, drawback is not a subsidy and has never been
considered that since the First Continental Congress. It is fully
sanctioned by the GATT/WTO and does not initiate countervailing duty
actions by any trading partners. In my view, anyone who considers it a
subsidy is simply not well informed. In fact, our companies would be at
a disadvantage to foreign competitors without it.
Very truly yours,
Tom Ferramosca
President
Statement of American Textile Manufacturers Institute
This statement is submitted by the American Textile Manufacturers
Institute (ATMI), the national trade association for the domestic
textile mill products industry. ATMI welcomes the opportunity to offer
the following comments on the Administration's trade agenda since
international trade is the single most important variable affecting the
domestic textile industry's well-being and future.
Since the rise in the value of the dollar began in 1997,
particularly against those countries that control or manipulate their
currencies, the U.S. textile industry has undergone its most wrenching
period of economic distress since the Great Depression. This has
included:
LThe closing of over more than 250 textile mills during
just the last five years
LThe loss of over 196,000 jobs during the same period of
time
LThe economic devastation of entire communities, most
located in the Southeastern states, but in Mid-Atlantic and New England
states as well.
None of this is the result of the industry's failure to exercise
good corporate stewardship. The American textile industry is the most
modern, productive and efficient in the world. It is also one of the
most forward-looking and export-oriented. From 1990 to 1997, U.S.
textile exports increased faster than almost every other country's--
indeed, they increased at such a rate that the U.S. textile industry
now ranks sixth among world exporters.
This growth was not accidental. Over the past two decades, the U.S.
textile industry has worked within the framework of government trade
policies that have directly encouraged the development of preferential
trading areas for textiles and apparel within the Western Hemisphere.
The industry supported the 807A program with the Caribbean, the Special
Regime Program with Mexico and the NAFTA agreement. Over this time
period, the industry also spent billions of dollars to modernize and
improve its U.S. plants and equipment in order to integrate the U.S.
textile industry into a new Western Hemispheric framework.
As such, the industry fulfilled its portion of the bargain--to
provide quality textiles at a competitive price to growing apparel
sectors in the Western Hemisphere. Between the late 1980s and late
1990s, trade in textiles and apparel between the United States and its
immediate neighbors skyrocketed as textile exports from the United
States topped $12 billion and apparel imports from Mexico and the CBI
more than tripled in size. In 1996-97, the U.S. textile industry
recorded two of the best years in its history.
U.S. Textile Crisis
However, since 1997, when Asian currencies collapsed and sent a
shockwave of artificially low-priced textile and apparel products into
the U.S. market, the competitive premise that the U.S. preferential
trade areas were founded on has been severely shaken. With Asian prices
for textile and apparel products dropping as much as 25% over the past
five years and Asian imports more than doubling, U.S. textile
manufacturers and workers have suffered extraordinary distress.
The Asian currency problem has been greatly exacerbated by anti-
competitive currency practices by major Asian exporting nations,
particularly China, Taiwan, India and Korea. These countries, which
accounted for $17 billion in textile and apparel exports last year,
have illegally manipulated their currencies to gain an artificial
export advantage. They have done so by stockpiling enormous amounts of
U.S. dollars--over $500 billion since 1997--and thus flooding world
markets with their own currencies, dramatically depressing their value
and gaining an unfair advantage over U.S. domestic manufacturers.
In the case of China, a study by the Manufacturing Alliance\1\
concluded that China's currency was 40% undervalued. Other estimates
regarding China have ranged from 15% to 50% while the other Asian
countries are put in the 20% range. In any case, with U.S.
manufacturing's return on sales running at 4% and U.S. textile's return
even lower at around 2%, these currency schemes have put over one
hundred thousand U.S. textiles workers out of their jobs over the past
several years.
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\1\ For a copy of a report go to: http://www.mapi.net/html/
prelease.cfm?release_id=393
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ATMI notes that such activities are not only anti-competitive but
they are in violation of the World Trade Organization and International
Monetary Fund rules. Further, and just as importantly, they are also in
direct contravention of President Bush's own stated policy that
markets, not governments, should determine currency exchange rates.
Commitments of Assistance by the Bush Administration
Since the textile crisis began, the Bush Administration has made a
number of important commitments regarding the industry. On March 28th,
2002, President Bush said that ``minimizing the impact of future trade
deals on the domestic textile industry was at the top of the
Administration's agenda.''
On January 2, 2002, Commerce Secretary Don Evans said that the
government ``understands that this industry is a cornerstone of the
American manufacturing industry'' and reiterated that ``these aren't
just words. You'll see through our deeds and works that we will
deliver.''
On January 26, 2002, Secretary Evans stressed that ``I don't
believe there is a level playing field for the textile industry in
America, and we want to help fix that.'' He promised that the industry
``will now get results from the federal government.''
On February 4, 2002, Commerce Undersecretary Grant Aldonas
reiterated the Administration's firm commitment ``to ensure that our
textile and apparel industries can compete in global markets.''
The domestic textile industry has been heartened by the many public
statements of support by the Bush Administration. These statements have
reassured the industry during this time of unprecedented distress that
the U.S. government understands the industry's turmoil and is willing
to help.
To date, the Administration has acted to support the U.S. textile
industry on a number of key issues, including: insisting on a yarn-
forward rule of origin for free trade agreements; refusing to
accelerate the phase-out of textile quotas; and not using the industry
as a bargaining chip in the war on terrorism. These actions are
important in assisting the U.S. textile industry during its time of
need and the industry is grateful.
However, in other areas that have an even greater impact on the
industry's long-term competitiveness, not to say its very survival,
government actions to date have been more disappointing. In particular,
the government's tariff proposal for textiles under the Doha Round, its
refusal thus far to act against Asian currency manipulators
(particularly China), and its long delay in reacting to ATMI's request
to utilize the China textile safeguard provision all pose issues of
survivability for the entire industry and make strategic business
planning difficult, if not impossible.
ATMI looks forward to working with the Bush Administration and
Congress on all of these issues in order to ensure that the U.S.
government keeps its commitments to minimize the impact of trade
agreements on the domestic textile industry, to level the unfair
international playing field and to ensure that the U.S. textile
industry can compete in global markets.
Doha Textile Tariff Offer
The textile tariff offer made by the U.S. government in the Doha
Round of world trade talks has caused enormous concern in the domestic
textile industry. Simply put, the proposal to bring U.S. textile and
apparel tariffs to zero over a ten year phase-in period would eliminate
the textile industry as a major manufacturing entity in the United
States.
As a corollary, it would also hand over the enormous U.S. textile
and apparel market to China and devastate the enormous apparel
industries that have been built up in Mexico, Central and Latin America
under preferential trade programs and partnership arrangements that the
United States has actively promoted for almost twenty years. It would
also devastate the rapidly growing African apparel industry, which also
depends on tariff preferences to remain a viable exporter to the United
States.
Thus, while the tariff proposal appears to require genuine
reciprocity from exporting countries, by removing all tariffs on
imported products as well as all preferential tariff benefits for
Canada, Mexico, Central and Latin America and Sub-Saharan African
countries, the proposal also literally sentences textile and apparel
manufacturers in those countries to extinction. Reciprocity is of no
benefit if your factory has gone out of business and you have been
forced to lay off all your workers.
For those who study textile and apparel trade, there is little
question that if this proposal becomes a reality, China, which is
already by far the world's largest textile and apparel producer, would
gain control of the world's largest consuming market for textiles and
apparel. In developed country markets such as Japan and Australia,
where duties are currently close to zero and there is no quota
protection, China already controls more than 75% of the import market
for textiles and apparel. No country, no matter how low its wage
rates--not Bangladesh, India, Vietnam or Pakistan--has been able to
compete with China at the scale and range of textile goods that China
produces.
Closer to home, in textile and apparel product categories recently
decontrolled from quota, China has quickly moved to gain the lion's
share of trade. Of the five categories of products\2\ in which China
has caused serious damage to U.S. textile manufacturers, in just twelve
months time, China has soared to a level of market share now twice as
large as its next largest competitor. China has accomplished this while
competing head-to-head with some of the largest exporting countries in
the world, such as Thailand, Malaysia, India, Pakistan and Indonesia.
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\2\ Brassieres, dressing gowns, gloves, knit fabric and luggage.
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None of this should come as a great surprise. A United States
International Trade Commission study on the impact of the Uruguay Round
in 1994 concluded that, even with paying full tariffs, once China's
quotas were removed it would quickly trounce much of its competition.
Other studies--by Nathan Associates, by the United Nations, and by
China itself--have come to the same conclusion.
Thus, if China is a severe threat under a full duty regime, how
much greater a threat will China be if it gets zero duties? As a start,
such an occurrence would take away the advantages we have given to the
preferential trade countries of Mexico, Central America and the
Caribbean, the Andean, Israel and Jordan and those of Sub-Saharan
Africa, and instead put them on an equal footing with the world's
greatest textile and apparel power. As mentioned earlier, none of these
countries--or in fact any country--has been able to compete with China
when duties are reduced to very low levels.
Given the cool reception in Geneva since November to the U.S.
textile proposal, ATMI hopes to work with the Administration to craft a
new proposal that fulfills the President's commitment to minimize the
impact of future trade agreements on the domestic textile industry. In
this context, ATMI has suggested to the U.S. government that other
countries should first reduce their tariffs to U.S. textile tariff
levels before proceeding to a sectoral negotiation on individual tariff
rates. In addition, countries would be required to remove all their
non-tariff barriers with two years.
A sectoral approach would also permit the consideration of such
issues as WTO rules and disciplines on intellectual property for
textile designs and copyrights, and enforcement of prohibitions against
duty evasion and other customs fraud. These issues will not be
negotiated elsewhere in the WTO and only a sectoral approach will
permit them to be considered.
ATMI's approach has the benefit of enabling countries with
preferential access to remain competitive, and it addresses existing
inequities in market access while meeting the U.S. government's
commitment `` to ensure that our textile and apparel industries can
compete in global markets.''
China and Other Asian Currency Manipulators
A key, if not the key, component in the economic distress
experienced by the domestic industry, has been the sustained
depreciation of Asian currencies against the U.S. dollar. This decline
in currency values, which has averaged 40% over the past five years,
has allowed Asians to drop their export prices by as much as 25% and
caused an enormous surge in imports from Asia. The end result has been
the closure of over 150 textile plants in the United States and the
loss of over 100,000 textile jobs in just the last two years.
While other currencies--notably the euro--have strengthened
recently against the dollar, the Chinese yuan, the Korean won and the
Taiwan dollar have remained dramatically undervalued. All three of
these major exporting countries manipulate their currencies to gain an
anti-competitive advantage over U.S. manufacturers. These countries
have compiled over $500 billion in foreign reserves over the past five
years; China, which pegs its currency at 8.26 yuan/$1, has accumulated
almost $275 billion and is adding to its cache at the rate of $6
billion per month.
The effect of these reserve accumulations is to make U.S. dollars
scarce vis a vis these Asian currencies, thus driving down the value of
Asian currency vis a vis the dollar. The end result has been record
imports from those countries of manufactured goods at artificially
depressed prices. Chinese exports of all goods to the U.S. jumped 20%
last year with China, at $102 billion, surpassing Japan as the single
biggest slice of the U.S. trade deficit. According to the MAPI study
mentioned earlier, China benefits by getting a 40% subsidy on the goods
its exports from its undervalued currency. And as shown earlier, this
outright subsidy becomes the basis for making China literally
unbeatable in world textile and apparel markets.
ATMI, as well as the National Association of Manufacturers, among
others, has pressed the United States government to take action against
these anti-competitive currency practices. ATMI has noted that these
activities are in violation of both the WTO and the International
Monetary Fund rules as well as in direct contravention of the
President's own stated policy that governments should not intervene in
currency markets. However, there has been no attempt by the Treasury
Department, the Commerce Department or the United States Trade
Representative's Office to confront this behavior, which has been so
costly in terms of U.S. jobs.
A comprehensive, effective trade policy must react to currency
manipulation, particularly to the extreme degree it is being practiced
today by major trading partners. When currencies trump the effects of
tariffs by multiples of degrees, then trade policy must recognize and
confront the fact of manipulation. Indeed, while Ambassador Zoellick is
now required by law to take currency movements into account when
negotiating agreements under the Trade Promotion Authority provisions
of the Trade Act of 2002, we have not yet seen any actions by our
government to address the inequity that exists. ATMI continues to urge
that the government take on, as a high priority, the elimination of
illegal currency manipulation to gain export advantage. Until this
manipulation is stopped, it will be impossible to assert that a level
playing field exists for U.S. textile companies (or for many other U.S.
industries).
Special China Textile Safeguard
The special China textile safeguard was agreed to by China as part
of its WTO accession package and was designed to protect domestic
textile manufacturers from surges in imports from China once quotas
were removed. However, over the past twelve months, imports of
decontrolled Chinese goods have increased at the fastest rate in
history--a 600 percent increase--and yet the U.S. government has thus
far refused to invoke the China textile safeguard.
This lack of response comes at a time when U.S. textile mills are
still closing, U.S. textile jobs are still being lost and the U.S.
textile industry is still under great distress. It is occurring when
China, in the space of single year, has overtaken Mexico and Canada to
become far and away the biggest exporter of textile and apparel
products to the United States.
It is difficult to conceive of a more direct, clear, and specific
instance of the need for the U.S. government to act to ``minimize the
impact of trade agreements on the domestic industry''--yet, despite
repeated pleas on behalf of the American textile industry for the
government to fulfill its commitment, the China textile safeguard
remains unused.
Industry Outlook Uncertain
Because of this triad of issues--the need for the government to
work with ATMI to modify the U.S. tariff proposal, the government's
failure to react against blatant and illegal currency manipulation by
leading Asian exporting nations and, finally, the government's failure
to utilize the very tools that it negotiated in the China WTO accession
agreement--the American textile industry remains concerned about its
long term outlook. Indeed, while the government is to be praised for
the positive actions mentioned earlier, ATMI is worried that these
benefits could be entirely washed away by a flood of duty-free,
currency-depressed imports from China if they are not restrained by use
of the textile safeguard.
Implementation of Chile and Singapore Free Trade Agreements
Regarding the Chile and Singapore Free Trade Agreements, the
potential benefits to the domestic textile industry are welcome, but
are likely to be small. The purchasing power of both countries is less
than that of New York City. Furthermore, since Singapore lies at the
crossroads of the various large, export-oriented Asian economies--
China, South Korea, Taiwan, Indonesia, etc.--it is doubtful that the
United States will develop significant sales opportunities in
Singapore. For the record, U.S. exports of textile products to
Singapore and Chile last year were $41 million and $23 million,
respectively. Nonetheless, U.S. textile companies will work to take
advantage of the agreements' yarn-forward rule of origin and will seek
customers in both markets.
Future Trade Agreements
As models for future free trade agreements, ATMI supports the
inclusion of the NAFTA yarn-forward rule of origin. This rule, which is
not only in the NAFTA agreement but also exists with respect to the CBI
and Andean preferential trade areas, ensures that free trade agreements
benefit manufacturers in the participating countries or region, rather
than third country manufacturers. ATMI has consistently opposed the
incorporation in free trade agreements of relatively (to the trade)
large exceptions to the rule of origin in the form of tariff preference
levels (TPLs), and has urged the government not to include these in
future agreements. ATMI believes that a short supply provision
adequately provides the flexibility needed to address inputs
unavailable within any free trade region.
ATMI notes with concern that the U.S. government has failed to
include a ``kick-out'' clause in free trade agreements already
negotiated. Such a clause would permit the United States to withdraw
tariff benefits if a country did not adequately enforce its textile
rule of origin. Currently, there is no means to force a country to
actually enforce its textile rule or other agreed upon measures. This
has been a long-standing problem regarding quota agreements and is a
particular concern regarding Singapore, which has a long history of
permitting illegal transshipments through its territory.
In sum, ATMI has commented often to various branches of the
Administration and Congressional committees with regard to the
essential elements of any and all free trade agreements, and ATMI will
review each future trade agreement with these objectives in mind. These
essential elements include:
1. LStrong rules of origin which discourage, to the greatest extent
possible, the use of raw materials, semi-manufactures and other inputs
from third countries not party to the agreement. Providing such
opportunities to other countries which paid nothing for the privilege
is simply bad trade policy. As such, any exceptions such as tariff
preference levels that permit Asian manufacturers should not be
included in any free trade agreement. With regard to free trade in
textiles and apparel, the rules of origin should be no less rigorous
than those incorporated in NAFTA.
2. LA completely reciprocal and balanced tariff phase-out
schedule--To permit one partner to a free trade agreement a longer
phase-out of tariffs than the other is, again, bad trade policy, and
NAFTA may serve as the model.
3. LClear and strong provisions relating to customs enforcement
measures intended to ensure full compliance with all terms and
conditions of the agreement. These include the unequivocal right of the
importing partner to audit and conduct inspections of exporters in the
partner country as well as the inclusion of the ``kick-out'' clause
described above.
Vietnam Bilateral
In its Commerce Department Textile Working Group Report issued last
September, the U.S. government assured the American textile industry it
would move quickly to conclude a bilateral textile agreement with
Vietnam. However, because of intransigence on the part of the
Vietnamese government, it is now March and an agreement is still not in
place. According to trade figures released last week, imports from
Vietnam totaled nearly one billion dollars in 2002, compared to just
$50 million in 2001. During the same period of time, the U.S. textile
industry shed 46,000 jobs--ten percent of its workforce--and closed at
least 37 textile mills.
The 2002 trade figures confirm a long-held concern on the part of
the industry that imports from Vietnam would quickly mushroom once
normal trading status was granted. AMTI notes that no non-WTO member
country has ever been allowed to grow so dramatically before restraints
have been imposed. Indeed, during the last major U.S. bilateral
negotiation in 1999, Cambodia had comprehensive quotas imposed when
trade was less than one-third of Vietnam's current level.
According to the U.S. International Trade Commission, since
October, monthly textile and apparel imports from Vietnam have
leapfrogged over those of two major U.S. textile exports markets--
Guatemala and Costa Rica--as well as other substantial suppliers such
as Turkey, Sri Lanka, Cambodia, and Malaysia. Yet, we note that these
countries have literally dozens of quotas in place while Vietnam
remains quota-free. This raises an important equity issue--why is a
country that is not a WTO member being given more favorable treatment
by the U.S. than WTO members receive?
As a point of contrast, during these same three months, the U.S.
textile industry closed two knitting plants, one yarn plant and one
weaving plant. In addition, two textile mills--Flynt Fabrics and
Johnston Industries--filed for bankruptcy. It is clear to ATMI that
Vietnam is playing a successful game of ``delay and build textile
trade'' at the expense of U.S. producers and workers. ATMI strongly
urges the government to impose unilateral restraints immediately on all
products where such action is warranted. Whether or not these actions
convince Vietnam to negotiate is irrelevant--these actions are
justified and necessary.
Other Bilateral Trade Issues
There has been an increasing amount of agitation and pressure
generated by our trading partners (and, most regrettably, within
certain quarters in the United States) to weaken international
disciplines and U.S. laws applicable to subsidies and dumping. Under no
circumstances can this be allowed to happen. In fact, both
international disciplines and U.S. laws must be expanded and
strengthened in this regard. For example, injured domestic parties
should be allowed to attack and receive relief from ``upstream''
subsidies and dumping and to attack subsidies and dumping in third
country markets, which displace U.S. exports. The following example of
the latter demonstrates why this is necessary.
One of the domestic textile industry's largest export markets (in
fact, its second largest, after Mexico), is the Caribbean Basin Trade
Partnership Act (CBTPA) countries. The U.S. industry exported $4.5
billion worth of yarns, sewing thread, fabric and cut fabric pieces to
this market last year, nearly all of which was used to assemble apparel
for return to the United States.
However, at the same time, several Asian countries exported
unfairly traded (dumped, subsidized) yarns and fabrics to these same
countries to be assembled into apparel for export to the United States.
The CBTPA countries do not object to this trade because the goods enter
foreign trade zones duty-free and are (almost) immediately re-exported
without ever having entered their domestic market. Meanwhile, U.S.
textile firms that lose valuable export sales as a result are powerless
to do anything about it. This is a multi-billion dollar problem that
needs to be addressed.
Conclusion
As this statement makes clear, the U.S. government's trade agenda
is vitally important to the future well being of the domestic textile
industry. ATMI welcomes the government's many actions in support of the
U.S. industry during this particularly difficult period of time and
looks forward to working with the Bush Administration and the Congress
on the vitally important trade issues that remain to be addressed.
These include the creation of an equitable Doha Round tariff and non-
tariff barrier market access proposal, prompt use of the China textile
safeguard, action against illegal Asian manipulators and the imposition
of unilateral quotas on imports from Vietnam.
Carmichael International Service
Seattle, Washington 98104
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Re: Comments on the Trade Promotion Authority Act (TPA) of 2002
(P.L. 107-210). Committee on Ways & Means Advisory of February 14,
2003.
Dear Sir or Madam:
The above advisory invites comments on the implementation of the
Trade Promotion Authority Act and we wish to take the opportunity to
voice our concerns on the affects implementation will have on Duty
Drawback in the United States on exports to countries with whom we
enter into free trade agreements.
Drawback is 200 year old trade policy whose stated purpose in 1789
is the same as it is today--to promote U.S. exports and enhance the
competitiveness of U.S. business simply be refunding duty paid on
imports that are subsequently exported. Court cases dealing with
drawback rarely fail to reiterate these purposes. The WTO's Agreement
on Subsidies and Countervailing Measures has ruled that duty drawback
is not an export subsidy. Yet with the implementation of NAFTA in 1993,
drawback was severely restricted on exports to Canada and Mexico driven
in part by misguided definitions of what the drawback law means by
``substitution drawback.'' The result is that drawback that is
available on exports to our worst trading partners is eliminated
completely in the case of Manufacturing Drawback and curtailed in the
case of Unused Merchandise Drawback on exports to our best trading
partners.
Free trade acts that are implemented at punitive costs to U.S.
exporters are not free, particularly when those costs are not present
prior to free trade. We vigorously oppose the elimination or change of
any of the present drawback law or regulations in any free trade
agreement entered into with any country.
Yours very truly,
Steve Orton
Manager, Drawback Services
Statement of the Carnegie Endowment for International Peace
Trade, Equity, and Development Project
February 2003
Opportunities and Challenges to Advance Environmental Protection in the
U.S.-Central American Free Trade Negotiations
By John Audley
Trade negotiations between the United States and Costa Rica,
Guatemala, El Salvador, Honduras, and Nicaragua hold the potential to
forge a new U.S.-Central American framework for trade that strengthens
democracies; promotes respect for workers' rights; establishes sound,
properly enforced environmental laws; and creates economic
opportunities through trade for people living in developing nations.
Accomplishing this challenging agenda will take bold leadership from
all six countries.
Central American governments have for some time recognized the
importance of conserving natural resources and protecting their
environment. Unfortunately, existing environmental infrastructures are
inadequate to mitigate environmental damage stemming from urban, rural,
and industrial activities. The Inter-American Development Bank has
found that deteriorating investment in natural resources and
environmental protection has put Central America's natural resources,
as well as community health, at risk. Nearly 75 percent of Central
America's population lives in conditions where vehicular congestion,
industrial and vehicular emissions, depleted water sources, water
pollution, and land and housing scarcities reduce productivity,
increase violence, and diminish public health.i
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\i\ Inter-American Development Bank, Facing the Challenges of
Sustainable Development: The IDB and the Environment: 1992-2002.
(Washington, D.C.: Inter-American Development Bank, 2002).
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Recent reports by researchers from the United Nations Development
Program and Oxfam also show that trade-led growth alone does not build
healthy dynamic economies.ii In addition to trade, societies
need infrastructure, education, and basic public health services before
communities can begin to benefit from expanded economic activity. As
the Oxfam report shows, without programs to promote access to better
health care and education for children, trade liberalization in such
key sectors as Central American coffee has resulted in plummeting
commodity prices, thereby contributing to an increase in pressure on
rural families to rely on their children's labor to earn a living wage.
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\ii\ See Kamal Malhotra, Making Trade Work for People. (London:
Earthscan Publications Ltd, 2003); ``Rigged Rules and Double
Standards'' (Oxford: Oxfam International, 2002).
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Relatively weak governing systems in most Central American nations
raise doubts that increased trade and investment liberalization will
lead to the necessary conditions for sustainable growth unless the
United States makes achieving this objective a primary goal in
negotiations for a U.S.-Central American Free Trade Agreement (CAFTA).
Fortunately, the U.S. Congress and George W. Bush's Administration
recognize the important relationship between U.S. trade policy,
environmental protection, and more equitable growth. In The National
Security Strategy of the United States of America, the Administration
argues:
A strong world economy enhances our national security by advancing
prosperity and freedom in the rest of the world. Economic growth
supported by free trade and free markets creates new jobs and higher
incomes. It allows people to lift their lives out of poverty, spurs
economic and legal reform, and the fight against corruption, and it
reinforces the habits of liberty. . . . We will incorporate labor and
environmental concerns into U.S. trade negotiations.iii
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\iii\ The National Security Strategy of the United States of
America (Washington, D.C.: White House, 2002), pp. 17, 19.
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Congress makes the link between trade and environmental policy as
well. U.S. Trade Promotion Authority (TPA) instructs U.S. negotiators
to foster a healthy national economy, freer markets, and improvements
in labor conditions and environmental protection.
To fulfill both Congress's and the Administration's commitments to
environmentally responsible trade agreements, the Office of the U.S.
Trade Representative (USTR) must accomplish three goals in the CAFTA
negotiations. First, it should integrate future technical assistance
and capacity-building efforts into the existing framework of assistance
offered to Central American nations to enhance their national,
regional, and international levels of environmental protection. Second,
in a manner consistent with TPA instructions, the U.S. negotiating
positions should build upon existing trade and environment linkages to
encourage its Central American trading partners to implement and
strengthen environmental laws. Third, CAFTA should be negotiated and
implemented in a manner that fosters good governance and reinforces
democracy in Central America.
BUILDING ON EXISTING ENVIRONMENTAL PROTECTION EFFORTS
In passing Trade Promotion Authority, Congress emphasized for the
first time the important role negotiations must play to ``strengthen
the capacity of United States trading partners to protect the
environment through the promotion of sustainable development.''
iv This objective should be achieved through the existing
framework of technical cooperation to avoid redundancy and to
facilitate the coordination of technical assistance efforts already
under way.
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\iv\ U.S. Trade Promotion Authority, Article 2102(b)(11)(D).
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The existing framework for environmental cooperation is based upon
the work of the Comision Centroamericana de Ambiente y Desarrollo
(CCAD), established by the Central American governments in 1988 to
create and strengthen national organizations dedicated to environmental
protection and development. Work orchestrated by CCAD is assisted by
foreign governments and intergovernmental organizations, including the
United States. Their combined contributions help provide technical
expertise and capacity building in important areas such as climate
change, endangered species protection, responsible forestry, and
environmental protection.v
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\v\ Since 1995, under the auspices of the U.S. Agency for
International Development's (USAID's) Ambiental Regional para
Centroamerica (PROARCA) project, U.S. federal agencies have assisted
Central American nations to increase the effectiveness of regional
stewardship of the environment and key natural resources in target
areas. In particular, U.S. support has emphasized coastal water
protection and maintaining the biodiversity of the region's key forest
systems. PROARCA's contribution to the enhancement of Central American
environmental protection efforts is consistent with the goals of the
Central American-United States of America Joint Accord (CONCAUSA),
which was signed on the margins of the 1994 Miami Summit of the
Americas and renewed in 2001. This accord made the United States the
first extraregional partner in the already existing Central American
Alliance for Sustainable Development (ALIDES). For detailed information
on targeted CCAD areas and sources of support, see http://
ccad.sgsica.org. See
http://www.ard-biofor.com/proarca.html for additional information
regarding the PROARCA project. See the Department of State fact sheet
at http://www.state.gov/r/pa/prs/ps/2001/3325.htm.
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To ensure that the framework for existing technical support is
incorporated into negotiations, federal agencies, Congress, and
interested citizens should be made fully aware of the technical
assistance and capacity-building work already under way in Central
America. In TPA, Congress created a special oversight group to monitor
the trade negotiations on a day-to-day basis; this Congressional
Oversight Group should seek summary reports from federal agencies
involved in ongoing technical support projects.vi
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\vi\ The U.S. Agency for International Development is responsible
for the Administration of Central American technical assistance under
PROARCA. The U.S. Environmental Protection Agency has implemented many
PROARCA technical assistance projects, e.g., to develop integrated
solid waste management and wastewater treatment infrastructure, to
reduce the inventory of obsolete pesticides stockpiled throughout the
region, and to improve food quality for fresh produce exported from
Central America.
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Central American governments should be encouraged to consult with
CCAD, PROARCA, and CONCAUSA as they develop their hemispheric
cooperation programs. On the basis of a review of the national action
plans for trade capacity building recently released by the Central
American governments, such interaction has not yet occurred; as a
result, these draft national action plans fail to fully incorporate
environmental infrastructure and capacity-building needs.vii
Costa Rica is an exception; in its draft plan of action, it emphasized
the need to develop and strengthen solid waste disposal, wastewater
treatment, and hazardous waste management throughout the country.
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\vii\ National action plans (as of February 2003) for El Salvador,
Guatemala, Honduras, and Nicaragua can be viewed at www.USTR.gov.
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Given the large loads and small staffs of these negotiating teams,
this is not surprising. U.S. embassies should be instructed by the
Department of State to contact Central American environment and
development agencies and promote interaction between Central American
trade policy makers and these programs. Along with the long-term
benefits of better coordination between international trade and
domestic policy, State Department Foreign Service offices can also
explain that including environment and development concerns in their
plans of action will actually help U.S. negotiators achieve the broader
goals for trade liberalization outlined by Congress in TPA.
Finally, relationships between Central American officials and the
staffs of relevant U.S. federal technical support agencies (e.g.,
USAID, the Environmental Protection Agency, and the Department of
Agriculture) are critical to the long-term success of technical
assistance projects. Such direct working relationships between donor
and client help tailor U.S. assistance to meet the needs of countries
receiving assistance. Because long-term technical assistance and
capacity building will not be the USTR's responsibility, to help foster
appropriate intergovernmental relationships, the USTR should assign
officials from such agencies as USAID and the Department of State to
negotiate technical assistance agreements. The U.S. Departments of
State, Commerce, and the Treasury historically have taken the lead in
negotiating areas of trade agreements in which they have particular
expertise. Reallocating USTR officials to assist negotiations in other
areas would also help to lessen the burden shouldered by USTR staff to
engage in a growing number of trade negotiations.
TRADE-RELATED INCENTIVES FOR ENVIRONMENTAL PROTECTION
Under work orchestrated nationally and in such regional efforts as
CONCAUSA, Central American governments have taken important steps
toward establishing an effective environmental protection regime. That
said, many important challenges remain. In addition to supporting
ongoing capacity-building efforts, the United States should negotiate a
free trade agreement that creates direct, trade-related incentives for
environmental protection.
Promoting Green Product Exports
There is a growing demand for goods produced in an environmentally
sustainable fashion. The European Union estimates that its
environmental ``industry'' generates 54 billion euro a year, and
employs more than 2 million people, or 1.3 percent of its total paid
labor force. Roughly 1.5 million people are employed in pollution
management activities, and another 650,000 in resource management.
Investors in industrial countries have also begun to tailor their own
investments to promote environmentally sustainable production. The
value of managed investment funds that now use one or more social-
screening criteria--of which environmental criteria are among the most
prominent--increased from $1.49 trillion in 1999 to more than $2
trillion in 2001. Today, nearly one in every eight dollars under
professional management in the United States is invested in socially
responsible firms.
In its Doha Declaration, the World Trade Organization's (WTO)
reflected this shift in interest in environmental goods by instructing
its Members to reduce or eliminate tariff and nontariff barriers to
environmental goods and services.viii Congress supports this
initiative in its trade instructions to the USTR.ix
Unfortunately, the current focus in WTO negotiations is on high-
technology environmental goods, such as pollution scrubbers and
wastewater treatment equipment.
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\viii\ World Trade Organization, Fourth Session of the World Trade
Organization Ministerial Declaration, adopted in Doha, Qatar, on
November 14, 2001.
\ix\ U.S. Trade Promotion Authority, Article 2102(b)(11)(F).
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Although the high-technology environmental goods sector is
important for promoting sustainability, these products are produced and
traded by industrial countries, so there is little incentive for such
developing countries as Honduras, Guatemala, El Salvador, or Nicaragua
to support the negotiations. Conversely, along with Costa Rica, these
countries enjoy a competitive advantage in environmentally sensitive
agricultural products. The United States and Central American countries
must take the innovative step of proposing favorable trade terms for
Central American agricultural products that are produced in sustainable
ways.
Along with technical assistance programs to help Central Americans
resolve nontariff issues related to food safety or technical barriers,
facilitating trade in ``green'' agricultural products by eliminating
all tariffs and tariff-rate quotas on these products would help the
U.S. government achieve a number of objectives. Industrial countries
resist expanding the definition of an environmental good, fearing that
the temptation is too great to exploit this language to protect
domestic industries. Both industrial and developing countries also fear
the use of product labels necessary to distinguish green products.
Though conscious of these constraints, negotiating a solution to
both the problem of how to define a green good and the use of product
labels among a smaller number of countries first would enable the
United States and its neighbors to propose unified solutions in
multilateral negotiations. Preferential or accelerated trade
liberalization in organic products also demonstrates to the public that
trade rules can encourage trade in products that make sense
economically and socially. Finally, due to its more labor-intensive
nature, sustainable agriculture will help keep farmers working, and
thereby promote healthy rural communities. And given the growing number
of consumers willing to pay a premium for organic products, trade
liberalization in green agricultural products would pose minimum
competition for U.S. farmers.
Making Binding Commitments to Protect the Environment
Congress also instructed U.S. negotiators to ensure that the
country's trading partners do not fail to effectively enforce their
labor and environmental laws to gain a competitive advantage.
Unfortunately, to date this approach has achieved little in the
environmental sphere. Parties have never implemented Part V of the
North American Agreement on Environmental Cooperation (NAAEC), making
it virtually impossible for one party to file a complaint against
another. U.S. trade agreements with Jordan, Chile, and Singapore mark
an important shift in U.S. trade policy because they move the
commitment to enforce environmental laws into the body of the trade
agreement. Yet even this kind of ``enforceable'' environmental language
is unlikely to be applied effectively without public involvement in its
implementation.
To strengthen the linkages between trade commitments and
environmental policy goals, the United States should negotiate several
additional provisions for CAFTA. First, besides insisting that Central
American governments enforce their national environmental laws, the
United States and Central American countries should agree to two
things. First, they should agree that all trade measures found in
multilateral environmental agreements are consistent with international
trade obligations, and therefore immune from WTO challenges from CAFTA
parties. Second, the United States and Central American nations should
make a commitment to implement the multilateral environmental
agreements (MEAs) containing trade measures to which they are a
signatory.
Although the World Trade Organization has not yet finalized a list
of MEAs containing trade measures, the United Nations Environment
Program (UNEP) and the International Institute for Sustainable
Development (IISD) identify only about twenty MEAs that contain trade
provisions, of which even fewer are significant for the environment-
trade interface.x The United States argues that there are no
inconsistencies between WTO rules and MEAs; one way to support this
position is to encourage the CAFTA parties to work with UNEP to
determine and implement all trade measures found in MEAs to which they
are a party.xi
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\x\ The United Nations Environment Program (UNEP) Division of
Technology, Industry and Economics, Economics and Trade Unit, and the
International Institute for Sustainable Development (IISD), Environment
and Trade: A Handbook (Winnipeg: ISSD and UNEP, 2000).
\xi\ MEAs relevant to trade regimes include the Convention on
International Trade in Endangered Species of Wild Fauna and Flora
(CITES); the Convention on Biological Diversity; the Montreal Protocol;
the Basel Convention on the Control of Transboundary Movement of
Hazardous Wastes and their Disposal; the Framework Convention on
Climate Change; the Convention on Persistant Organic Pollutants; the
Rotterdam PIC Convention (not yet in force); and the Cartagena Protocol
on Biosafety (not yet in force).
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U.S. technical assistance also should be directed to assisting
Central American governments to fully implement their MEA obligations,
whether or not the United States has signed or ratified the same
treaty. For example, the Montreal Protocol, which all CAFTA parties
have ratified, has successfully controlled trade in ozone-depleting
substances and trade in products containing these substances; to help
accomplish this goal, it established a fund to assist developing
countries in their transition away from controlled substances. The
United States should likewise assist its Central American trading
partners to build the capacity necessary to comply with their MEA
obligations, even if--as in the case of the Basel Convention on the
Control of Transboundary Movement of Hazardous Wastes and their
Disposal--the United States itself has not yet ratified a particular
agreement.
Second, the United States and Central American countries should
make a commitment to take the necessary legislative, regulatory, and
other measures to collect and publicly disseminate environmental
information. For the Central American countries, this provision should
include taking steps to establish progressively--with U.S. technical
assistance--a coherent, nationwide pollutant release and transfer
register, which is similar to the U.S. Environmental Protection
Agency's Toxic Release Inventory.
International demand is growing for pollution ``right to know''
legislation similar to that applied in the United States. Other
governments are responding to public demand as well. The government of
Mexico recently modified its General Law of Ecological Balance and
Environmental Protection to require states, the Federal District, and
municipalities to keep a release and transfer register for air, water,
soil and subsoil pollutants, materials, and wastes under their
jurisdictions, as well as those substances determined by the
corresponding authority. Changes in Mexican law are directly the result
of technical assistance provided by the North American Agreement on
Environmental Cooperation, to which the U.S. is a party. Other examples
of the move to public disclosure can be found in the Aarhus Convention,
which to date has been signed by 40 European governments.xii
Accessible and transparent information will provide moral suasion
incentives for CAFTA trading partners and investors to uphold national
environmental laws, as well as permit stronger analyses of trade-
related environmental impacts.
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\xii\ Convention on Access to Information, Public Participation in
Decision Making, and Access to Justice in Environmental Matters, signed
June 25, 1998, at Aarhus, Denmark. Though the U.S. government has
raised concerns about the compliance regime of the Aarhus Convention,
the spirit of the convention is in line with U.S. domestic policy and
international priorities, and as such it should be recognized as a
basis for negotiations.
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Third, CAFTA parties should negotiate language encouraging private
industry to follow voluntary guidelines for environmental management
and reporting, including Responsible Care, the International Standards
Organization's ISO-14000, and the disclosure guidelines found in the
Organization for Economic Cooperation and Development's Guidelines for
Multinational Corporations. As important as negotiated text is, perhaps
the most effective way for private firms to influence environmental
protection is to demonstrate that businesses can and will be
responsible Members of both international and local communities.
In this regard, many U.S. and Canadian firms have records to be
proud of, because they are leaders in the use of green technology to
lowers costs and increase productivity while improving the environment.
These companies also have adopted responsible policies for releasing
public information regarding chemical use, emergency response programs,
and other environmental management practices. With proper encouragement
from governments, disclosing information regarding environmental
practices should be a small step for business to take--with tremendous
potential for positive gain.
Finally, the policy steps recommended here must be supported by the
creation of an objective reporting mechanism to ensure that new laws
are effective and enforced. The United States and its Central American
trading partners can break new ground in this area by instructing UNEP
to conduct independent reviews of U.S. and Central American trade-
related environmental laws and their implementation. In the short term,
information of this kind would be useful to focus U.S. technical
assistance and capacity building in preparation for CAFTA's
implementation. More generally, environmental protection performance
reports would provide information useful for the Bush Administration's
efforts to promote good governance, and perhaps help in determining
whether a particular Central American country is eligible for
additional U.S. development assistance.
GOVERNANCE AND TRADE
The Bush Administration rightly emphasizes the link between good
governance and healthy societies. In his speech announcing the
Millenium Challenge Account, the president said:
L Countries that live by these three broad standards--ruling
justly, investing in their people, and encouraging economic
freedom--will receive more aid from America. And, more
importantly, over time, they will really no longer need it,
because nations with sound laws and policies will attract more
foreign investment. They will earn more trade revenues. And
they will find that all these sources of capital will be
invested more effectively and productively to create more jobs
for their people.xiii
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\xiii\ ``President Proposes $5 Billion Plan to Help Developing
Nations,'' remarks by the U.S. president on global development, Inter-
American Development Bank, Washington, D.C., March 14, 2002.
Trade agreements can contribute to achieving the goal of good
governance if they involve the public in their negotiation and
administration. The United States should negotiate CAFTA to include
three good governance provisions: dispute settlement proceedings,
environmental reviews of trade agreements, and participation and
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transparency measures.
Dispute Settlement Proceedings
The record of international trade dispute settlements underscores
the impact that these decisions can have on domestic policies. In some
instances, public health or food safety regulations developed through
public notice and comment are being challenged as inconsistent with
trade disciplines. Just as in cases where the government considers
amending a U.S. law in response to litigation, the public has standing
in such cases. Citizens should be able to
a) Loffer their opinion on the case through amicus curiae
submissions;
b) Lhave access to all nonproprietary documents related to the
dispute;
c) Lobserve the presentations before the dispute settlement panel;
d) Lhave immediate access to the findings; and
e) Lbe eligible for an appeal process that enables governments to
correct for improperly decided cases.
These recommendations are consistent with congressional
instructions to promote openness at the WTO and other international
institutions, and they currently make up the USTR's formal position
offered in WTO Geneva discussions.xiv
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\xiv\ U.S. Trade Promotion Authority, Article (2102)(b)(5);
``Contribution of the United States to the Improvement of the Dispute
Settlement Understanding of the WTO Related to Transparency''
(Washington, DC: Office of the U.S. Trade Representative, August 9,
2002; available at: http://www.USTR.gov/enforcement/2002-08-09-
transparency.pdf).
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Environmental Reviews of Trade Agreements
The United States should actively encourage its trading partners to
conduct environmental assessments of trade liberalization. A 1999
report commissioned by the environmental ministry in Brazil underscores
the level of interest among Latin American governments in this kind of
analysis.xv Efforts by the Organization of American States
and such private organizations as the World Wildlife Fund and World
Resources Institute have shown that conducting environmental
assessments builds long-term capacity to enact and enforce national
environmental laws.
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\xv\ Luciano Togiero de Almeida, ed., Trade and Environment: A
Positive Agenda for Sustainable Development, Preliminary Document for
the XIII Meeting with the Latin American and Caribbean Environment
Ministers (Brasilia: Brazilian Ministry of Environment, Secretariat of
Policies for Sustainable Development, 2001).
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Participation and Transparency
In her work on behalf of the Inter-American Development Bank,
recognized trade scholar Sylvia Ostry has shown that few countries in
the Western Hemisphere have a trade policy-making process that
adequately and fairly consults with ministries, parliaments, or
affected constituencies.xvi Simultaneously, citizens' groups
around the world are asking their governments to develop and implement
trade policy in a more open and transparent fashion.
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\xvi\ In a project funded by the Inter-American Development Bank,
Ostry researched and wrote reports on Argentina, Brazil, Columbia,
Mexico, Costa Rica, and Uruguay. Interested parties may request drafts
of these reports by contacting John Audley.
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The United States has an opportunity to increase good governance by
incorporating certain transparency and public participation provisions
into the CAFTA agreement. In particular, the United States should
insist that CAFTA
a) Grants citizens a right of petition: The United States has been
severely criticized for using trade agreements to grant industries the
right to seek compensation for actions resulting in property
expropriation by parties to a trade agreement. Although I do not
believe that this approach to ensuring property rights protection is
unnecessary, citizens should be given the same opportunity to petition
for their rights. Such a right of action should lead either to a formal
case brought against a government--for example, for failure to enforce
its own national and international commitments to protect the
environment--or to an independent study similar to that provided in
NAAEC Article 14 for enforcing laws affecting trade policy.
b) Includes a public advisory body: One of the most effective
models for including citizens in the administration of a trade and
environment agreement is the Joint Public Advisory Committee (JPAC),
part of the governing council of the North American Commission for
Environmental Cooperation. JPAC has played a constructive role in the
side agreement's implementation, serving to guide both government
officials and interested citizens toward responsible balances between
trade and environmental policy priorities. The administrative body to
the CAFTA agreement should include a private advisory body similar to
JPAC, with two individuals from each CAFTA country selected to serve on
its board.
c) Provides for data collection and dissemination: Data on the
implications of economic integration for the environment and health
should be gathered and widely disseminated. As was discussed above,
UNEP is a good candidate to aggregate, evaluate, and distribute this
kind of information, provided it receives adequate support to do so
from the CAFTA parties. The cooperative work plan and information
gathering projects under way at the North American Commission for
Environmental Cooperation also provide a good model to follow.
PROGRESS TOWARD RESPONSIBLE TRADE
Designing trade regimes that promote environmental protection,
strengthen the rule of law, and encourage good governance is not an
easy challenge to meet. That said, the CAFTA negotiations present a
timely opportunity to accomplish these objectives and to help put the
U.S. and Central American governments on a path toward ecologically
sustainable trade and investment liberalization.
The proposals offered here present negotiators, interested
citizens, and national and subnational legislators with a roadmap to
navigate these challenges and deliver a trade agreement that will win
the support of people throughout Central America and the United States.
The repercussions of these negotiations for the six countries is great;
the example they can set for other negotiations may be even greater.
U.S. trade representative Robert Zoellick has demonstrated that he
understands the importance of factoring environmental issues into trade
agreements. Looking forward, the United States must now negotiate and
implement the proposed CAFTA in a manner that integrates future
technical assistance and capacity-building efforts into the existing
framework of environmental cooperation, creates trade-related
incentives for sound environmental protection, and fosters good
governance.
John Audley is a senior associate at the Carnegie Endowment for
International Peace, where he directs the Trade, Equity, and
Development Project. Before joining the Endowment in April 2001, he was
the trade policy coordinator at the U.S. Environmental Protection
Agency, where he was responsible for developing and presenting EPA
positions on U.S. trade policy.
Trade, Equity, and Development Project
February 2003
LCentral America and the U.S. Face Challenge--and Chance for Historic
Breakthrough--on Workers' Rights
By Sandra Polaski
The negotiations between the United States and five Central
American countries for a free trade agreement present an important,
even unique, opportunity to build and buttress the rule of law, human
rights, and democracy in Central America, as well as to invigorate the
region economically. In fact, the deep integration that a free trade
area would foster between the United States and Costa Rica, Guatemala,
El Salvador, Honduras, and Nicaragua requires a strengthening of basic
law and institutions in a region with a troubled history and a
troubling present in terms of human rights and the rule of law.\1\ Few
informed observers--from U.S. trade representative Robert Zoellick to
the State Department to many in Central America--doubt that serious
deficiencies exist in the region. These deficiencies must be addressed
if a trade agreement is to produce positive results.
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\1\ See U.S. Department of State, 2001 Country Reports on Human
Rights Practices, http://www.state.gov/g/drl/rls/hrrpt/2001/; reports
for previous years are available at http://www.state.gov/www/global/
human--rights/
hrp--reports--mainhp.html. These authoritative
reports describe serious problems with human rights abuses and
inefficient or corrupt judiciaries in four of the five countries and
continuing problems of somewhat lesser severity in Costa Rica.
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Nowhere are the deficiencies of present-day Central America--and
the opportunities for progress through a well-constructed free trade
agreement--more apparent than in the area of workers' rights, labor
law, and labor institutions.\2\ Central America has been the scene of
continuing abuses of workers' rights. These abuses include the ongoing
suppression of workers' right to organize in export-processing zones,
physical threats, beatings, kidnappings, and even assassinations of
trade union leaders. Child labor is a serious problem, including in
dangerous occupations. Employment discrimination against women and
indigenous workers is rife. Given that a free trade agreement is meant
to encourage greater investment in the region and an expansion of
production for the U.S. market, these ongoing violations must be
addressed at the outset. Otherwise, an agreement would further entrench
and expand current systemic violations of workers' rights.
---------------------------------------------------------------------------
\2\ See U.S. Department of State, 2000 Country Reports on Human
Rights Practices and 2001 Country Reports on Human Rights
Practices,section 6, ``Worker Rights.''
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A free trade agreement offers the opportunity to create political
space in Central America for needed legislative reforms that have
eluded government efforts until now. The terms of a trade agreement
also can strengthen government enforcement of laws and provide
incentives for the private sector to voluntarily comply with labor
legislation.
BACKGROUND
Ongoing labor problems have been such a concern to the United
States that Congress has fashioned policy instruments to deal with
these abuses through current unilateral trade preference programs. The
Generalized System of Preferences (GSP), the Caribbean Basin Economic
Recovery Act (CBERA), and the Caribbean Basin Trade Partnership Act
(CBTPA) all extend market access benefits unilaterally to the Central
American countries on the condition that they respect workers' rights.
In fact, 74 percent of Central American products entered the United
States duty free in 2002 under these unilateral preference programs.
The programs require that recipient countries accord the following
internationally recognized workers' rights to their citizens: freedom
of association; the right to collective bargaining; protections against
child labor; freedom from forced labor; and acceptable conditions of
work with respect to minimum wages, hours of work, and occupational
safety and health. If countries fail to respect these rights, they run
the risk of losing the trade preferences for some or all of their
products.
These provisions have been invoked frequently with respect to these
five Central American countries, both by the U.S. government and by
private human rights and labor groups. At least eighteen petitions
alleging violation of these rights in Central America have been filed
by private groups in recent years. Several petitions are currently
pending. In eight separate instances, the U.S. government itself has
initiated reviews of labor conditions in Central America or decided to
continue reviews that originally were undertaken in response to
petitions by the public. In each case, the reviews have been based on
U.S. concerns over continuing rights violations in these countries.\3\
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\3\ Sources include the ``Public Worker Rights Summaries'' prepared
by the U.S. government interagency GSP subcommittee and issued by the
U.S. trade representative (USTR) from 1988 to 1995 and USTR press
releases.
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The GSP and other instruments have not solved the basic problem of
the lack of rights and rule of law for workers in the region. But they
have at least reversed the most egregious violations of rights and
threats to lives and arguably have prevented many more such abuses by
the very fact of their existence.
A free trade agreement with Central America would eliminate these
existing policy instruments because it would replace the unilateral
preference programs. At the same time, market access to the United
States would be expanded. This would leave existing problems to fester
and invite further abuse.
There is little chance that a free trade agreement will be
negotiated that contains no labor provisions. The Trade Act of 2002
spells out chief negotiating objectives on labor, including several
provisions similar to those contained in the U.S.-Jordan Free Trade
Agreement. But unlike Jordan, which has reasonably good labor laws,
relatively effective enforcement, and the overall rule of law, Central
American countries have glaring weaknesses in their laws, inadequate
enforcement, and judicial systems that fall short of any reasonable
standard for the rule of law.
THE CHALLENGE
Therefore, the parties must fashion labor provisions in the U.S.-
Central American free trade agreement that accomplish four
indispensable goals. First, the agreement must ensure that trade
benefits continue to be conditioned on adequate respect for workers'
rights, to avoid backsliding and to maintain the accountability of
Central American governments that currently exists under the GSP and
CBTPA. Second, the agreement must address the problem that existing
laws are inadequate when measured against agreed-on international
standards and ensure that laws are upgraded to such international
norms. Third, the agreement must include provisions to strengthen labor
law enforcement and to create the true rule of law with regard to the
rights of workers. Fourth, the agreement must devise a way to verify
that all of the above steps are being taken and maintained.
The trade negotiations with the Central American countries will be
the most challenging that the United States has faced with regard to
labor rights. The four critical goals listed above may seem difficult
to achieve in these negotiations. However, this paper presents a
proposal for the labor provisions of the agreement that would enable
the parties to meet each goal. This proposal builds on lessons that
have been learned through other trade agreements that the United States
has negotiated in recent years. Both the United States and its
developing-country partners have gained experience through the
implementation of those agreements. Although accomplishing the four
goals will be a challenge, it is fortunate that there has been a wealth
of experimentation that now can guide the U.S.-Central American
negotiations.
PROPOSAL FOR A SOLUTION
This section offers an overall framework for an agreement that can
achieve the four crucial labor goals outlined above. It also offers
suggestions as to what labor obligations or commitments should be
required of the parties; how the dispute settlement mechanism should
work; and other proposals regarding transparency, oversight and the
role of the public.
Framework
The framework for an agreement on labor rights must begin with the
establishment of a transitional period before full free trade would be
phased in. Of course, such a phase-in of tariff reductions and other
liberalizations is the norm under free trade agreements and will
undoubtedly be a part of the structure of this proposed agreement. But
a U.S.-Central American Free Trade Agreement (CAFTA) must include a
specific provision that the benefits of the agreement can be
accelerated--or delayed--for each Central American country and each
sector within those countries on the basis of whether the country and
sector have met the agreement's obligations with respect to workers'
rights.
Four factors argue for establishing a transitional period that can
be accelerated or delayed depending on the performance of each country
and each sector in promoting labor rights. First, this approach will
replace the conditionality of current unilateral preference programs
such as the GSP with an equally potent incentive for countries and
firms to comply with the labor terms of the agreement. Thus the United
States will not sacrifice an existing lever for progress on labor
rights without substituting an equally effective instrument.
Second, having the transitional period will create healthy
competition between countries to actually carry out the promised
reforms of labor legislation, enforcement, and the rule of law, because
each country can accelerate its enjoyment of valuable trade advantages
by doing so. Third, the approach will align the incentives of the
private sector with those of the public sector, because neither the
government nor firms can gain trade privileges without the cooperation
and support of the other. Fourth, the failure of firms in a particular
sector to comply with their obligations will not halt or delay the
benefits for other sectors that have met their obligations. To
illustrate, if agribusiness firms refused to abide by labor laws but
apparel firms demonstrated compliance, the apparel sector would receive
accelerated benefits and not be held back by any intransigent sector.
How long should such a transitional period run? As a rule of thumb,
the fifteen-year phase-in of the North American Free Trade Agreement
(NAFTA) or the twelve-year phase-in of the recently negotiated U.S.-
Chile Free Trade Agreement are probably useful guides. Countries and
sectors that chose to fulfill the labor terms of the agreement could
enjoy benefits promptly, perhaps as soon as one year after the
agreement enters into force, thus providing a very substantial
incentive for compliance. Conversely, countries and sectors that
refused to shoulder their obligations would have to face the prospect
of a continuing denial of benefits.
Such a system will require credible, neutral oversight to determine
the actual degree of compliance by different sectors in each country.
Although this might sound like a very large undertaking, a similar
system has already been created with remarkable success and efficiency
under another U.S. trade agreement: the U.S.-Cambodia Textile
Agreement. This agreement established that Cambodia can receive the
incentive of additional apparel quota if it meets its obligations under
the agreement to protect the rights of workers and enforce its labor
laws in the textile and apparel sector. The agreement obviously
required oversight, as would CAFTA.
In the case of the U.S.-Cambodian agreement, the parties agreed to
ask the International Labor Organization (ILO) to monitor the factories
in the sector and report its findings to the parties as a basis for
decisions on any quota increase. The ILO agreed to undertake a
monitoring program and established a credible, efficient, and
transparent system. ILO monitors (most hired locally) inspect
factories, report the results to factory managers and to the two
governments, and allow a reasonable period for remediation. After the
remediation period, a second inspection is conducted, and a report is
issued as to whether the factory is in compliance.
This system has provided the information needed by the parties to
the U.S.-Cambodian trade agreement to make decisions on incentives. The
parties also take other factors into account, such as progress on labor
legislation and the rule of law with respect to labor rights. The
monitoring program is funded jointly by the U.S. government, the
Cambodian government, and the Cambodian textile and apparel sector; the
United States provides about 70 percent of the funding, and the other
parties provide about 15 percent each. A tripartite committee--
consisting of representatives of the Cambodian government, textile and
apparel firms, and trade unions representing the workers--oversees the
program. The striking improvements in working conditions and compliance
with law that have been achieved in this sector suggest that this has
been one of the most successful and cost-effective programs to promote
worker rights abroad that the U.S. Government has ever funded. The
agreement and the monitoring program were deemed so successful by both
governments that when the initial agreement expired it 2001 it was
renewed for three more years--with an expanded potential quota bonus
for further progress on labor rights.
This U.S.-Cambodian model would be well suited for adaptation in
CAFTA. All the governments involved are Members of the ILO. The ILO
could draw upon the signal experience it gained in Cambodia to
construct a similarly well-run program in Central America. U.S. firms
that import products from Cambodia have been impressed favorably by the
ILO program, the improvements it has induced in the factories from
which they buy, and the protection it provides for their own
reputations. Because many of the same firms import from Central
America, their familiarity with the approach would help ease the
introduction of such a program in that region.
Obligations
What labor obligations should be included in CAFTA? The United
States has developed two relevant models for labor obligations in the
context of trade arrangements. Both should be applied in this proposed
agreement.
The first model operates in the GSP and CBTPA programs, which
require that beneficiary countries afford protection for
internationally recognized workers' rights, as defined above. This
model encompasses the enforcement of existing labor laws and, where the
labor laws are deficient compared with international norms, it has also
been used to require improvements in labor legislation.
Typically, the United States has looked to the ILO experts to
determine whether a country's labor laws meet international norms. ILO
experts have judged that all five of the Central American countries
involved in these negotiations have deficiencies in their basic labor
laws.
Therefore, it is essential that the five countries be obligated to
reform their labor laws to correct these shortcomings. This should be a
threshold obligation of the agreement. In requiring legal reform, the
United States would follow a pattern it has already established in
negotiations over intellectual property rights, where it has insisted
on legal improvements to further protect those rights.\4\ Similarly,
the United States must insist on improved protections for labor rights,
given the inadequacy of current laws.
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\4\ In his October 1, 2002, letter of notification to Congress of
the Administration's intent to enter into free trade negotiations with
Central America, USTR Zoellick wrote that the negotiations would be
used to address ``inadequate protection of intellectual property
rights'' in those countries' laws. Specifically, he wrote that the
United States would seek levels of patent protection in line with U.S.
practices and provisions for strengthened legal enforcement, including
through criminal penalties and compensation of rights holders.
---------------------------------------------------------------------------
The second model pioneered by the United States requires that its
trading partners effectively enforce their labor laws. This model was
employed in the labor side agreement to NAFTA, and is one aspect of the
approach in the U.S.-Jordan free trade agreement. Once Central American
labor laws are amended to meet international norms, there must be an
ongoing obligation to enforce them, as there is with other trading
partners.
Dispute Settlement
The Trade Act of 2002 instructs U.S. trade negotiators to subject
labor provisions of trade agreements to the same dispute settlement
procedures as other disputes arising under the agreements, with
equivalent remedies. CAFTA should follow that guidance. Such dispute
settlement procedures would take effect once a country and a sector had
been determined to be in compliance with the terms of the agreement and
had been extended full free trade benefits on the basis of the criteria
and monitoring procedures discussed above.
Dispute settlement panels should comprise experts on international
labor norms and comparative domestic labor laws. Time frames for
dispute settlement should be identical to those for commercial
disputes. Possible penalties for noncompliance with panel rulings
should cover the same range as penalties for noncompliance with rulings
in commercial disputes, with the specific provisions tailored to
provide meaningful remedies for nonenforcement of labor laws.
Transparency, Oversight, and Public Petitions
CAFTA will replace the current U.S. system of unilateral trade
preferences for the Central American countries. That system includes
the ability of the public and affected workers to raise concerns
directly to the U.S. government when labor rights are violated. This
mechanism has been used repeatedly under the GSP and CBTPA programs, as
discussed above, leading to the resolution of some egregious problems
and arguably forestalling worse or more frequent abuses. Therefore, a
new free trade agreement between these parties must replicate that
important public oversight mechanism.
The specific mechanism could vary, but elements of a model can be
found in the North American Agreement on Labor Cooperation (NAALC)\5\
and the existing GSP system. At a minimum, any public petition
mechanism should provide a specific, standing venue for the submission
of petitions or requests for review. Any individual or organization in
any of the countries that is a party to the agreement should be able to
file a petition or request in any of the other countries, as is the
case under NAALC. Upon receipt of such a filing, the United States and
other governments should guarantee a thorough, unbiased review of the
allegations in the petition within a defined period of time, certainly
no more than six months. The mechanism should guarantee the right, at a
minimum, to a public hearing on the allegations.
---------------------------------------------------------------------------
\5\ NAALC is the labor side agreement to NAFTA.
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Where the claims of a public submission are deemed to have merit,
the issues raised should be referred for intergovernmental
consultations to attempt to remedy the problems, as has been the
practice under NAALC. If these consultations fail to produce a
meaningful remedy for the problems within a defined time frame, the
problem should be referred to a dispute settlement panel under the
terms outlined above in the discussion of dispute settlement.
This procedure will ensure that those who have the best information
about violations of labor rights--the workers themselves--have
meaningful input into government oversight processes. This provides
both healthy transparency for the implementation of the labor
provisions of the agreement and reinforcement for the efforts of
Central American governments that may be committed to full enforcement
of labor laws but strapped for adequate resources.
SUCCEEDING WHERE OTHER EFFORTS HAVE FAILED
Improving labor laws to meet international standards, enforcing
those laws, and strengthening the rule of law in general have proven to
be difficult tasks in Central America. The legacy of long-standing
undemocratic traditions and interest groups in some of the countries,
along with the aftermath of civil wars, have combined to leave the
region lagging in both economic and democratic development.
The CAFTA negotiations present an excellent opportunity to make
real progress in correcting these deficiencies and putting Central
America on a course for sustained development in the coming decades.
The prospect of full access to the U.S. market offers great leverage to
induce reform from both governments and private-sector actors in
Central America. Conversely, if this opportunity is wasted, it is hard
to see how labor rights and the rule of law will be realized in the
region in the foreseeable future.
The proposal presented in this paper offers a roadmap for dealing
with challenges that have been intractable until now. A key reason that
this approach can succeed where Central American governments alone have
not is that it aligns private sector incentives with public interests
regarding good governance and rule of law. Under this proposal, the
sooner firms comply with labor laws and provide acceptable treatment
for workers, the sooner they will enjoy the benefits of full access to
the U.S. market. This linkage of commercial rewards to firm behavior
has been one of the key elements in the success of the U.S.-Cambodia
Textile Agreement, and it can succeed in Central America as well. The
successful, workable Cambodian model should be replicated in CAFTA.
Real progress on labor rights and the rule of law in Central
America demands a regional approach. Central American governments, in
explaining the repeated failures of the rule of labor law in the
region, have said that if they were to enforce their laws effectively,
firms would simply move across the border to a neighboring country that
did not. The proposal offered here reverses that dynamic by creating
competition for successful labor law enforcement. If the country next
door fails to enforce its laws or to meet international standards,
access to the U.S. market will be delayed. Timely rewards will flow to
countries that comply with their legal obligations, and those that do
not will lose customers and investment.
This proposal also benefits from using elements of other agreements
and models that are already functioning effectively. These regimes can
be examined. The governments involved can confer with one another.
Private-sector actors, including firms and workers' organizations, can
discuss experiences with their counterparts. The sharing of best
practices by those who have already implemented the different aspects
of these procedures can also help Central America move quickly up the
learning curve. This will expedite the realization of the rewards that
are possible through CAFTA, both in market access and in the more
fundamental rewards of good governance and the wide enjoyment of the
benefits of trade.
Sandra Polaski is a senior associate with the Trade, Equity, and
Development Project at the Carnegie Endowment for International Peace.
She served from 1999-2002 as the Special Representative for
International Labor Affairs at the U.S. Department of State, the senior
official handling labor matters in U.S. foreign policy.
Carnegie Endowment for International Peace
Washington, DC 20036
January 15, 2002
Regina Vargo
Assistant United States Trade Representative for the Americas
Office of United States Trade Representative
Winder Building
Washington, DC
Communicated Electronically
Dear Ms. Vargo:
Federal agencies responsible for conducting environmental reviews
of U.S. trade agreements are faced with a difficult challenge, but also
with a chance to facilitate the development of trade agreements which
contribute to the broader goal of sustainable development.
Unfortunately, unless the United States Government modifies its
approach in conducting the environmental review of the proposed U.S.-
Central America Free Trade Agreement (CAFTA), in all likelihood it will
be the fourth bilateral or regional trade agreement for which the U.S.
determines that increased trade liberalization will result in a de
minimis impact on the environment. While the direct effects of CAFTA on
the U.S. environment may be de minimis, for Central American countries
just the opposite will be true. As recent reports by the Inter-American
Development Bank and the draft national action plans submitted by the
governments of Costa Rica, Guatemala, and El Salvador demonstrate, our
Central American trading partners recognize the importance of
protecting their environment, but have not yet developed adequate
infrastructures--such as sewage systems, waste water treatment plants,
or solid waste disposal systems--necessary to mitigate the negative
environmental impacts associated with export-led growth.
We therefore urge you to broaden the scope of the U.S.
environmental review of CAFTA to include the agreement's potential
transboundary and global environmental impacts, arising from effects in
the Central American region. We further recommend that the United
States Government encourage our Central American trading partners to
conduct their own environmental review of CAFTA, with financial and
technical assistance offered by the U.S. for this purpose. Finally, we
offer a number of steps that federal officials can take to make the
CAFTA environmental assessment(s) a more meaningful tool for policy
makers and other interested stakeholders in both the United States and
Central American.
Why Broaden the Scope of CAFTA's Environmental Review?
1. Build Public Support for Environmental Reviews and Trade Policy
Developing the implementation guidelines for the U.S. environmental
review of trade agreements was a significant contribution made by the
Members of the Trade and Environment Policy Advisory Committee (TEPAC).
TEPAC Members and others within the environmental community concluded
that the policy of conducting environmental reviews of trade agreements
represented an important step towards reconciling trade and
environmental policies. Since then, however, the environmental reviews
conducted of the Jordan, Singapore, and Chile agreements have all found
a de minimis effect on the U.S. environment.
Repeated de minimis findings from environmental reviews run the
risk of undermining public support for this potentially significant
policy tool, one that was codified into law with the passage of trade
promotion authority in the Trade Act of 2002. This is especially true
when the potential for negative environmental consequences of trade
liberalization among less developed U.S. trading partners is very real.
Citizens in the United States and elsewhere want government officials
to take seriously the implications of trade liberalization on
environmental quality, but officials cannot do so if they are only
given half the picture--that is, if they are only provided with
information on a trade agreement's domestic environmental effects.
The failure to broaden the scope of the U.S. CAFTA review to
include transboundary and global environmental impacts--as well as the
failure to support Central American countries' efforts to conduct their
own environmental assessments for consideration--would represent a
missed opportunity by the United States to demonstrate that trade and
environmental policies can and should work together. Ten years ago the
United States demonstrated leadership in this area by conducting
environmental reviews of the North American Free Trade Agreement. That
leadership fostered similar review policies in the European Union and
Canada. More recently, by encouraging the Hashemite Kingdom of Jordan,
Chile, and Singapore to conduct their own environmental reviews of
FTAs, the United States is demonstrating to its trading partners and
their citizens that trade policy negotiations can and should take the
environment into consideration.
2. Promote Win-Wins for Trade and the Environment
U.S. commitment to considering CAFTA's potential environmental
impacts both domestically and within the Central American countries
would better facilitate the joint consideration of appropriate policy
responses to these effects. Given the size of the U.S. economy,
expanding trade with small Central American economies will rationally
have no measurable effect on the United States' domestic environment,
at least directly. On the other hand, the expanded production within
Central America of goods for export to the U.S. market likely will have
environmental consequences in the region. The U.S. and Central American
countries have an established history of working together to promote
sound environmental management in the region, most notably under the
auspices of the USAID Ambiental Regional para Centroamerica (PROARCA)
project. Environmental assessments of the proposed CAFTA should be used
to strengthen existing partnerships for environmental protection, by
suggesting areas where attention will be required to mitigate negative
environmental impacts, as well as by highlighting ways that trade can
be harnessed to directly promote sustainable development.
U.S. interest in promoting international sustainable development
stems in part from the recognition that environmental challenges are
often regional or global in scale. The geographic proximity of Central
America and the U.S.--as well as our significant imports of Central
American produce and the increasing movement of people across our
national borders--signal that some environmental problems arising in
Central America will directly affect the environment and public health
in the United States. In order to correctly identify domestic impacts,
the U.S. must address potential transboundary and global issues in its
environmental review of CAFTA.
Transboundary pollution--for example from industry, pesticide use,
or the open burning of solid waste--can contribute to ecosystem
degradation, negative health effects, and the transport and deposition
of persistent organic pollutants (POPs) in the United States. Current
U.S. Environmental Protection Agency (EPA) programs in Central America
lend insight into what types of issues might need additional attention
in the context of CAFTA. With funding from USAID, the EPA has helped
to:
Limprove food safety for fresh produce imported from
Central America;
Lreduce the inventory of stockpiled obsolete pesticides
throughout the region;
Llaunch projects on municipal wastewater treatment and
integrated solid waste management;
Lintroduce cleaner production practices for private firms;
Land establish regional networks of environmental lawyers,
experts, and environmental engineers.
Exploring the intersections between trade and environmental policy
should not be limited to mitigating negative environmental impacts. As
one example, the U.S. environmental review should consider the possible
consequences of supporting Central American farmers to engage in
sustainable agriculture for export to the U.S. niche market of organic
foods. Research conducted by International Center of Economic Policy
(CINPE) suggests that this would allow farmers to achieve a higher
standard of living, while reducing the use of harmful pesticides and
fertilizers. Supporting sustainable development and poverty alleviation
in Central America is again sound foreign policy, as the U.S. will
benefit from having more stable, prosperous neighbors.
3. Promote Good Governance and Capacity Building
The Bush Administration rightly links technical and financial
support to its belief in good governance. Most of our Central American
trading partners do not have a strong history of public involvement in
policymaking, supporting their efforts to conduct a national
environmental assessment of CAFTA would be an important step towards
better governance. Conducting an environmental assessment involves
engaging the public in discussion about trade's possible impacts on the
environment. Public involvement in turn results both in stronger
immediate data and in more effective implementation of subsequent
policy. Through its domestic and international experience with
environmental protection efforts, the EPA has ``clearly demonstrated
the importance public participation . . . in assuring meaningful and
sustainable results.''\1\
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\1\ U.S. Environmental Protection Agency (November 1999), ``Best
Practices for EPA's International Capacity-Building Programs.''
---------------------------------------------------------------------------
Beyond promoting democratic governance, conducting environmental
reviews builds the capacity of our trading partners to protect their
environment for two additional reasons. First, the assessment process
involves a transfer of skills and technology from one country to the
other, as scientists, government officials, and civil society
organizations explore the environmental implications of trade
liberalization. Second, assessments encourage better interaction among
government ministries, thereby improving efforts to coordinate policy.
The draft national action plans submitted by the governments of Costa
Rica, Guatemala, and El Salvador each demonstrate the need to
strengthen interagency cooperation and coordination on trade policy, as
well as to increase public involvement.
Steps Forward
Executive Order 13141 Section 5(b) states that, ``As a general
matter, the focus of environmental reviews will be impacts on the
United States. As appropriate and prudent, reviews may also examine
global and transboundary impacts.'' With these instructions in mind, we
recommend the following steps:
1. Broaden the Scope of the U.S. CAFTA Environmental Review to
Include Global and Transboundary Impacts: Executive Order 13141
Guidelines Section IV(B)(4) enables the Trade Policy Staff Committee to
place a high priority on global and transboundary impacts of expanded
trade. These impacts are at this writing not likely to be identified as
part of the International Trade Commission's report on the potential
impacts of trade liberalization with Central America, so federal
officials should not wait for this report to initiate their own
examination of the broader implications. Instead, consistent with
Guidelines Section IV(B)(2)(f)(3), the Environmental Review Group
should consult with environmental experts from Central America and the
United States to obtain information that will help determine the
potential global and transboundary environmental impacts of CAFTA.
2. Coordinate Technical Assistance: Under the auspices of the
United States Aid for International Development's Ambiental Regional
para Centroamerica (PROARCA) project, since 1995 U.S. federal agencies
have assisted Central American nations to increase effectiveness in
regional stewardship of the environment and key natural resources in
target areas. PROARCA's contribution to the enhancement of Central
American environmental protection efforts is consistent with the goals
of the Central American-United States of America Joint Accord
(CONCAUSA), signed on the margins of the 1994 Miami Summit of the
Americas. Renewed in 2001, CONCAUSA covers cooperation in four major
areas under an action plan: conservation of biodiversity, sound use of
energy, environmental legislation, and sustainable economic
development. As discussed above, a comprehensive environmental
assessment of CAFTA has the potential to utilize and strengthen this
existing cooperation. The Environmental Review Group should be in
contact with U.S. PROARCA participants, and use their relationships to
liaison with government officials and environmental experts in Central
America. This exercise should take place as soon as possible.
3. Communicate through U.S. Embassies: It is important to conduct the
U.S. review of global and transboundary impacts in a manner respectful
of sovereignty issues that may be raised as a result of an extra-
territorial review. Likewise, it is essential that the United States
clearly communicate the types of support it is able to provide to help
trading partners conduct their own environmental assessments. With
these two objectives in mind, U.S. Central American embassy officials
should be instructed to contact government officials at economic,
environmental, and development agencies to discuss U.S. interest in a
more comprehensive environmental review process.
4. Report findings early to Congress: Members of the Congressional
Oversight Group should be briefed regarding this initiative. USTR and
relevant federal agencies should also brief other committees with
interest in this effort, in particular, the Senate Environment and
Public Works Committee and the House Resources Committee.
USTR Ambassador Robert Zoellick has demonstrated that he
understands the importance of factoring environmental issues into trade
agreements. In our opinion, under his leadership the United States
government has made progress in this regard and helped to overcome the
interagency tensions that repeatedly surfaced during the administration
of President Bill Clinton. To continue to move forward, the United
States must now expand the scope of its environmental review process
for trade agreements, both by considering global and transboundary
impacts in all U.S. reviews, and by supporting U.S. trading partners'
efforts to conduct and share their own assessments for joint
consideration.
Sincerely,
John J. Audley
Senior Associate
Vanessa Ulmer
Junior Fellow
[BY PERMISSION OF THE CHAIRMAN]
Statement of CENCIT, Guatemala, Guatemala
In 1994 the Coordination Committee of Agricultural, Commercial,
Industrial and Financial Associations, CACIF, created the CENCIT. The
CENCIT is aspecialized commission formed from the Guatemalan private
sector and maintains an entrepreneurial structure as a counterpart to
the governmental entities in charge of the negotiations, as well as to
apply the international trade negotiation policies in an efficient and
orderly way. The Members of the CENCIT are entrepreneurs and
professional staff from each of the Guatemalan private associations and
chambers\1\.
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\1\ AGEXPRONT, AZAZGUA, Camara del Agro, Camara de Comercio, Camara
de Finanzas, Camara de Industrustria, Camara de la Construccion,
FEPYME.
---------------------------------------------------------------------------
The participation of the Members of the CENCIT in the negotiations
of free trade agreements and within the framework of the World Trade
Organization, WTO, has fostered the development of an adequate
consultation and information exchange system between the private sector
and the responsible government officials. Over the years, the CENCIT
has developed a comprehensive information system regarding production
chains, statistics and trade-related issues. Additionally, our team of
specialized professionals has accumulated precious experience and
understanding of current trade issues and their effect on Guatemala.
From the time when President Bush proposed the negotiation of a new
free trade agreement with the Central American countries, the CENCIT
has been working intensely to reach a consensual position among the
Guatemalan private sector. We are also working on strengthening the
communication channels with the current Administration, aiming to
exchange information on the production chains of the country and how
they would benefit, or be affected, by trade liberalization.
Traditionally, the United States has been our most important trade
partner and the Central American countries are our second largest
export market. Therefore, we consider the negotiation of the Free Trade
Agreement between the United States and the Central American Countries,
CAFTA, as the current most important trade policy undertaking.
Certainly, the negotiation and successful conclusion of the Agreement
will intensify the Central American integration process, which has been
staled over the last years. Furthermore, it should become a building
block of the Free Trade Area of the Americas, FTAA, and strengthen the
global trade liberalization process taking place in the framework of
the WTO.
Since the Caribbean Basin Initiative, CBI, and the Generalized
System of Preferences, GSP, entered into force for Guatemala, the great
majority of our export products has benefited from preferential access
to the U.S. market. Undoubtedly, these preferential schemes have
fostered the growth of our exports and played a key role in the
economic diversification and growth of the country. Moreover, the CBI
and GSP have contributed to the generation of employment, creating more
than 400,000 export-related jobs. In the light of the CAFTA
negotiations, one of our main objectives is to consolidate and improve
the benefits that both preferential schemes have generated and to
broaden the scope of preferential access of Guatemalan products to the
U.S. market.
In Guatemala, agriculture-related activities account for 24% of the
Guatemalan Gross Domestic Products, GDP. Taking into account the
plummeting of the international market prices of our traditional
commodities, the diversification of the agricultural production, as
well as the negotiation of stable market access conditions for our
products have become a national priority. In order to guarantee market
access for our agricultural fresh and processed products, the
Guatemalan private sector is working together with the responsible
governmental entities to create state of the art certification bodies
and laboratories of analysis, as well as train accredited inspectors,
in order to comply with international sanitary and phytosanitary
requirements.
The industrial sector has also taken steps towards modernization,
manufacturing a wide range of products, from wooden furniture to
pharmaceutical products. The implementation of world-class quality
assurance and modern production systems has guaranteed the
competitiveness of Guatemalan manufactured products all over the world.
Due to our geographical location, Guatemala is a potential industrial
hub for U.S. companies, which can take advantage of the short distance
between Guatemala and major U.S. cities.
During the last years, the growth of the apparel and textiles
industry has been remarkable, generating more than 130,000 jobs. The
CBI enhancement has benefited not only the Guatemalan industry, but
also the U.S. textile-related industry as shown by the yearly imports
of components, totaling U.S. $111 millions. Taking into account the
benefits generated by this sector, we aim to improve the market access
conditions of the Guatemalan textile and apparel products to the U.S.
market.
Guatemala has also carried out the modernization and liberalization
of the services sector. Nowadays, the liberalization of
telecommunications, as well as electric energy generation and
distribution have benefited consumers all over the country, since more
people have access to these services, mainly in the countryside.
Moreover, our Telecom Act has been presented in several occasions as an
international example for a modern and efficient legal framework and
Guatemala has received large amounts of foreign investment due to the
privatization and liberalization of services. We expect that the CAFTA
will offer better, more efficient and affordable services, which are
the backbone of our business activities.
We expect that the negotiation and subsequent entering into force
of the CAFTA will encourage U.S. investors to establish operations in
Guatemala. Definitely, as the experience of many other countries shows,
foreign direct investment will create new and better jobs, accelerate
technology and know-how transfer, as well as diversify our economy and
broaden the export supply. However, we would like to highlight the fact
that special national interests and needs, as well as corporate ethics,
should be taken into account when promoting foreign direct investment.
The organized private sector is working permanently on the improvement
of the business environment and also to streamline the proceedings
required to start operations in the country. We also look forward to
strategic alliances and cooperation among companies.
The implementation of international labor standards has already
started in Guatemala, as the creation and application of the ``Code of
Conduct'' of the apparel and textiles industry shows. Currently, this
trend is spreading rapidly to other sectors such as agriculture and the
manufacturing industry. Furthermore, private companies have developed
state of the art labor standards as part of their corporate
responsibility. We are certain that we will advance social development
in Guatemala through better employee-employer relationships and we look
forward to an efficient and correct enforcement of labor standards
throughout the country. Therefore, we would like to request the
inclusion of a positive incentives labor provision in the CAFTA,
emulating the ``quota-plus'' approach, which was proposed during the
Hearing by the Honorable Sander Levin for the Vietnam Textiles
Agreement.
Guatemala is a small country, but it is enormously rich in
biodiversity and natural resources. Tourism is our second source of
foreign currency and most of the tourists come to visit our natural and
cultural treasures. On the other hand, we still have to discover the
uses and benefits of the majority of tropical natural products, as well
as preserve our fauna and flora. Consequently, preserving the
environment is a crucial factor to achieve sustainable development. We
are keen to undertake the protection of our environment, but without
turning these protection efforts into unnecessary barriers to trade.
On the issue of the protection of intellectual property rights,
Guatemala has developed a modern legal framework in order to comply
with the acquired international obligations. Nevertheless, in the light
of the current U.S. patent-protection policy, there is a deep concern
regarding the access to affordable drugs and essential medicines, as
well as reasonably priced technology products. These issues are being
discussed at the multilateral level, within the framework of the WTO
and the World Intellectual Property Organization, WIPO, and developing
countries have urged industrialized countries to reconsider their
patent--related negotiating positions. For this reason, we would like
to urge your committee to recommend the United States Trade
Representative to consider the special health and developing needs of
the Central American countries in the light of the protection of
intellectual property rights.
A further topic that we would like to bring to your attention is
transparency. Since the launching of the CAFTA negotiations last
January, our concern has grown due to the lack of information and
access to U.S. proposals resulting from the confidentiality
requirements set out by the United States Trade Representative. This
unnecessary secrecy has undermined the advisory and consultation
functions of the CENCIT and creates room for misinterpretations and
rumors. Certainly, the CENCIT would like to have a more active
participation in the CAFTA negotiations in order to reach fruitful
results for Guatemala. Observing the delay in the publication of the
texts from the free trade agreements already signed by the U.S. with
Singapore and Chile, we would like to encourage your Committee to
strengthen and oversee transparency in U.S. trade policy, as well as in
ongoing and future negotiations.
Considering that the CAFTA will have medium and long-term effects
in our economy and trade relations, we would like to express our
sincere interest in presenting proposals for cooperation projects
designed to tackle the asymmetries between our economies and to
increase the competitiveness of our products and services. We are very
interested in the U.S. experience dealing with structural changes,
which have resulted from the trade diversion generated by the
liberalization of certain sectors. Additionally, we are looking forward
to the U.S. experience on the implementation of an efficient
competition policy, which will certainly have a positive impact on the
Central American economies. The private sector has successfully carried
out several projects with international funding, as well as social
responsibility projects funded by enterprises, chambers and
associations, which have delivered palpable results and progress for
Guatemala. We are willing to sit down with cooperation officers to
design viable projects and to carry out their execution until the
objectives are reached.
We see the CAFTA as an Agreement having a great potential to foster
the sustainable development of Guatemala and our fellow Central
American nations, as well as an instrument to reduce poverty all over
the region. Taking into account our experience in the negotiation of
other free trade agreements, like the ones with Mexico, the Dominican
Republic and Chile, we believe that this agreement should balance the
different levels of economic development and special needs of each of
the negotiating parties so as to deliver an Agreement that is
beneficial for all. Indisputably, trade is the correct manner to attain
economic development for small economies such as the Central American
countries and thus we are committed to keep working on the CAFTA
negotiations.
Statement of William A. Hagedorn, Comstock & Theakston, Inc., Oradell,
New Jersey
I. LInclusion of Full Drawback Rights in FTAs Will Provide Significant
Benefits to U.S. Companies
Many imports are subject to Normal Trade Relations (NTR) duty rates
when imported into the U.S. Therefore, to include in any FTA a
restrictive drawback program like that in NAFTA, and thus limit
drawback, would place U.S. companies at a significant competitive
disadvantage against our trading partners.
Duty drawback reduces production costs and operating costs by
allowing manufacturers and exporters to recover duties that were paid
on imported materials when the same or similar materials are exported
either as finished products or as component parts of a finished
product. This advantage must be maintained as part of U.S. policy to
foster growth and development within the U.S. and to increase U.S.
export competitiveness abroad.
II. Drawback Encourages Growth in U.S. Manufacturing and Exports
The legislative policy underlying the duty drawback program is to
increase the competitiveness of U.S. industry in the global market when
competing against lower-priced exports from our trading partners. The
drawback program benefits U.S. manufacturers and exporters by enhancing
their competitiveness in providing an advantage either at the margin
for pricing goods in the export market or at the lower overall costs of
production.
The drawback program was initiated to create jobs and encourage
manufacturing and exports. Customs recognizes this by stating that
L The rationale for drawback has always been to encourage
American commerce or manufacturing, or both. It permits the
American manufacturer to compete in foreign markets without the
handicap of including in his costs, and consequently in his
sales price, the duty paid on imported merchandise.
Clearly, the intent of Congress is to grant drawback when and
wherever possible to the benefit of U.S. companies, not to limit
drawback simply because the U.S. enters into a FTA that reduces import
tariffs with the FTA partner. To do so defeats the purpose of the
program and the FTA, which purpose is to provide the greatest overall
benefits to U.S. exporters.
III. LThe Rationale for Restricting Drawback Rights in FTAs No Longer
Exists
The rationale for restricting drawback rights in FTAs no longer
exists, and no empirical evidence has surfaced that would lead one to
believe otherwise. There were two primary reasons for restricting
drawback in a FTA, both of which have been proven false. First, it was
believed that drawback restrictions were necessary to create a
disincentive for the development of export platforms, yet such
restrictions have had an effect adverse to that intended. Second, it
has been said that drawback is an export subsidy that should be
eliminated. However, according to the WTO's Agreement on Subsidies and
Countervailing Measures, drawback does not constitute an export
subsidy.
LA. Restricting Drawback Actually Encourages, Rather than
Discourages, the Creation of an Export Platform
The continued proliferation of free trade agreements makes the U.S.
position about export platforms a moot point, with no empirical
evidence to substantiate the premise. The negotiating position of the
U.S. in NAFTA was that the elimination of duty drawback was necessary
to create a disincentive for Asian and European countries to establish
export platforms in Mexico or Canada to the detriment of U.S.
manufacturers and suppliers of inputs. However, in anticipation of the
restrictions on duty drawback, a number of companies with Maquiladora
and PITEX operations in Mexico convinced suppliers in Asia and Europe
to establish parts production facilities in North America to replace
imports from non-NAFTA sources. Furthermore, many maquiladora
representatives from Japan, Korea, Taiwan, the United States, and
Mexico have been unable to locate suitable component suppliers in North
America. These officials requested Mexican officials to consider
additional financial incentives. Without incentives to compensate for
increased costs due to the drawback restrictions in NAFTA Article 303,
some companies using maquiladora operations have searched for
opportunities in other countries.
Over time, and with the imposition of NAFTA Article 303 drawback
restrictions, our NAFTA trading partners have instituted trade policies
to diminish the financial impact on domestic manufacturers of the duty
drawback restrictions contained in the NAFTA. The U.S. has done nothing
to counter the same adverse impacts on U.S. manufacturers and
exporters. For example, in anticipation of the adverse economic impact
on its maquiladoras that Article 303 would have, Mexico instituted its
Sectoral Promotion Programs (``PPS''). Under the PPS, Mexico reduced
many of its NTR duty rates so that domestic manufacturers could obtain
non-NAFTA inputs with the least adverse economic impact as drawback
became restricted. In addition, Canada reduced its NTR duty rates so
that the imposition of the drawback restrictions under NAFTA had the
least adverse economic impact upon domestic manufacturers. These
actions not only circumvent the original intent of drawback
restrictions as relates to the creation of an export platform, but also
demonstrate that the premise is fallible. It is expected that if
drawback restrictions are included in other FTAs, our trading partners
will take similar actions to ensure that their domestic companies can
obtain the necessary inputs at the lowest possible cost rather than
obtain them from the U.S. Thus, the analysis for the need to restrict
duty drawback based on the creation of export platforms has proven
false over time.
LB. Duty Drawback is Not an Export Subsidy, and It Creates
Incentives and Advantages for Domestic Manufacturers and
Exporters
Almost every country has a drawback program. Duty drawback is one
of the few GATT/WTO-sanctioned programs used by the U.S. The WTO has
commented that the drawback programs in other countries, as well as
that in the U.S., have the following positive effects: ``Creates an
export incentive; counteracts the negative effects of high import
tariffs; establishes a strong magnet for export-oriented foreign direct
investment; provides benefits to exporters and manufacturers; and,
removes a bottleneck to private sector development''.
According to the WTO, as well as to the intention of Congress and
over 200 years of experience, duty drawback promotes, encourages and
benefits exports. Workers in exporting industries have greater
productivity and higher wages than do workers in other industries.
Export promotion programs such as drawback are necessary to encourage
exports and enhance U.S. competitiveness abroad.
IV. LIt is Illogical for the U.S. Government to Remove Export
Incentives for U.S. Manufacturers and Exporters
The U.S. should not remove WTO-legal export incentives for U.S.
companies, but rather strengthen the existing incentives and provide
any additional incentives and competitive advantages to U.S. companies
that would allow them to win contracts for the sales of goods and
services abroad.
The U.S. strategy for entering into FTAs is to lower the overall
tariff burden for U.S. companies when exporting to the particular
trading partner, thereby making U.S. companies more competitive in the
particular market or region. However, as in the case of Mexico and
Canada when countries lower their own NTR duty rates to rates that
match the level contained in a free trade agreement with the U.S., any
drawback limitations becomes punitive to U.S. companies, as the
advantage provided to them by the FTA is diminished when foreign
exporters receive the same or similar benefits (plus drawback, in many
instances). The result is a decrease in the competitiveness of U.S.
companies.
E.I. du Pont de Nemours & Company
Wilmington, DE 19868
Dear Sir:
Thank you for providing us with the opportunity to comment on
issues relating to current trade issues. E.I. DuPont de Nemours and
Company is a Fortune 500 Company operating as a global enterprise in 70
countries around the world. Our U.S export sales in excess of $4.6
billion represent 19 percent of sales, making DuPont one of the largest
U.S. exporters. As such, it is incumbent on us to address one of the
aspects of the trade agreements, specifically, duty drawback.
While the initial U.S. duty drawback law dates back more than 200
years, the underlying concept remains the same today--to encourage
American commerce. It permits industry to compete in foreign markets
without the added burden of including import duties in its costs and
sales price. Duty drawback reduces production and operating costs by
allowing manufacturers and exporters to recover duties that were paid
on imported materials when the same or similar materials are exported
either as finished products or as component parts of a finished
product.
Industry should not be penalized by the reduction or elimination of
duty drawback simply because the U.S. enters into a FTA that reduces
import tariffs. Drawback should be maintained as part of the agreements
to continue to foster growth and development within the U.S. and to
increase U.S. export competitiveness off-shore.
We hope you consider this perspective as you develop additional
trade agreements.
Sincerely,
J.S. Kempf
Manager, Duty Drawback
Electronic Industries Alliance
Arlington, Virginia 22201
Ways & Means Committee
U.S. House of Representatives
Via E-mail
Members of the Committee:
The Electronic Industries Alliance (EIA) appreciates the
opportunity to comment on the Committee's February 26 hearing on U.S.
trade policy and on the U.S. trade agenda. Our comments today focus
primarily on the Chile and Singapore free trade agreements but in many
areas are likely to apply to broader trade policy as well.
EIA is an alliance of high-tech associations and approximately
2,500 Member companies whose products range from the smallest
electronic components to the most complex systems used by government
and industry, including the full range of consumer electronic products.
U.S. electronics is a $430 billion industry that provides 1.8 million
jobs for U.S. workers. In 2001, about 40% of U.S. produced
electronics--more than $170 billion in goods--was exported overseas.
We would like to express our pleasure on the recently completed
negotiations to enter into free trade agreements (FTAs) with Singapore
and Chile. EIA appreciates USTR's release for public review the U.S.-
Singapore FTA text and looks forward to the similar release of the
U.S.-Chile FTA text, which we hope will be in the very near future.
Based on the texts and summaries released by USTR, the U.S.-
Singapore and U.S.-Chile FTAs embody a broad range of market-
liberalization commitments that will facilitate international trade and
investment with these countries and are necessary to promote long-term
economic growth. Both FTAs will benefit the electronics industry as a
whole and are noteworthy for the following commitments:
Tariff Elimination: Singapore's commitment to immediate duty-free
treatment for U.S. exports to Singapore and Chile's commitment to
eliminate tariffs immediately on 85% of imports--in key sectors such as
computers and other information technology--provide immediate benefits
to U.S. manufacturers. It is noteworthy that the FTA with Chile marks
the first time that a major South American country has embraced the
duty reduction commitments reflected in the 1996 Information Technology
Agreement (ITA). In future FTAs, EIA suggests that for certain
sensitive product areas USTR and Congress consider flexible mechanisms
for reducing tariffs, such as the ITA that reduces tariffs equally in
staged reductions.
E-Commerce Liberalization: Both agreements contain commitments in
this area that are more advanced than any negotiated under the World
Trade Organization. The FTAs provide non-discriminatory treatment to
products delivered electronically, which will benefit U.S. firms that
sell digital products over the Internet. Parties to the agreements also
agreed to prohibit customs duties charged on these electronically
delivered products.
Intellectual Property Protection: We appreciate the strong
protection for copyrighted works that permits the growth of digital
technologies and products while still protecting the legitimate rights
of copyright owners, reflecting the balance struck in the U.S. Digital
Millennium Copyright Act. Moreover, strong enforcement provisions
criminalize end-user piracy and commit both Singapore and Chile to
seize, forfeit and destroy counterfeit and pirated goods and the
equipment used to produce them. These protections will apply to goods-
in-transit and mandate both statutory and actual damages under Chilean
and Singaporean law for IPR violations.
Telecommunications Market Access: Both agreements provide for open
markets and non-discriminatory access to telecommunications networks.
We are particularly pleased that specific provisions in the Singapore
agreement have been included to ensure national treatment among service
providers, protection against anti-competitive behavior, transparent
procedures for access to unbundled network elements and transparency in
licensing procedures. Moreover, we strongly support the affirmation of
the principle of technology choice by public telecommunications service
providers. These and other provisions will contribute to open and
transparent telecommunications markets for both service providers and
equipment suppliers.
While we are pleased with most aspects of the Chile and Singapore
FTAs and with the potential that both offer for economic growth and
improved trade relations, we do have two areas of concern:
Rules of Origin: There is a general consensus that the NAFTA rules
of origin are highly complex and that rules of origin for future FTAs
need to be much simpler. Complex rules of origin impose unnecessary
administrative burdens on companies and raise the cost of doing
international business. Moreover, we understand that the rules of
origin for the U.S.-Chile FTA may serve as the model for future
agreements. Accordingly, we recommend that the rules of origin for the
U.S.-Chile and U.S.-Singapore FTAs be simplified so that companies that
are entitled to the benefits will not be deterred from capitalizing on
them because of prohibitively high administrative costs. This
simplification can be accomplished through a straight tariff shift-only
approach, whereby an item moves from being one good to another in the
course of manufacturing. We would note that a straight tariff shift-
only approach might include a minimum regional value content (RVC)
requirement.
Duty Drawback: The duty drawback program, administered by the U.S.
Customs Service, is one of the last remaining export promotion programs
to help U.S. companies compete in the global marketplace against
trading partners that have significantly lower costs of production. We
understand from the U.S.-Chile FTA summary released by your office that
drawback will be phased out over a 12-year period. We believe that by
phasing out drawback in each FTA, the elimination of this program is
being accelerated as it relates to tariff elimination worldwide, since
we do not know when, or if, tariffs will truly be eliminated. At the
very least, the European Union-Chile FTA language would be preferable
as it has an opt-out provision allowing exporters and importers to
choose between drawback and a duty preference. By eliminating drawback
in the U.S.-Chile FTA, the U.S. will be placed at a competitive
disadvantage against our E.U. trading partners that have more
preferable drawback language in the E.U.-Chile FTA.
FTAs such as those negotiated with Singapore and Chile ensure that
U.S. manufacturers and exporters remain competitive in the global
marketplace and enhance the prospects for successful multilateral trade
talks, including the Free Trade Area of the Americas and the Doha round
of WTO negotiations.
In light of these future negotiations, we would like to note one
final concern. Although it is not addressed in either the Chile or
Singapore FTA, we feel the issue of foreign levies on digital products
is one that must be raised now because of the potential for these
agreements to be used as models for future negotiations. The
propagation of levies on digital products--including PCs, audio/visual
products and other electronics--is emerging as a worrisome trade
barrier. These levies are being imposed by E.U. countries, Canada,
Mexico and others and are a threat to U.S. manufacturers' ability to
offer products at lower prices. With this concern in mind, we would
urge USTR and Congress to include the prohibition of levies on digital
products in future U.S. trade negotiations.
Thank you for the opportunity to comment.
Respectfully submitted,
Brian Kelly
Senior Vice President
Government Relations and Communications
[BY PERMISSION OF THE CHAIRMAN]
Embajada De Honduras
Washington, DC 20008
March 12, 2003
The Honorable William Thomas, Chair
The Honorable Charles Rangel, Ranking Minority Member
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Sirs:
Honduras applauds President Bush and Ambassador Zoellick's
commitment to negotiate a Central American Free Trade Agreement (CAFTA)
by the end of the year. Honduras is prepared to do its part to make
that happen. Honduras also thanks the Congress, this Ways and Means
Committee, and the other Members who helped make the United States-
Caribbean Basin Trade Partnership Act (CBTPA) a reality in both the
Trade Development Act of 2000 and the Enhanced CBTPA which was enacted
in the Trade Act of 2002. The negotiation of a commercially viable
CAFTA will expand on the substantial benefits which have been realized
by the U.S. and Central American textile and apparel industries as a
result of the passage by the Congress of CBTPA.
This testimony focuses on the textile and apparel industry in
Central America. This is not to minimize the importance of agriculture,
or the other sectors, but to highlight the importance of the prompt
negotiation and implementation of CAFTA as it applies to textile and
apparels. The expiration of the WTO's Multi-Fiber Arrangement in
January 2005 will dramatically change the rules in international trade
that govern the textile and apparel industry. Therefore, it is crucial
to the economic survival of the U.S. and Central America textile and
apparel industries that CAFTA be negotiated promptly.
Honduras is the third largest exporter of apparel to the United
States after Mexico and China. It's textile and apparel industry,
according to 2002 statistics, represents over 26% of the employment in
Honduras. In 2002, it employed 107,396 Hondurans. The 2002 employment
figures are reduced from the height of maquila employment in 2000 of
125,608 employees.
This Committee, the Congress, and previous Administrations' vision
and support have had a major beneficial impact on the U.S. industry and
the industries of Honduras and the other Central American and CBI
countries. The growing strategic relationship among our industries
indicates your support for both CBTPAs and demonstrates the fallacy of
the positions taken by protectionist industries in the United States
which held up the passage of CBTPA and the expansion of the textile and
apparel sectors for approximately seven years. Negotiations between the
Central American countries and the United States for CAFTA will
significantly impact Honduras', the Central American, and the U.S.',
world textile markets post-January 1, 2005. For this reason, and the
facts set forth in this statement, Honduras urges the Congress and the
Administration to support a commercially viable CAFTA that is agreed to
by the end of this year.
I. Current Situation
While the passage of CBTPA, in 2000, was expected to give a boost
to employment in textiles and apparel in Honduras, and the other
Central American countries, the delayed implementation of the 2000
Trade Development Act, coupled with the U.S. Customs Service
contradictory interpretations, and worldwide economic slowdown
prevented this. This situation was caused by the efforts of some of the
protectionist companies and groups in the U.S. textile and apparel
industry to undercut the pro-trade provisions. In fact, it cost
Honduras approximately 15,000 jobs in the maquila sector. A similar
situation occurred in other Central American countries, and in the
United States.
The passage of enhanced CBTPA in 2002 and changes in the worldwide
textile and apparel market, however, seem to have reversed that trend.
It appears that 2003 will return to a level of activity that will
result in employment for over 120,000 workers. The textile and apparel
industry in 2004 and 2005 are projected to grow and the Asociacion
Hondurena de Maquiladores (Association of Honduran Maquiladors, or AHM)
projects that approximately 130,000 workers will be employed in 2004
and 143,000 in 2005.
It should be noted that each maquila employee creates substantial
multipliers. For example, the employment of 107,396 Hondurans in 2002
supported another 536,980 direct dependents. It also supported
1,073,960 indirect jobs in Honduras. For purposes of these figures the
company workers work directly for the manufacturing companies; while
direct dependents include employees for service companies that provide
services to the maquila companies and other similar supporting jobs;
and lastly indirect jobs include businesses such as restaurants,
laundries, home construction, banks, which provide general services
that depend on the economic activities of the maquilas or the support
industry. It must be understood that in 2002 the annual per capita
income in Honduras is $850, while AHM calculates that the average
annual salary for maquila workers was $3,717.62. Textile and apparel
workers in Honduras are paid substantially more than other Honduran
workers who lack advanced degrees, technical training, or education.
Total textile and apparel exports from Honduras in 2001/2002 to the
United States had a customs value of $2,287.6 billion dollars. In
exports of apparel alone to the U.S., Honduras was ranked number three
worldwide, after Mexico and China, with a custom value of $2,284.2
billion. Comparing Square Meter Equivalents (SMEs) of apparel to the
United States for the year ending 2002, Mexico exported 2.14 billion
SMEs of apparel to the United States, China 1.14 billion SMEs and
Honduras 990 million SMEs. In terms of SMEs of apparel, Honduras was
followed by Bangladesh, Hong Kong, the Dominican Republic, El Salvador,
Korea, and Taiwan. Comparison data demonstrates the importance of the
Central American and CBI region in terms of total U.S. imports of
textiles and apparel for the year ending June 30, 2002. The CBI region
was second to Mexico in SMEs, and first in terms of customs value. For
apparel alone, the CBI region was first in terms of both SMEs and
customs value; with Central America second in SMEs.
It is also clear that CBI, CBPTA, and enhanced CBPTA are, at least
partially, responsible for the growth of this industry. In 1990, 27% of
Honduras' exports to the United States were non-traditional (textile
and apparel) and 73% were traditional imports (bananas, coffee, sugar,
fish, etc.). By 2001, the figures were reversed with non-traditional
products (textiles and apparel) representing 70% and traditional
exports (bananas, coffee, etc.) representing 30%.
These statistics demonstrate that January 1, 2005 is a watershed
period of potential dislocation for Honduras and the other Central
American and CBI countries. On the world stage, in textile and apparel,
Honduras and the other Central American republics are competitive and
major players in the United States market under existing laws,
regulations, and programs. While no one can accurately predict what
January 1, 2005 (less than two years from now) will bring, it is clear
that any change could be dramatic and detrimentally impact the current
economies of the Central American and CBI countries, including
Honduras.
In this context, Honduras would like to point out that in the
launch of the CAFTA negotiations on January 8, the United States Trade
Representative (USTR) made the point that the United States intends to
model CAFTA on the U.S.-Chile Agreement. This is of great concern to
Honduras because at least in the textile and apparel sector, such a
negotiating position by the United States could be potentially damaging
to Honduras and to Central America. As I have previously pointed out,
Honduras and the other Central American and CBI countries are major
players in the world textile and apparel manufacturing industry,
exporting between 14 and 16% of the world production to the United
States. This amount is comparable to Mexico and China. Chile, on the
other hand, is not comparable. It is 103rd in worldwide rankings and
not a factor in the worldwide textile and apparel industry. For example
the customs value of Chile's exports of textile and apparel to the
United States are insignificant with a total customs value of $11
million while Honduras' exports are significant and amount to $2,287.6
billion.
Comparing Chile's textile and apparel industry to Mexico
demonstrates the need to model CAFTA on NAFTA, not Chile. Following
Chile's model in textile and apparel is a path that could make Central
America's industry uncompetitive after January 1, 2005 when the Multi-
Fiber Arrangement expires and quotes are lifted. The export activity of
the existing industry demonstrates the need for the USTR, in the CAFTA
negotiations, to integrate Honduras and Central America with Mexico,
Canada, CBI, and eventually the Andean regions. Only such integration
of the textile and apparel industries in this hemisphere will allow the
industry to remain competitive.
II. CBTPA/Honduras and Its Partnership with the U.S. Industry
When reviewing the aforementioned facts, Congress and the
Administration must understand that major portions of the U.S. textile
and apparel industry are principal beneficiaries of CBTPA, and its
enhancement in 2002. In the CAFTA negotiations, the trade policy
concessions made by the United States to the Central American
countries, including Honduras, will have major ramifications for the
U.S. industry. While some companies, or associations, may view textile
and apparel trade policy narrowly, the facts demonstrate that the
expansion of textile and apparel trade in Central America has been
beneficial both to the U.S. industry and the Central American industry
and is critical to that industry's future competitiveness.
A case in point where protectionism hurt the U.S. industry as much
as the Central American industry is the dyeing and finishing
prohibition that Congress and the Administration included in CBPTA
enhancement. It takes approximately three weeks for knitting machines
to be palletized, shipped to the region, and set up for operation.
While some in Congress, and the industry, argued that preventing dying
and finishing of U.S. fabrics in the CBI region benefited U.S. textile
and apparel employees, we now know that was not true. In its December
2, 2002 statement to Ambassador Zoellick, the American Yarn Spinners
Association (AYSA) pointed out that the limitations on the ability to
dye and finish U.S. fabrics hurt U.S. greige goods manufacturers. We
now know a number of U.S. greige good knitters were put out of
business. Perhaps some vertically integrated U.S. companies may have
benefited, but many more, who did not have dying and finishing
facilities were put out of business. Thus, a politically created
artificial impediment hurt both the U.S. industry and Central American
and CBI industries. We cannot have similar market dislocation
provisions in CAFTA. Instead, CAFTA must correct these bad policy
choices.
Prior to the passage of the Trade Development Act of 2000, which
included CBTPA and AGOA, U.S. yarn exports to the CBTPA countries were
basically flat. The U.S. International Trade Commission (ITC) data
demonstrates that as soon as CBTPA was passed, U.S. yarn exports to
Honduras doubled in the period from 2001 to 2002. This was also true
for U.S. yarn exports to all CBTPA countries. Thus after 5 years of
controversy in Congress over including broad provisions, from the time
of its passage in 2001 the amount of the U.S. cotton yarn exported to
Central America, and the Caribbean doubled. As a result, after one
year, the U.S. industry supported doubling the caps in 2002 and
virtually eliminating them over the next two years. Only one year after
implementation of the 2000 Act there was a need by the U.S. cotton yarn
and other textile manufacturers for higher ``caps'' and more
flexibility. In its written statement submitted to the ITC on October
17, 2002, the American Yarn Spinners Association stated:
L ``The attached charts are based on data from the U.S.
International Trade Commission. As you will note, the producers
of yarn and knit fabrics in the U.S. dramatically increased
their exports to the CBTPA countries last year. In an otherwise
dismal year for the U.S. textile industry, the benefits offered
by CBPTA have preserved a number of U.S. jobs and companies
that otherwise would have been lost.''
U.S. industry statistics for 2001 establish that 58% of all U.S.
cotton yarns that are exported to the CBI region are exported to
Honduras, 17% to Guatemala, 16% to El Salvador, 5% to the Dominican
Republic and 4% to Costa Rica. Similarly, the statistics for exports of
U.S. cotton yarn to the countries in both NAFTA and the CBI regions
establish that 42% of U.S. cotton yarn is exported to Canada, 22% to
Mexico, 21% to Honduras, 6% to El Salvador, 6% to Guatemala, 2% to the
Dominican Republic, 1% to Costa Rica, and the remaining percentages to
the other CBI countries.
In addition to the extensive use of U.S. cotton yarns, the overall
U.S. trade statistics highlight the strong partnership between
Honduras' apparel industry, the CBI region, and the United States
industry. An analysis of the amount of U.S. value added in apparel
exports from the region to the United States demonstrates the tie. This
is particularly important for the U.S. industry as we look to January
1, 2005. 73.97% of Honduras' exports to the U.S. in SMEs contain some
U.S. inputs; and 63.6% of all of Central America's exports and 68.07%
of all the CBI region's exports similarly consist of U.S. inputs. On
the other hand, the rest of the world's exports to the United States do
not demonstrate the same use of U.S. inputs. For example, China's
exports to the U.S. only contain 0.26% of U.S. inputs. In the year
ending June 30, 2002, China exported $7.2 billion in textile and
apparel to the U.S, but $7.16 billion of that did not contain U.S.
content. In other words, the U.S. manufacturers do not benefit from
China's production of textile and apparel but they do from Honduras'
and the other countries in Central America, and the CBI region.
Any negotiating strategy by the USTR in CAFTA that undermines
competitiveness or fails to integrate the Central American, CBI and
NAFTA regions, will not only hurt Honduras' textile and apparel
industry post the Multi-Fiber Arrangement, but it will also seriously
damage the viability of the U.S. industry.
The other factor that Congress and the Administration must consider
in looking at the textile and apparel industry in Honduras is the
origins of the investment and ownership. An analysis of established
companies in Honduras demonstrates that 40% of the investment is from
the U.S. and 31% from Honduran nationals. Another 15% of the investment
is from the Korean countries, 4% from Hong Kong, and 2% from the
Taiwanese. There is another 8% of foreign direct investment in the
Honduras textile and apparel and sector spread among a variety of
countries.
III. Factors that will allow Honduras to compete after January 1, 2005
It is Honduras' belief that it has a number of competitive
advantages, one of which is its strategic partnership with the U.S.
yarn, textile and apparel industry. In addition, Honduras has a key
geo-strategic location, with excellent port facilities only two or
three days away from parts of the Gulf Coast, Miami, New Orleans, and
Galveston. Honduras is only a two hour flight from Miami and Houston.
This results in a competitive turnaround time and ease of doing
business for U.S. companies.
Honduras also has excellent relationships with the U.S. and other
countries, and is politically and socially stable. President Maduro is
the 7th consecutive President of Honduras to be elected democratically.
Honduras has a skilled labor force and strong relationships between the
business and labor sector. Coupling these attributes with Honduras'
export incentives and free zones leads us to believe that Honduras can
continue to be competitive
While there may be U.S. protectionist pressures, such as those
affecting CBTPA's implementation, in the negotiation and ratification
of CAFTA, history demonstrates that allowing these pressures to control
the process is bad policy and bad business for Honduras, the U.S., and
the region. CAFTA must be a clear, simple, and flexible mutually
beneficial commercial agreement if the United States and the region are
to remain competitive after January 1, 2005 in the textile and apparel
sector.
IV. CAFTA Negotiation
The hearings before the ITC on January 22nd demonstrated both the
potential pitfalls and the opportunities that must be balanced in CAFTA
if the Central American countries, including Honduras, and the U.S.
textile and apparel industries are to remain competitive in the post
Multi-Fiber Arrangement world. On behalf of Honduras, and its textile
and apparel sector, I would like to highlight a number of positions
which we believe the Administration and the Congress should support in
CAFTA:
LCAFTA must integrate the textile and apparel industry in
this hemisphere and create a seamless hemispheric industry.
LCongress needs to understand the detrimental impact to
U.S. and the region's trade that the faulty post-CBTPA implementation
caused. This was the result of the protectionist efforts to restrict
textile and apparel growth in the region. The U.S. industry has
benefited greatly from both CBTPA and enhanced CBTPA. Protectionist
efforts, when combined with a protectionist bureaucracy, resulted in
financial harm to Honduras, the United States, and the region. CAFTA
must be implemented in a business friendly, pro-trade manner. If not,
U.S. government policies will be, at least partially, responsible for a
loss of competitiveness post-January 1, 2005 in Honduras, Central
America, and the United States.
LThere must be an integrated customs compliance procedure
and security program. While security programs like the Container
Security Initiative (CSI) will provide expedited clearance for goods
from Asia and Europe, it presently is not expected to include those
goods coming from the CBI region. This could have a very detrimental
impact on our industries post January 1, 2005.
LIn order to be competitive, CAFTA must provide for dying,
finishing, and printing of both U.S. and regional fabrics in the
region.
LWovens should also be allowed preferential access as well
as knits. Regional fabrics should be allowed free movement in the
region and enjoy preferential access to the U.S. market.
LProvisions, such as the short supply provision, need to
be clear and based on commercial reasonable criteria. Artificial
impediments interfere with the partnerships which are evolving and
create uncertainties over what are qualifying products. This forces
sourcing decisions to other countries' preference programs which either
have more flexible origin rules or to Asia where the products are price
competitive, even after the payment of duties and tariffs.
LThe rules of origin must be flexible enough to allow the
use of fabrics produced in NAFTA, CBI, Central America, or Andean
countries. The rules of origin should also include provisions through
the use of different mechanisms such as TPL's, required percentages of
regional and U.S. fabric, or inputs (accumulation); or other similar
mechanisms so that the textile and apparel industry in the United
States, Honduras and Central America can use cost competitive fabrics.
This will allow the region's industry to grow and be competitive in
world markets. The rules must also be clear, transparent and
unambiguous. They also must be commercially reasonable.
V. Conclusion
Honduras thanks the Ways and Means Committee for the opportunity to
provide this written testimony. Honduras and its industry looks forward
to the negotiation and ratification of a CAFTA that will be
commercially reasonable and advance the integration of the hemisphere
by integrating the textile and apparel industry of the NAFTA countries
with the Central American and CBI countries. We ask the Administration
and the Congress to support a commercially reasonable CAFTA in the
textile and apparel industry that is negotiated, approved, and
implemented by the end of 2003, or early in 2004.
Sincerely,
Mario M. Canahuati
Ambassador of the Republic of Honduras to the United States
[BY PERMISSION OF THE CHAIRMAN]
Statement of the Embassy of the Government of the Dominican Republic
We would like to take this opportunity to congratulate the
Administration on the innovative strategy taken by the USTR with the
simultaneous pursuit of bilateral, regional as well as multilateral
negotiations. It is a way of generating pressure on other countries to
cooperate on the process of market liberalization. That is why we
believe that the U.S. should remain open to bilateral trade
arrangements with countries such as the Dominican Republic (D.R.) that
are important to the U.S. in terms of trade and security and that are
ready and willing to negotiate.
The Dominican Republic has been the success story of the Caribbean
Basin Initiative (CBI); with the best economic performance and the
strongest tradition of democracy. This country is the fifth trading
partner of United States in Latin America and the Caribbean, and trade
with the D.R. is bigger than trade with Russia.
The exclusion of the Dominican Republic in the bilateral free trade
agreement, initiated between the United States and Central America at
the beginning of 2002, created a high level of anxiety in the Dominican
economy. This exclusion places the Dominican Republic in a disadvantage
vis a vis Central America. As a result companies installed in the DR
are currently moving their operations to Central America and new
investments are being diverted. There are no reasons why the leader of
the CBI should have been excluded from these negotiations.
Negotiating a free trade agreement between the D.R. and the U.S.
will reinforce cooperation in non-trade sectors, specifically in the
areas of common security interest. The U.S. and the D.R. have, and will
continue to, closely cooperate on the war against terrorism, drug
control and migration policy. Also it is to be considered that the
Dominican population in the United States and Puerto Rico is calculated
to approximately 1.4 million, 62% of which are U.S. citizens. It is
also important to note that, the uncertainty created by the current
situation directly affects both sides of the island of Hispaniola.
Without a strong economy and a stable political situation in the
Dominican Republic it will be more difficult to find a solution for the
Haitian problem.
In the case of the Dominican Republic, different alternatives have
been examined. One of them is a bilateral agreement in which
negotiations would be treated as a different undertaking as the Central
American negotiations. Under this alternative, the negotiations should
take place in tandem with the Central America in order to conserve
resources; one might view them as a negotiation under the same roof in
different rooms. The Dominican Republic is aware that there are other
formulations that could achieve the same objective and we are willing
to consider them and to discuss them with the USTR.
The current U.S. position towards a U.S.-D.R. free trade agreement
(FTA) is still static, since the declaration given by Amb. Robert
Zoellick, on October 29, 2002, that ``the Dominican Republic is in the
short list for a bilateral FTA with the U.S.'' The U.S. has not yet
agreed on, or declared its intention to begin negotiations with the
D.R. The objective of the Dominican Republic is to begin negotiations
of a U.S.-D.R. free trade agreement no later than July 1st, 2003, and
to conclude the negotiations simultaneously with the Central Americans.
Our country has demonstrated that it is better prepared than any
other country to start negotiating a bilateral with the U.S.A. We are
only looking for equal treatment so we may compete with Central America
on the same terms and therefore protect the interests of both American
and D.R. investors and workers.
Statement of the Honorable Eni F.H. Faleomavaega, a Representative in
Congress from American Samoa
Mr. Chairman:
I want to commend you for holding a hearing on the President's
trade agenda which includes implementation of the Free Trade Agreements
with Chile and Singapore, proposed Free Trade Agreements with Morocco,
the Central American countries, Australia, the Southern African Customs
Union, and the Free Trade Area of the Americas.
As Ranking Member of the House International Relations Subcommittee
on Asia and the Pacific, I want to say from the outset that I support
U.S. efforts to promote international trade. However, I also want to
say that I believe trade agreements should be based on principles of
fairness. First and foremost, I believe we should be fair to American
workers. I also believe we should be mindful of workers' rights at home
and abroad.
In no way do I believe we should support trade agreements that
displace one set of workers for another simply because corporate
America is looking for cheaper labor costs. I mention this because last
year my district faced one of its most critical hours as a result of
aggressive efforts by the H.J. Heinz Co., and its then subsidiary
StarKist Seafoods, to include canned tuna in the Andean Trade
Preference Act (ATPA). Although StarKist was very aware that duty-free
treatment for canned tuna from Ecuador and other Andean countries would
bring about massive unemployment and insurmountable financial problems
in American Samoa, many of my colleagues were unaware that more than
85% of American Samoa's economy is either directly, or indirectly,
dependent on the U.S. tuna fishing and processing industries.
At the time of the debate, many of my colleagues were also unaware
that the largest tuna cannery in the world is located in American
Samoa, and it is owned and operated by StarKist. For more than 40
years, Samoan workers have helped StarKist to become the number one
brand of tuna in the world. However, after more than a 40 year
relationship with StarKist, cannery workers in American Samoa continue
to be paid well below U.S. minimum wage standards. Samoan workers are
paid at $3.60 and less per hour. StarKist workers in the Andean
countries are paid $0.60 and less per hour. Given this disparity in
wage rates, I do not believe now and I did not believe then that
StarKist's interest in the ATPA was to curb drug production in the
Andean countries. On the other hand, I believe StarKist fought the
matter for one reason and one reason only--to displace $3.60 per hour
workers for $0.60 per hour workers.
I do not believe this is what free trade should be about and I am
pleased that my colleagues agreed with me on this point and excluded
canned tuna from the ATPA. Mr. Chairman, I thank you and Congressman
Rangel for your support and leadership on this issue. Parenthetically,
I would also like to note that StarKist has since changed ownership and
I am hopeful that our new corporate partner, Del Monte Foods, will be
more considerate of American Samoa's needs and more appreciative of our
contributions.
With this said, I want to speak specifically about the U.S. Central
Free Trade Agreement that is now before us. I raise this as an issue
because the United States does more than $200 billion in trade with
Latin America. I won't go into a country by country analysis but I will
say that if the U.S. wanted to export canned tuna or textiles to
Central America we would have to pay a duty, or tariff rate, of some
20% or more. In my book, this is not fair trade. This is not fair for
textile workers in North Carolina or cannery workers in American Samoa.
Furthermore, I continue to have serious concerns about how the
International Trade Commission (ITC) conducts its investigations
regarding the probable economic effects that the U.S. Central America
Free Trade Agreement may have on the U.S. tuna and fishing processing
industries. Once again, the ITC is bypassing a section 332
investigation and providing Members of Congress with a piecemeal
assessment of the effects this trade agreement may have on the U.S.
tuna industry. As I have repeatedly stated, American Samoa's economy is
more than 85% dependent, either directly or indirectly, on the U.S.
tuna fishing and processing industries. A decrease in production or
departure of one or both of our canneries could devastate our local
economy resulting in massive layoffs and insurmountable financial
difficulties.
Simply put, anytime there is an attempt to include canned tuna in a
free trade agreement, American Samoa is at risk. As such, I believe
American Samoa's views should be considered and taken seriously by the
ITC. Unfortunately, the ITC continues to dismiss American Samoa's
concerns and has once more submitted a report to this Committee without
soliciting information from the American Samoa Government (ASG). The
ITC informed my office that its failure to solicit information from ASG
was an oversight. Given that the ITC is very aware of my office and its
involvement during the ATPA debate, I find it inexcusable that the ITC
failed to reMember that American Samoa is a critical player in any
discussion involving the probable economic effects that any trade
agreement may have on the U.S. tuna and fishing processing industries.
Mr. Chairman, as these discussions move forward and as the issue of
canned tuna is considered in the context of any trade agreement that
comes before this Committee, I am hopeful that you will once again be
an advocate for American Samoa. I am also hopeful that the rights of
workers at home and abroad will be protected as the U.S. moves to
promote its trade agenda at this difficult time in our nation's
history.
Florida Citrus Mutual
Lakeland, Florida 33802
March 12, 2003
U.S. House of Representatives
Committee on Ways and Means
Washington, DC 20515
INTRODUCTION AND SUMMARY OF POSITION
This submission is filed on behalf of Florida Citrus Mutual (FCM)
of Lakeland, Florida, in response to the invitation for comments on the
President's Trade Agenda in the Ways & Means Committee's Advisory of
February 14, 2003, and following the testimony of the United States
Trade Representative before the Committee on February 26, 2003. FCM is
a voluntary cooperative association whose active membership consists of
11,676 Florida growers of citrus for processing and fresh consumption.
FCM represents more than 90 percent of Florida's citrus growers. FCM's
membership also accounts for as much as 80 percent of all oranges grown
in the United States for processing into juice and other citrus
products.
The President's Trade Agenda is of singular concern to Florida
orange growers, one of the largest unsubsidized agricultural industries
in America. Growers and the many support industries in Florida listen
carefully to every detail of the Administration's agenda, since the
maintenance of the current U.S. tariff on orange juice from Brazil is
absolutely essential to the survival of the second largest industry in
Florida. It is not an exaggeration to say that many growers look to the
Administration's WTO and FTAA market access proposals as the
pronouncements on whether their groves will pass on to the next
generation in their families. Florida citrus growers will continue to
work with Congress and the Administration to make it clear that this
industry is truly unique in the context of traditional economic theory,
and any reduction in the current tariff will be both economically
damaging and anti-competitive.
The U.S. orange juice tariff offers the most efficient Florida
orange growers the opportunity to exist as the sole large volume
competitor in a global industry dominated by five huge producers in
Brazil. The tariff does not ensure survival, as many bankrupt Florida
growers can attest, but it counteracts some of the extreme pricing
pressure inflicted by frequent devaluations of Brazil's currency, the
predatory pricing behavior of the Brazilian orange juice oligopoly, and
the sheer market power of a highly concentrated industry selling
globally a dollar denominated commodity made with progressively
devalued local inputs. Furthermore, the tariff gives Florida growers a
fighting chance to make a living in a country that properly places
tremendous value on costly worker rights and environmental integrity,
in the face of competition from a country that does not.
The global orange juice industry is highly unique. World orange
juice consumption is concentrated chiefly among only 2 regions: the
United States and the European Union. Aside from the United States and,
to a lesser extent, Canada,\1\ there are no other significant orange
juice consuming countries in the Western Hemisphere. Thus, the U.S.
orange juice industry is not in a position to benefit from FTAA trade
liberalization.
---------------------------------------------------------------------------
\1\ The United States already enjoys dutyfree access to the
Canadian orange juice market.
---------------------------------------------------------------------------
Global orange juice production is also concentrated chiefly among
only 2 countries: Brazil and the United States. Brazil's production is
controlled by 5 very large processors,\2\ which control roughly 80
percent of Brazil's FCOJ production. Given that they also operate and
control Brazil's tank ship distribution system, these companies
indirectly control nearly all of Brazil's FCOJ exports. The large
Brazilian processors benefit from advantages brought by past
subsidization and dumping, lax environmental protection, weak and
largely unenforced labor laws, frequent national currency devaluation
(which reduces the relative cost of production inputs and provides
false incentives to overproduce), and oligopoly price manipulation.
---------------------------------------------------------------------------
\2\ These dominant Brazilian processors are Cargill Citrus Ltda.,
Citrosuco Paulista S.A., Citrovita Agro Industrial Ltda., LouisDreyfus
Citrus S.A., and Sucocitrico Cutrale Ltda.
---------------------------------------------------------------------------
Florida orange growers are not the only U.S. agricultural industry
pitted against the unfair advantages of Brazil's agricultural exports;
however, they are one of the few industries that the U.S. FTAA proposal
threatens with demise. U.S. soybean farmers claim that on account of
Brazil's currency devaluation, they were receiving 40 percent less for
their soybeans in 2002 than in 1997, while Brazilian farmers were
receiving over 36 percent more.\3\ Brazil is the world's second largest
soybean producer after the United States, so this is very significant.
However, soybeans are consumed throughout world and new export markets
are highly sought after by the U.S. industry. So, it makes sense that
the U.S. soybean industry contends with the unfair advantages of
Brazil's devaluation chiefly via domestic subsidies. While subsidies
are used to help level the playing field for agricultural industries
whose top markets are abroad, tariffs are used to level the field for
industries, like orange juice, whose top markets are in the United
States. The U.S. industry that grows oranges for processing is unique
among U.S. agricultural industries in that it does not receive any
production or trade distorting (WTO-designated ``amber box'') domestic
subsidies. Its only offsetting tools are the tariff and enforcement of
the unfair trade laws.
---------------------------------------------------------------------------
\3\ ``ASA Emphasizes Importance of Maintaining $5.26 Soybean Loan
Rate to Help Offset Effects of Currency Devaluations in Argentina &
Brazil,'' American Soybean Association, January 7, 2002 (http://
www.soygrowers.com/newsroom/releases/2002%20releases/r010702.htm).
---------------------------------------------------------------------------
FCM believes that the Administration's FTAA proposal on agriculture
is lop-sided to the extent that it puts all U.S. agricultural tariffs
on the table, while leaving all domestic subsidies off the table. In so
doing, the Administration's proposal effectively, if unwittingly,
singles out agricultural industries for demise based exclusively on the
location of their markets, without consideration of the effect on the
U.S. economy. Not only is an unsound approach to the policy of trade
negotiations, it is also guaranteed not to meet any of the stated
objectives of trade liberalization: foreign industrial growth, lower
prices to consumers, and increasing living standards.
FCM asserts that any reduction in the U.S. orange juice tariff
applying to Brazil would devastate the U.S. industry that grows oranges
for processing. Furthermore, any tariff reduction would critically
damage the entire Florida citrus industry, the economic impact of which
has recently been estimated at $9.13 billion in industry output, $4.18
billion in value-added activity, and 89,700 jobs.\4\ Perhaps even most
damaging to the U.S. economy is the fact that, since this Florida
industry is Brazil's only competitor of global significance, its demise
would not bring cheaper orange juice to the U.S. breakfast table, but
would eventually unleash the Brazilian oligopoly to raise U.S. orange
juice prices. For all of these reasons, FCM strongly opposes any
reduction in U.S. orange juice tariffs under the FTAA or any trade
agreement to which Brazil is a party.
---------------------------------------------------------------------------
\4\ Alan Hodges, et al., ``Economic Impact of Florida's Citrus
Industry, 1999-2000,'' Economic Information Report, EIR 01-2,
University of Florida, Institute of Food and Agricultural Sciences,
Food and Resource Economics Department, July 2001, p. 3.
---------------------------------------------------------------------------
CONCENTRATION OF GLOBAL PRODUCTION AND CONSUMPTION
The polarization of global orange juice consumption in the United
States and the EU, and the polarization of production in Brazil and the
United States are unique and defining characteristics of this industry
(see charts below). Because these factors are strong determinants of
the negative outcome of trade liberalization, it is imperative that
they be understood by all U.S. agricultural trade negotiators.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: FAO.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: ``Situation and Outlook for Citrus'' and ``Situation and
Outlook for Orange Juice,'' Horticultural & Tropical Products
Division, FAS, August 1, 2002.
LBRAZIL'S CONTROL AND MANIPULATION OF THE GLOBAL ORANGE JUICE MARKET
The concentration of production among these 5 large Brazilian
orange juice processors has enabled them to place tremendous downward
pressure on processing orange prices in Brazil. In addition, the
Brazilian orange juice processors' oligopoly dominates and manipulates
the global orange juice market. As seen in the charts below, the price
of Brazilian frozen concentrated orange juice (FCOJ) in the United
States and the commodity futures price of FCOJ (which is considered one
of the most accurate indicators of the U.S. price of wholesale FCOJ)
have declined in lock step during the past decade, in tandem with the
expansion and concentration of Brazil's orange juice industry.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Compiled by Barnes, Richardson & Colburn with futures prices
from the NY Board of Trade; and Brazilian FCOJ export prices from
CACEX, DECEX, FAS.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: U.S. Agricultural Trade Office, FAS, USDA, Sao Paulo.
Not only does the Brazilian orange juice oligopoly control prices
on an annual basis, but they appear to be attempting to manipulate
world orange juice prices on a seasonal basis in order to maximize
orange juice prices during their peak harvesting season (June through
September) by continually underestimating the size of their orange crop
and juice production. For nine straight seasons from 1991/92 to 2000/
01, initial Brazilian estimates of FCOJ production, which are made at
the beginning of Brazil's peak orange harvesting season,\5\ have
understated actual output by 4-27 percent (see chart below).
---------------------------------------------------------------------------
\5\ The U.S. agricultural attache in Sao Paulo reports these
estimates during June of each year in ``Brazil Citrus Annual,'' GAIN
Report, Foreign Agricultural Service, USDA.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Compiled by Florida Citrus Mutual from estimates reported in
---------------------------------------------------------------------------
``Brazil Citrus Annual,'' GAIN Report, FAS, USDA.
Then towards the end of the Brazilian harvest (in November and
December) when the market finally learns that Brazil has harvested many
more oranges than was previously estimated, the market price falls to a
new equilibrium just in time for the peak Florida orange harvesting
season (December through April). Although market analysts and futures
traders are increasingly becoming aware of this deception and are
beginning to factor it into their decision-making, the fact that it has
occurred speaks loudly of the powerful market control and predatory
capabilities of the Brazilian oligopoly.
Brazil is the world's largest producer of oranges by a substantial
margin; while the United States is the largest orange juice consuming
country in the world. The United States is also Brazil's only truly
global competitor. Brazil has enormous incentive, as well as potential,
to cripple the U.S. industry so that it can dominate the U.S. orange
juice market. For the same reasons we enforce antitrust laws in this
country, we must uphold the U.S. tariff on orange juice from Brazil.
``Free'' trade in orange juice will not lead to greater competition,
consumer benefits, or overall global industry growth as might occur in
other agricultural industries whose production is more widely
distributed. It will lead to the rapid demise of Brazil's only
remaining global competitor--Florida--and Brazil's realization of an
airtight global monopoly on orange juice.
Brazilian industry has already been found by the United States to
have engaged in both injurious sales at less than fair value prices
(including less than cost of production), and injurious sale of
subsidized juice. As a result of an affirmative Sunset Review
determination in 1999, an antidumping order remains in effect on frozen
concentrated orange juice from Brazil, and the applicable dumping
margins for the suppliers still covered by the order are significant.
U.S. orange juice markets, particularly those throughout the EU,
have also been increasingly plagued with Brazilian orange juice prices
that appear to be well below their cost of production. During September
2000 through April 2001, the price of bulk Brazilian FCOJ in the EU was
often less than $700 per metric ton (including ocean freight). In
Spring 2001, in his appeal to the European Commission for protection,
the President of the Italian Consortium of Citrus Processors (CITRAG)
stated,
LWe believe that these [Brazilian] prices, which include
freight cost from Santos to Europe, and for some deals also
include the cost of drums, closely resemble `dumping', since
the production and overhead costs incurred by the Brazilian
industry are certainly beyond these levels.\6\
---------------------------------------------------------------------------
\6\ ``Italian Industry Slams Brazilian Processors,'' FOODNEWS, Agra
Europe Ltd., Volume 29, No. 15, Apr. 6, 2001, p. 12.
As seen in the chart above, the long-term annual average trend in
the price of Brazilian orange juice exports has been downward during
the past decade and a half. Such constant downward price pressure in
foreign markets makes the exporting of U.S. orange juice nearly
impossible. Current levels of U.S. orange juice exports are more a
function of the export incentives provided by the import duty drawback
program, than of the ability of U.S. producers to earn a fair price in
export markets. Even if there existed lucrative orange juice markets in
the Western Hemisphere outside of U.S. and Canadian borders, and even
if orange juice tariffs were liberalized in these markets, the U.S.
orange juice industry would stand little chance of competing with
Brazil at these extremely low price levels.
BRAZIL'S UNNATURAL ADVANTAGES
Florida orange growers understand the virtues of free trade and the
importance of negotiating trade agreements that are sensitive to the
interests of developing countries with infant and emerging industries.
However, Brazil's orange juice industry is one of the most advanced
agricultural industries in the world. According to the Brazilian
Association of Citrus Exporters (ABECITRUS), ``[the orange juice
industry] is one of the main sectors of Brazilian agribusiness,
employing the latest in technology, with the best logistics and
transport system available in the world today.''\7\ The Brazilian
oligopoly owns an entire fleet of tanker ships, which haul over 80
percent of the orange juice offered on the world market, generating for
Brazil approximately $1.5 billion in U.S. currency each year. These are
not the marks of a ``developing industry,'' but a highly
industrialized, state-of-the-art industry that resides in a developing
country where it can exploit the underdeveloped economic, political,
and social conditions that persist there.
---------------------------------------------------------------------------
\7\ Http://www.abecitrus.com.br/abecus.html.
---------------------------------------------------------------------------
It is a well-documented fact that the Brazilian citrus industry is
not subject to enforcement of the same child labor laws and other labor
standards that are enforced in the United States. In its 1998 report to
Congress,\8\ the U.S. Department of Labor reported,
---------------------------------------------------------------------------
\8\ By the Sweat & Toil of Children, Volume V: Efforts to Eliminate
Child Labor, U.S. Department of Labor, 1998 (http://www.dol.gov/dol/
ilab/public/media/reports/iclp/sweat5/).
LThe harvesting of oranges also presents its own unique
dangers. According to Brazilian welfare groups and unions,
close to 150,000 children are employed during the country's
six-month orange harvesting season. They pick oranges in severe
heat for as long as 12 hours a day. The children's hands are
dyed green and their fingertips are sometimes eroded by citric
acid from the oranges and toxic pesticides sprayed even while
children are in the orange groves. In some cases, damage to
their fingertips is so severe that children are later refused
---------------------------------------------------------------------------
identification cards due to a lack of fingerprints.[FN]
The U.S. Department of State reports in its 1999 Country Report on
Human Rights Practices in Brazil: \9\
---------------------------------------------------------------------------
\9\ Released by the Bureau of Democracy, Human Rights, and Labor,
U.S. Department of State, February 25, 2000.
LA report published by the Sergipe state government in 1997
stated that 10,000 children and adolescents between the ages of
6 and 18 were part of the labor force in the orange-growing
---------------------------------------------------------------------------
region, with 54 percent between the ages of 7 and 14.
Without competition-equalizing tariffs, U.S. orange growers cannot
and should not be made to compete with such an exploitative foreign
industry.
Brazil ratified International Labor Organization (ILO) Convention
No. 138 on the Minimum Age for Employment on June 28, 2001, and ILO
Convention No. 182 on the Worst Forms of Child Labor on February 2,
2000. In addition, Brazil's Ministry of Welfare and Social Assistance
(MPAS) has listed the harvesting of oranges among the ``worst forms of
child labor'' in Brazil.\10\ However, as of March 2003, legislation
that would fully implement these Conventions has still not been made
law in Brazil.
---------------------------------------------------------------------------
\10\ U.S. Embassy-Brazil, unclassified telegram no. 001439,
September 18, 2000. Reported by the U.S. Department of Labor at http://
www.dol.gov/ILAB/media/reports/iclp/Advancing1/html/brazil.htm.
---------------------------------------------------------------------------
There are a few rather weak anti-child labor laws on the books in
Brazil. For instance, under the Brazilian Federal Constitution,
employing children under the age of eighteen to work at night or in
``any dangerous or unhealthy job,'' and employing children under
sixteen, unless they are apprentices, is punishable by a $320 fine.\11\
However, the practice of child labor remains rampant in Brazil's citrus
industry, either because the fines are too low to be a deterrent or the
laws are simply not being enforced. Even if Brazil eventually
strengthens its anti-child labor laws, lack of enforcement will render
the laws powerless.
---------------------------------------------------------------------------
\11\ ``Child Labor Law Changes in Brazil,'' Global March Against
Child Labor, Jan. 25, 1999, http://www.globalmarch.org/cl-around-the-
world/child-labor-law-changes-in-brazil.html.
---------------------------------------------------------------------------
In discussing the FTAA, Representative Zoellick testified at the
hearing on President Bush's Trade Agenda that the hemisphere's heads of
state agreed at the Third Summit of the Americas to ``promote
compliance with internationally recognized core labor standards.''\12\
The Inter-American Conference of Ministers of Labor (IACML), which was
set up to implement the labor-related mandates of that Summit, produced
the ``Declaration and Plan of Action of Ottawa'' during their most
recent meeting in October 2001. This Declaration says, ``We will work
to bring all national laws, regulations and policies into conformity
with this convention [No. 182] and will take immediate action to
eliminate the worst forms of child labor.\13\
---------------------------------------------------------------------------
\12\ Statement of the Honorable Robert B. Zoellick, United States
Trade Representative, Testimony Before the Full Committee of the House
Committee on Ways and Means, Feb. 26, 2003.
\13\ ``Declaration and Plan of Action of Ottawa,'' XII Inter-
American Conference of Ministers of Labor, OEA/Ser.L/XII.12.1, COTPAL/
doc.3/01, Oct. 19, 2001.
---------------------------------------------------------------------------
In addition, the U.S. Department of Labor's International Child
Labor Program has contributed $112 million, since 1995, towards the
International Labor Organization's International Program on the
Elimination of Child Labor.\14\ Rewarding Brazil's exploitative orange
juice industry with a reduction in U.S. orange juice tariffs would not
only contradict a decade of effort by the U.S. Department of Labor, it
would contradict the current Administration's own trade agenda, while
punishing U.S. orange growers who obey the stringent labor laws of the
United States.
---------------------------------------------------------------------------
\14\ http://www.dol.gov/ILAB/programs/iclp/about--iclp.htm.
---------------------------------------------------------------------------
The Florida Division of Agriculture and Consumer Services (as
required by the U.S. Department of Labor) conducted 2,700 Worker
Protection Standard (WPS) inspections in the State of Florida during
2000. Approximately half of these inspections were to ensure the
protection of workers in citrus groves.\15\ The labor standards in
Florida orange groves are high and heavily regulated by State and
Federal agencies. Minimum age and wage regulations are rigorously
enforced. Field workers and harvesters are subject to a schedule of
routine training to ensure safe operation of mowing, pruning and
harvesting equipment. They are also trained to ensure safe use and
mixing of field chemicals such as pesticides and fungicides, etc. They
are required to wear appropriate protective gear in the groves and to
observe strict rules for re-entering the groves after chemical
applications. Grove owners are also required to meet stringent housing
standards for their field and harvesting workers who require housing,
such as migrant workers from abroad employed under the H2A program. We
are not aware of any such regulations being enforced in Sao Paulo,
Sergipe or other citrus growing regions in Brazil.
---------------------------------------------------------------------------
\15\ Estimate by economists at Florida Citrus Mutual.
---------------------------------------------------------------------------
In addition, Florida orange growers are held liable for any
degradation to the land, water or air that may result from their
operations. They are required to use field chemicals in compliance with
the environmental regulations and warnings on their labels. They are
also responsible for protecting surrounding land and water from
fertilizers and chemical run-off. Pursuant to the run-off regulations,
many growers in South Florida must dedicate on average 20 percent of
their acreage to retention ponds and ditches that prevent run-off and
allow for the safe treatment of grove water. Brazil's environmental
standards for citrus groves are considerably more lax, if existent at
all.
Florida orange growers are also prevented from using a number of
generic-brand field chemicals that are readily available in Brazil. In
the United States, the process of getting generic field chemicals
registered is much more lengthy and expensive than in Brazil, because
EPA has more stringent requirements and the chemicals must undergo more
rigorous testing to ensure their safety than in Brazil. In Brazil, the
average cost of registering a generic field chemical is about $45,000
to $100,000. Whereas in the United States, such registration costs are
in excess of $5,000,000. The end result is that U.S. grove owners are
forced to use the more expensive brand name chemicals which have
already been registered with EPA, while Brazilian grove owners are able
to cut costs substantially by using generic chemicals that have not yet
been proven safe in the United States.
Lax, unenforced and nonexistent labor, environmental and health and
safety laws are, however, not the only reason why Brazil is able to
sell its orange juice at such low prices. Ronald Muraro and Thomas
Spreen at The University of Florida recently calculated comparative
cost of production estimates for processed oranges in Florida and Sao
Paulo, Brazil. They estimate that in crop year 2000/01 labor costs
(including wages, salaries and social taxes) were 45 cents/box in
Florida and only 17 cents/box in Sao Paulo.\16\ A substantial portion
of this wide discrepancy is due to the many currency devaluations
Brazil has experienced during the last few decades.
---------------------------------------------------------------------------
\16\ ``Cost for Processed Oranges: A Comparison of Florida and Sao
Paulo,'' Ronald P. Muraro and Thomas H. Spreen, IFAS, The University of
Florida, presented at the Florida Citrus Industry Economics Meeting,
July 8-9, 2002.
---------------------------------------------------------------------------
Brazil's orange juice export sales to all markets are denominated
in U.S. dollars. When the Real is devalued, the cost of labor and other
domestic production inputs, which are denominated in Real, become
cheaper relative to the price paid for the orange juice. For instance,
in marketing year 1996/97, the currency conversion was $1.04 Real = $1
U.S. As of July 1, 2002, the conversion was $2.84 Real = $1 U.S.\17\
Thus, a unit of labor that cost $1 Real or 96 cents U.S. in MY 1996/97,
would only cost 35 cents U.S. on July 1, 2002. So the cost of grove
labor as a percentage of the export price of Brazilian orange juice
shrinks each time the Brazilian Real loses value against the U.S.
dollar, thus, increasing the profit margin obtained by the Brazilian
processor. The increase in profits then sends false market signals
throughout the Brazilian citrus industry causing it to overplant and
overproduce. The overproduction gives way to lowered international
orange juice prices, which reduce the value of Florida's processing
oranges and diminish growers' profits. However, further devaluation
prevents the Brazilian industry from feeling the squeeze of lower
international prices, and the cycle continues. This is just one more
way the Brazilian orange juice oligopoly is able to benefit from
residing in a country with an underdeveloped and inflationary economy.
---------------------------------------------------------------------------
\17\ International Financial Statistics, International Monetary
Fund.
---------------------------------------------------------------------------
In an ideal free market world economy where basic and equivalent
labor, environmental, and health/safety laws exist and are enforced,
where world production and prices are not controlled by a single
oligopolistic industry, and where currency devaluations do not tip the
scales dramatically in favor of the foreign exporters, the law of
natural advantages might outweigh arguments for tariff protection. But
the Florida agriculture sector in general, and citrus in particular,
cannot defer to that logic, because Brazil's advantages are not
``natural'' and the playing field is grossly skewed. The tariff is the
only offset on which this unsubsidized U.S. industry can rely to
counter these ``unnatural'' advantages.
NEGATIVE ECONOMIC EFFECTS OF TARIFF REDUCTION
If U.S. orange juice tariffs are reduced or eliminated, the price
of U.S. imports of bulk FCOJ from Brazil, as well as the futures
contract prices of FCOJ and the U.S. wholesale price of orange juice,
would fall rapidly. At the same time, the volume of U.S. FCOJ imports
from Brazil would increase significantly. The supply of U.S. juice
oranges and orange juice, however, would remain constant in the short
term, as they are not responsive to price.
It is important to understand that the U.S. supply of juice oranges
is highly inelastic, because they are a natural, perishable product
whose supplies are primarily dictated by the number of productive
citrus trees in the United States, air temperature, amount of rainfall,
and citrus tree diseases. Capacity utilization in citrus groves is
always near 100 percent, because all wholesome citrus fruit is picked.
Since it takes at least 4-5 years for an orange tree to begin bearing
fruit and 25 years for it to stop bearing fruit, supplies cannot be
manipulated in the short-run in response to price. Thus, given the
inability of orange supplies to respond to juice prices, the U.S. on-
tree price of juice oranges would immediately plummet and, in turn,
cause grower rates of return to fall well below the break-even point,
resulting in widespread grove closures.
The grove closures would leave unemployed over 42,000 citrus grove
workers in Florida alone, and jeopardize the existence of all U.S.
juice extractors and processors that depend on domestic citrus. It
would also have grave consequences for the following upstream suppliers
of the U.S. juice orange industry:
Lnurseries that supply replacement trees to citrus groves,
Lsuppliers of fertilizer, fungicide, herbicide and
insecticide to citrus groves,
Lsuppliers of irrigation and spraying systems, mechanical
harvesters and farm implements,
Lfinancial institutions, especially merchant banks that
have citrus exposure,
Linsurance companies that serve the citrus industry, and
Lfreight companies that haul citrus to processing plants.
Since the land on which processing oranges are grown consists of
very sandy soil with little agricultural value outside of citrus
production, and the volume of all other fruit juices extracted in the
United States combined pales in comparison to orange juice, the above
upstream industries could not exist if orange juice production were no
longer viable. In addition, because the production of about 75 percent
of all processing oranges is concentrated in Central and South Florida,
entire counties in these regions would be ravaged and their real estate
values would tumble as thousands of groves would be abandoned, with no
practical alternative land utilization.
INCREASED SALES OF NOT-FROM-CONCENTRATE (NFC) JUICE IS NOT A SOLUTION
Those wishing to reduce U.S. orange juice tariffs have suggested
that U.S. orange growers should shift their production primarily to the
fresh, pasteurized, Not From Concentrate (NFC) juice market, in which
Brazil has not traditionally been a significant competitor, due to the
costs of transport over extended distances. Unfortunately, this is not
a viable solution.
U.S. growers of oranges for processing do not determine the product
into which their oranges are processed. The utilization of the oranges
(whether in concentrate, fresh pasteurized juice, or for further
processing of juice and non-juice beverages) is the sole decision of
the Florida processors, some of which are owned and controlled by the
large Brazilian processors. Growers simply harvest and sell all the
fruit that their trees produce. Growers, therefore, subsist by means of
the returns on the sale of juice made from deliveries of their fruit,
no matter how utilized.
If tariffs on orange juice from Brazil were reduced or eliminated,
U.S. orange juice processors, reprocessors and blenders that already
reprocess and blend varying amounts of Brazilian orange juice would
likely purchase even larger volumes of Brazilian FCOJ because its price
would be even lower compared to the cost of purchasing and processing
U.S.-grown oranges. This would cause the price paid to U.S. growers for
processing oranges to decline. The decreased price of Brazilian FCOJ
may even cause U.S. processors to decide to produce less NFC orange
juice, and more concentrated orange juice due to its lower cost,
bringing the price of processing oranges grown in Florida down even
further. Since U.S. growers cannot reduce their crop size in the short
term (meaning less than a period of about 5 years) and can only reduce
it marginally over the longer term on account of the long life span of
orange trees, the impact of any tariff reduction on processing orange
prices in Florida would be dramatic and immediate.
If U.S. orange juice duties were reduced, it is possible that at
least a few of the U.S. processors who currently process only U.S.
oranges (i.e., cooperatives and U.S. grower-owned processors) would
continue to do so and would process them exclusively for the NFC
market. While this demand for U.S.-grown oranges for use in the NFC
market might provide a limited amount of support for orange prices, it
would never be enough to off-set the strong price-depressing influence
of Brazilian FCOJ and, therefore, could not prevent widespread grove
closures.
The increasing level of foreign presence in the U.S. NFC market is
yet another reason why the NFC market is not a viable solution for
Florida orange growers. While foreign producers have not traditionally
been competitive in the U.S. NFC market, a reduction in U.S. tariffs on
Brazilian orange juice could cause Mexican and CBERA producers to enter
this niche market in greater volume as it would likely be the only one
in which they could compete against Brazil. The Del Oro orange juice
processing company in Costa Rica and Belize already supplies NFC orange
juice to the EU market via a joint venture between Del Oro and Dohler
EuroCitrus.\18\ In addition, the presence of U.S. NFC in the EU market,
as well as the presence of Brazilian NFC in the U.S. market indicate
that transportation costs are not as prohibitive as had been
assumed.\19\ Brazilian processors have now built tank ships designed to
transport NFC in a more cost-efficient manner, and thus are expected to
compete more directly with Florida processors in this product sector.
---------------------------------------------------------------------------
\18\ CDC Group plc Report and Accounts 1999 at http://
www.cdcgroup.com/publications/R&A1999.pdf.
\19\ In 2002, U.S. exports of NFC to the EU (under subheading
2009.12.0000) were over $6 million, and U.S. imports of NFC from Brazil
(under subheading 2009.12.2500) were over $11 million.
---------------------------------------------------------------------------
In short, both the FCOJ and NFC markets are necessary to assure
economic operation of U.S. groves and sufficient volume of production.
U.S. orange growers are currently operating at margins very close to or
under their break-even point, and are simply too vulnerable to
withstand the massive and immediate orange price decline that the
onslaught of Brazilian FCOJ would cause should U.S. orange juice
tariffs be reduced.
EXPERIENCE UNDER NAFTA IS NOT A MODEL FOR AN FTAA
Those wishing to reduce U.S. orange juice tariffs have also pointed
to the experience of U.S. orange growers after Mexican orange juice was
granted preferential tariff treatment under the NAFTA, implying that
because NAFTA imports did not damage U.S. orange growers to the extent
that many industry members had expected, a reduction in orange juice
tariffs applying to Brazilian juice would be equally benign, or the
same protections built into the NAFTA would be equally effective in an
FTAA. These implications are completely misinformed.
U.S. imports from Mexico have fallen short of expectations
primarily due to damaging droughts in Mexico since the passage of
NAFTA, as well as an outbreak of citrus tristeza virus (CTV) throughout
most southeastern Mexican citrus groves. While the Mexican government
has been working to eradicate this virus at both the state and federal
levels, progress has been slow. These natural events have moderated
what appeared, pre-NAFTA, to be a sharp escalation in Mexican orange
production. Undoubtedly, the strong Mexican peso and heavy competition
from Brazilian FCOJ, not to mention duty-free CBERA orange juice, in
the U.S. market have also impeded Mexico's orange juice exports in
recent years.\20\
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\20\ ``Mexico, Citrus: Mexican Government Hosts Citrus Forum,
2001,'' GAIN Report, FAS, USDA, June 13, 2001.
---------------------------------------------------------------------------
Despite the natural, currency and competitive difficulties Mexican
producers have faced, U.S. imports of frozen orange juice from Mexico
have still exceeded the NAFTA TRQ in every year, except 2001.\21\ Thus,
Florida orange growers have still had to contend with significant
competition from Mexico, which has contributed to the price pressure
Florida growers are currently struggling with.
---------------------------------------------------------------------------
\21\ ``Mexico Citrus Semi-Annual Report,'' GAIN Report, FAS, USDA,
April 25, 2002.
---------------------------------------------------------------------------
It is important to explain, however, that although the U.S. orange-
growing industry has considered, and still considers, orange juice from
Mexico to be a serious threat, the experience of Mexican orange juice
imports into the United States resulting from NAFTA cannot be used as a
model of the potential impact of Brazilian orange juice imports into
the United States should U.S. tariffs on Brazilian juice be reduced or
eliminated. In short, Mexico is not Brazil. Brazilian orange juice
production dwarfs that of Mexico (see chart below). Brazil has more
than twice as much land dedicated to orange production as Mexico and
more than 3 times as many trees. Plus, unlike Mexico, Brazil has
extremely low rates of fresh orange consumption. Therefore, Brazil
processes 23 times as many oranges as Mexico.\22\
---------------------------------------------------------------------------
\22\ Data in this and the previous sentence reflect Mexico's 2001/
02 orange crop and Brazil's 2000/01 orange crop (from ``Mexico: Citrus
Semi-Annual,'' GAIN Report, FAS, USDA, Apr. 25, 2002, and ``Brazil:
Citrus Semi-Annual,'' GAIN Report, FAS, USDA, Nov. 20, 2001).
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: World Horticultural Trade & U.S. Export Opportunities, FAS,
---------------------------------------------------------------------------
USDA.
The United States is currently Mexico's largest export market for
orange juice. Mexico has the ability to divert fruit from fresh
domestic consumption into orange juice processing for export to the
United States; however, Mexico would not be able to shift very large
quantities of orange juice from other foreign markets into the United
States. This situation is quite different, however, in Brazil's case.
In marketing year 2001/02, Brazil exported more than 7 times as much
juice to foreign markets outside the United States as it exported to
the United States.\23\ If U.S. FCOJ tariffs applying to Brazilian FCOJ
were reduced or eliminated, Brazilian processors would have the ability
to divert massive quantities of FCOJ from European markets into the
United States on very short notice, potentially flooding the U.S.
market and decimating U.S. grower prices overnight.
---------------------------------------------------------------------------
\23\ ABECITRUS/SECEX at http://www.abecitrus.com.br/expyus.html.
---------------------------------------------------------------------------
ECONOMIC EFFECTS ON THE CONSUMER
Aside from the impact of unrestrained orange juice imports on the
U.S. orange growing industry, the most highly touted benefit of free
trade agreements--lower prices to consumers--would not be realized in
the case of orange juice. Increasingly, the price of retail orange
juice has not tracked the declines in processing orange prices nor the
declines in wholesale and futures prices of FCOJ. On the contrary,
retail prices have skyrocketed while processing orange and FCOJ prices
have collapsed.
As can be seen in the charts below, processing orange prices have
fallen dramatically during the past decade, causing grower profits to
plunge to levels barely above the break-even point. Processing orange
prices fell as a result of the declining wholesale price of FCOJ during
the past decade (which is most accurately reflected in the futures
price of FCOJ), and the wholesale price of FCOJ fell as a result of the
falling price of Brazilian FCOJ.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: On-tree prices from Florida Agricultural Statistics Service
(FASS) and futures prices from the New York Cotton Exchange (2000/
01 figure is preliminary, based on Dec. through Mar. data).
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Futures prices from the New York Cotton Exchange (2000/01
figure is preliminary, based on Dec. through Mar. data); and import
unit values from official statistics of the U.S. Department of
Commerce (01/02 figure represents only Oct. through Jan.).
At the retail level, however, U.S. orange juice prices no longer
track the declining wholesale and grower prices, but have increased
sharply in recent years (see chart below).
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: Futures prices from the New York Cotton Exchange (2000/01
figure is preliminary, based on Dec. through Mar. data), and retail
prices from A.C. Nielsen.
The increase in retail prices cannot be explained away by the
growth in U.S. NFC sales. The chart below demonstrates that retail
prices of chilled reconstituted, frozen, and NFC orange juice have all
increased substantially during recent years.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: A.C. Nielsen.
What has happened is that orange juice retailers are charging the
final consumer what the market will bear, which is apparently higher
and higher each year, while the processors, reprocessors, and blenders,
who buy their raw materials (FCOJ from Brazil or processing oranges
from Florida growers) at plunging prices, all share in pocketing the
significant juice mark-up. This pricing situation benefits the
oligopolistic Brazilian processors two-fold because 1) they now own
some of the processors in the United States that are benefiting from
the mark-up, and 2) their low-priced FCOJ exports to the United States
depress the prices received by U.S. growers thus forcing many of them
out of business and expanding the Brazilian processors' control over
world orange juice supplies and prices.
Should U.S. tariffs on orange juice from Brazil be reduced or
eliminated, this situation would be exacerbated, as the U.S.
processors, reprocessors and blenders--the first consumers of imported
orange juice--would reap the benefits of tariff reduction, while
Florida growers of processing oranges would take a heavy hit. The final
consumers of the imported orange juice would never see the price break
supposedly derived from the tariff reduction. However, as the Brazilian
processors amass greater and greater global market power, U.S. final
consumers would eventually suffer the consequences of unrestrained
orange juice prices.
In order to get a glimpse of the likely impact of tariff reductions
in the market, one need only look at the record of bulk juice prices,
returns to growers, and prices to consumers over the past ten years. As
the U.S. tariff decline of 15% was forced on the market under the
Uruguay Round Agreements, the global bulk juice price and average
return to Florida growers declined steadily over that time, while the
price of the finished product to consumers rose, seemingly disconnected
from those underlying factors. The reason is that a dramatically
concentrated global industry with almost limitless cheap resources will
take full advantage of any declining constraint on its power
represented by tariff cuts, to minimize its competition and maximize
its profits, at the expense of consumers.
THE U.S. ORANGE JUICE TARIFF
For far too long, the U.S. tariff on orange juice has been unfairly
criticized and targeted for reduction because it is considered a
``tariff peak.'' For this reason Florida Citrus Mutual now finds itself
in the position of defending its tariff in the face of opposition from
some U.S. agricultural sectors that have as their goal the reduction of
overseas barriers to exports.
It must be understood that the U.S. citrus tariff is the only form
of assistance U.S. orange growers receive, and it costs U.S. taxpayers
nothing. Furthermore, because most duties paid on U.S. orange juice
imports from Brazil are subject to duty drawback, the Brazilian
processors effectively pay only about $1.5 million, or 2.3 percent ad
valorem, in orange juice duties.\24\ At the same time, non-citrus U.S.
agriculture is now receiving over $20 billion annually in direct
government payments.\25\
---------------------------------------------------------------------------
\24\ Estimated by FCM based on the assumption that duties are drawn
back on an amount of FCOJ imports from Brazil equal to 90 percent of
U.S. FCOJ exports. In 2002, U.S. domestic exports of bulk FCOJ
(2009.11.0060) were 441,664,083 liters. If we assume that 90 percent of
these exports resulted in drawback, then import duties were drawn back
on 397,497,675 liters of imports. In 2002, the import duty was
7.85 cents/liter. Since 99 percent of import duties are drawn back, the
amount of duties drawn back on 397,497,675 liters of imports would have
been $30,891,532. In 2002, 411,577,471 liters (valued at $61,658,753)
of bulk FCOJ were imported from Brazil, and $32,308,827 in duties were
collected on these imports. So, post-drawback, U.S. Customs netted only
about $1,417,295 ($32,308,827-$30,891,532) in duties on Brazilian bulk
FCOJ during 2002. This means that the tariff really only cost U.S.
importers .34 cents/liter ($1,417,295/411,577,471 liters), which equals
only 2.3% ad valorem ($1,417,295/$61,658,753) in 2002.
\25\ ``Farm Income and Costs, Direct Government Payments, ERS, USDA
(http://www.ers.usda.gov/briefing/farmincome/data/
GP--T7.htm).
---------------------------------------------------------------------------
It is ironic that some U.S. agricultural advocates assert ``free
trade'' principles and criticize the only form of ``assistance'' the
orange growing industry gets, while standing on the wealth of these
huge and growing farm subsidies. The most recent WTO notification that
the United States made on domestic agricultural subsidies showed that,
in marketing year 1998, the following U.S. commodities received
production and/or trade-distorting ``amber box'' subsidies: barley,
corn, cotton, dairy, canola, flaxseed, oats, peanuts, sorghum,
soybeans, sugar and wheat; with citrus receiving nothing.\26\ The
subsidies that non-citrus agricultural industries receive have ranged
above 40 percent of their net farm income for several years (see chart
below).
---------------------------------------------------------------------------
\26\ ``Notification concerning domestic support commitments for
marketing year 1998,'' received from the delegation of the United
States on June 22, 2001, WTO Committee on Agriculture,
G/AG/N/USA/36.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Source: ``Farm Income Forecast,'' ERS, USDA (http://www.ers.usda.gov/
---------------------------------------------------------------------------
Data/FarmIncome/finfidmu.htm).
FCM does not take issue with U.S. agriculture's receipt of
subsidies. We know only too well the difficulties involved in competing
against heavily subsidized EU commodities (i.e., Spanish clementines)
and unfairly traded Brazilian commodities. However, we believe it is
unfair to suggest that taxpayer-funded support payments are a more
acceptable or less distortive means of government support than a non-
taxpayer funded, pro-competitive tariff.
It is by no means true that the United States has the highest
agricultural tariffs in the hemisphere. According to the FTAA
Hemispheric Database, the following figures represent the percentages
of tariff lines in each country's tariff schedule that have duties
equivalent to 10 percent ad valorem or above: \27\
---------------------------------------------------------------------------
\27\ FTAA Hemispheric Database online at http://198.186.239.122/
chooser.asp?Idioma=Ing.
Brazil 68%
Argentina 67%
Venezuela 66%
Colombia 63%
United States 11%
Regarding ``tariff peaks,'' while the United States has 22 tariff
lines equivalent to 35 percent ad valorem or above, Brazil has 57
tariff lines in this range. Brazil has not yet put any of these tariff
lines on the negotiating table.
The U.S. tariff on orange juice must be understood as more than
just a ``tariff peak.'' It is an ``agricultural offset,'' parallel in
some ways to those that U.S. taxpayers fund directly for other farm
commodities, but tailored for an industry whose chief market is in the
United States. The beauty of this ``tariff program'' for orange juice
is that it does not tap taxpayer dollars. It places a limited burden on
the unfair or oligopolistic market players, Brazilian processors, which
is where the burden belongs; and has a net positive impact on the
federal budget.
CONCLUSION
The U.S. market is by far the most significant market we have.
Unlike dairy and crop commodities, which are consumed throughout the
world, orange juice is consumed primarily in the highly developed
market economies of the United States and Europe. With Brazilian juice
firmly entrenched in Europe at rock bottom prices, it only makes sense
to concentrate on sales at home. Our growth in exports of specialty
products, such as NFC, must necessarily be incremental and secondary to
the domestic market for FCOJ. While the Florida industry will continue
to seek out new export markets, both for fresh and processed products,
it is myopic to think that we are likely to be as large a factor in
foreign markets as Brazil. We simply do not have the domestic subsidies
we would need to compete with the Brazilians and Europeans in Europe.
Furthermore, we cannot be there to develop those new foreign markets
slowly over the many years it will take them to achieve higher
disposable incomes, if the Florida industry is forced out of existence
by the elimination of the tariff. We want to serve the U.S. market and
we can do so without the huge government payments that other
agricultural sectors receive. However, the U.S. orange juice tariff is
necessary to offset the unfair or artificial advantages that lower the
price of Brazilian juice.
Florida Citrus Mutual understands that free trade in many
industries, including many agricultural industries, leads to increased
competition, eventual price benefits to consumers, and overall global
economic growth. Unfortunately, free trade cannot deliver these rewards
to such a concentrated and polarized global industry, especially one in
which the developing country's industry is, in fact, already the most
highly developed in the world. Florida Citrus Mutual appreciates the
opportunity to explain to the House Ways and Means Committee the unique
global structure of the orange juice industry and the negative economic
effects that would occur as a result of U.S. tariff reduction or
elimination.
Respectfully submitted,
Andy W. LaVigne
Executive Vice President & CEO
Matthew T. McGrath
Counsel to Florida Citrus Mutual
[BY PERMISSION OF THE CHAIRMAN]
Government of the Commonwealth of Puerto Rico
San Juan, Puerto Rico 00936
March 12, 2003
Congressman Bill Thomas
Chair
Committee on Ways and Means
United States House of Representatives
Dear Mr. Chairman:
In response to your Committee's request for written comments on
President Bush's trade agenda, we are enclosing herewith the following
document with various points of particular interest to the Government
of Puerto Rico as related to our economic characteristics, our relative
position in the region and the Hemisphere as a result of free trade
agreements such as the FTAA and CAFTA, and our comments with respect to
some of the ongoing negotiations.
The following document explains some of the features and
characteristics of Puerto Rico's foreign trade, especially the type of
linkages that exist between the Island's external sector and the
overall economy. These linkages are then placed in the context of FTAA
working committees and some aspects of the trade negotiations that are
of particular importance to the Commonwealth of Puerto Rico's
government and the private sector. Our subsequent comments focus on
market access issues, intellectual property, investment, and services.
Our Governor Sila Maria Calderon, and myself personally, take this
opportunity to reaffirm our commitment to the FTAA process and to free
and fair trade in the Americas.
Sincerely,
Hon. Milton Segarra
Secretary of the Department of Economic Development and Commerce
Commonwealth of Puerto Rico
PUERTO RICO AND THE FREE TRADE AREA OF THE AMERICAS: SOME GENERAL
CONSIDERATIONS AND POLICY COMMENTARIES
The systematic elimination of barriers to the movement of goods and
services contemplated in the FTAA Agreement will effectively create the
largest free trade area in the world, linking more than 500 million
consumers from 34 different countries. The Commonwealth of Puerto Rico
welcomes such openness and commercial liberalization. Like many other
economies in the Caribbean, Puerto Rico has been an open market and
active international trader for more than fifty years. The elimination
of tariff and non-tariff barriers to trade in the Americas, as well as
the harmonization of rules of conduct governing international
commercial transactions in the region, will certainly create further
opportunities for trade and investment in Puerto Rico and in the entire
Caribbean region.
Given our position as a Caribbean island that is also part of the
United States customs territory, however, we believe it is important to
note certain features of Puerto Rico's economy that differentiate us
from other U.S. jurisdictions. We believe that such peculiarities
should be taken into consideration in the overall position of the
United States regarding the FTAA, so that we may perceive the benefits
of freer trade while ensuring that any negative impact will have been
contemplated in the negotiations stage.
I. Puerto Rico's economy--general characteristics
Puerto Rico is a relatively small, open, industrialized economy
with a highly skilled labor force. Like many open economies, trade
occupies a significant portion of economic activity, reaching an
equivalent of 68% of GDP, and thus placing foreign trade at the top of
the agenda of the Island's government. Puerto Rico's GDP of $67,897.1
billion makes it one of the largest economies of the Caribbean region,
although it is small in comparison with U.S. states of comparable
population size.\1\ Exports totaled $46,900.8 billion, a figure that
places the Island as the fifth largest exporter in the Americas (after
the United States, Canada, Mexico, and Brazil). In 2001 Puerto Rico was
the 8th largest trading partner of the United States, and the 13th
largest market for U.S. products.
---------------------------------------------------------------------------
\1\ Unless otherwise noted, all figures represent 2001 numbers, as
listed in the Annual Report to the Governor, Puerto Rico Planning
Board.
---------------------------------------------------------------------------
Manufacturing is the largest sector in Puerto Rico's economy,
occupying 39.9% of all productive activities and employing almost 14%
of the workforce. Like many other open, industrial economies,
manufacturing activity is extremely linked to foreign trade and
investment: it is responsible for 99.6% of the total value of exports,
compared with much lower values and percentages for most Caribbean and
Central American countries (ECLAC 2001). Given the degree of openness
of Puerto Rico's economy, any changes in the international commercial
environment and its regulatory framework tend to have larger immediate
consequences for the island's economy (for instance, employment and
fiscal revenues), especially in manufacturing activities, than in most
other U.S. jurisdictions.
Much of Puerto Rico's manufacturing activities are based on foreign
direct investment in capital-intensive, technologically advanced
industries such as pharmaceuticals, biotechnology, and IT. A
substantial portion of this investment (more than 75%) originates in
the United States. Indeed, investments in Puerto Rico have yielded
higher returns to investment than in many countries of comparable size
and characteristics. Like many neighboring countries in Latin America,
industrial exports originating from foreign investment constitute
almost 95% of all exports. Nevertheless, contrary to other cases of
foreign direct investment (FDI) in the Caribbean and Central America,
such as the EPZs in the Dominican Republic, FDI in Puerto Rico
possesses multiple backward and forward linkages to local capital
industries and services (through sub-contracting, joint venture
agreements, supply chains, and banking, among other activities). These
linkages allow local companies to develop a strong and productive
industrial and services platform. Exports from local capital companies
constitute only 5% of total exports, but at a total of over $2 billion
in 2001, their sales already exceed in value the entire export amounts
of other Caribbean and Central American countries. It also means that
changes in the foreign investment environment tend to have economies-
of-scale effects in the industrial platform and economic performance of
Puerto Rico.
Considering these characteristics, Puerto Rico must continuously
strive to maintain a substantial degree of competitiveness over
neighboring countries and territories that also vie for foreign
investment and pursue aggressive export policies. Our competitive
scenario is compounded by the fact that, as an insular economy subject
to U.S. minimum wage, environmental, and industrial regulation laws, as
well as high shipping costs, Puerto Rico must compete for foreign
investments and markets with low-wage, low-cost countries in Central
and South America that also have advantages in natural resources, large
domestic markets, and other endowments. Indeed, as a result of economic
liberalization and other changes in the international economic
landscape, in the last six years Puerto Rico has lost over 26,000
manufacturing jobs to low-wage countries, proportionally more than any
other U.S. jurisdiction.
In this sense, under an FTAA we would already possess a competitive
advantage in productivity, industrial quality standards, labor skills,
and international best-practices in much of our industrial production.
These advantages bring us closer to the U.S. market and will position
us favorably to enter further markets in Latin America. Nevertheless,
given some of our economic particularities as described above, any
changes in the international trade system that introduce further
competitive challenges for our Island will have a pronounced, immediate
impact in our economy. This impact is qualitatively and quantitatively
different from the effects the FTAA will have in other U.S.
jurisdictions.
II. Economic sectors in Puerto Rico under an FTAA
Like any other economy, Puerto Rico is subject to advantages and
disadvantages resulting from a free trade agreement such as the FTAA.
Most of our advantages lie in sectors involving capital-intensive
industries and services, a skilled labor force, high quality standards,
management skills, and productive flexibility. Our challenges lie
mainly, but not exclusively, in labor-intensive industries where
foreign competition from low wage producers is fierce, and themes such
as market access, economies of scale, and foreign investments.
We believe that the FTAA introduces substantial incentives for
activities such as financial services, chemicals and pharmaceuticals,
biotechnology and IT, and in some industries linked to the food and
beverages sector. These industries already comprise a large portion of
Puerto Rico's current exports, both to the United States and markets in
Latin America and the Caribbean. For instance, 20 out of the 30 most
widely purchased drugs in the United States are manufactured in Puerto
Rico. Under an FTAA our exports of drugs and drug-related products
would be better able to enter newly opened markets in Latin America,
and thus expand drug production significantly, by competing with other
low-cost producers (such as Brazil). Recent investments in Puerto Rico
by large pharmaceutical companies such as Abbott seem to confirm this
forecast.
A similar scenario may occur in banking and financial services,
where Puerto Rican firms, already subject to the strong regulatory
framework of the U.S. federal government, can export such services to
Central America and the Caribbean. Given the virtual dollarization of
the Caribbean region that may result from an FTAA, the potential for
growth in the Puerto Rican banking sector is considerable.
Labor-intensive industries, such as the food and beverage sector,
are particularly prone to adverse competition resulting from an FTAA.
The key element is the schedule of tariff reductions for such products,
and the progressive growth of U.S. imports from low-wage, resource-rich
countries. Puerto Rico's exports of food and beverage products, for
instance, are mainly targeted at the Hispanic market of the United
States (and some selected niches in the Caribbean and Europe). While
many of these exports depend on consumer preferences for Puerto Rican
products, rapid entry from other Caribbean and Central American
products in the United States may represent formidable challenges for
Puerto Rican exporters.
Cases where Puerto Rican food and beverage producers have been
exposed to aggressive competition from Latin American countries can be
found in the recent decision of the U.S. Congress in re-authorizing the
Andean Trade Preferences Act with respect to the tariff treatment of
rumand canned tuna. Recognizing the critical importance of the rum
industry to Puerto Rico's economy, Congress last summer reaffirmed
long-standing U.S. policy by voting to exclude low-valued rum for
tariff preferences under the Andean bill, while continuing trade
liberalization in the higher valued segments of the rum market not
dependent on price sensitivity. This wise decision by Congress
reaffirmed the Solomonic framework for rum tariffs reached by the
United States, the European Union, Canada and Japan in the 1997
Singapore zero-for-zero agreement on distilled spirits. It also
recognized that rum provides a key source of revenue for the
Commonwealth's Government. Under long-standing principles governing the
tax relationship between the United States and Puerto Rico, the United
States returns to Puerto Rico's treasury federal excise taxes collected
on Puerto Rican rum, which currently exceed one-third of a billion
dollars annually.
Congress also took similar action in the context of the Andean
legislation with respect to trade in canned tuna. It recognized, based
on a study by the U.S. International Trade Commission, that tariff
liberalization in the canned tuna sector would quickly lead to the
demise of the U.S. canned tuna industry in Puerto Rico, California and
American Samoa, and the loss of thousands of jobs in this sector.
Accordingly, Congress wisely decided to maintain existing tariff
treatment of canned tuna in the Andean bill, while permitting duty-free
treatment of pouched tuna--a separate and distinct product not directly
competitive with canned tuna.
A special mention must be made with respect to tourism. This
industry is widely perceived by analysts as possessing some of the
largest potentials for expansion in upcoming years. Tourism occupies
approximately 6% of Puerto Rico's GDP, a proportion that is much lower
than other Caribbean islands (in Jamaica, for instance, tourism is
approximately 12% of GDP). Nevertheless, considering the size of our
economy, the total value and output of Puerto Rico's tourism industry
far exceeds that of most Caribbean and Central American countries.
Competition in tourism is quite fierce in the Caribbean, and Puerto
Rico has specialized in several market niches, especially those
involving upper class and business executive tourism. Nevertheless, as
economies in the region become more open, there will be tougher
competition for some of the same clients that Puerto Rico currently
attracts. Aggressive competition is expected in terms of attracting
foreign investment in tourism, once room capacity and other such
matters give way to product diversification and further market
segmentation.
III. Puerto Rico and the FTAA negotiations
Although Puerto Rico maintains a keen interest in all committees of
the FTAA, it is in market access, investment, intellectual property
rights, and services where our most immediate and medium-term interests
are focused.
A. Market access issues
In 2002 Puerto Rico's exports totaled $46,900.8 billion dollars, a
figure that places the Island as the fifth largest exporter in the
Americas (after the United States, Canada, Mexico, and Brazil). Indeed,
as stated in a previous section of this document, foreign trade
activities in the Island reach an equivalent of 68% of our GDP.
Although our most important trading partner by far is the United
States, we possess important trading relationships with some of our
neighbors in Latin America, notably the Dominican Republic, Panama,
Mexico, Costa Rica, Trinidad and Tobago, Venezuela, Brazil, and
Argentina (see Table 1).
Like the United States, Puerto Rico has a negative balance in most
of our trade with Latin America and the Caribbean. Various factors lie
behind this deficit, including supply and demand matters in foreign
markets and the composition of Puerto Rico's exports, the adverse
economic environment in the region since 2001, and the U.S. tariff
schedules and regional preferences conceded to various Latin American
countries through programs such as the CBTPA and the Andean Trade Act.
In this sense, Puerto Rico encounters the same circumstances as any
other U.S. jurisdiction in its commercial exchange with Latin America:
average U.S. tariffs for a large portion of imported products is 1.6%,
while the average bound duty for exports to Latin America and the
Caribbean is 35%.
A Free Trade Area of the Americas would help Puerto Rico ``level
the playing field'' with respect to matters such as duties and non-
tariff barriers that currently hamper some of our exports to Latin
America and the Caribbean. For instance, our most important export
items, pharmaceutical preparations and medical devices, encounter high
tariff bound rates in South American markets such as Brazil, Argentina,
and Peru. Although effective tariff rates (at 7.6% weighted average)
are lower than these bound rates, substantial scope for tariff hikes or
other duty changes within levels permitted by the WTO remains.
Eliminating these tariffs would not only help our exports to these
markets, but we would also increase our market share and diversify
activities in the region (since European pharmaceutical companies
currently possess a larger share of the Latin American market than U.S.
companies).
While Puerto Rico's pharmaceutical and electronic technology
exports are competitive on a global scale given intra-industry trade
patterns and other aspects of foreign direct investments in the Island,
the competitiveness of other Puerto Rican industries based on local
capital remains concentrated in the Caribbean Basin region. Many of
these industries are small and medium-sized firms whose productive
capacity enables them to maintain a presence in regional markets where
they possess advantages such as geographical proximity and knowledge of
consumer preferences. Yet these industries encounter substantial tariff
and non-tariff barriers in the Caribbean region. For instance, in 2002
Puerto Rico exported more than $86 million dollars to the Caribbean
Basin in food and beverage products (see Table 2). The average
Caribbean tariff for such items is 86%. A substantial tariff reduction
would enable Puerto Rican food and beverage firms to increase their
exports to the region, to increase their production, to generate
employment, and ultimately to become more competitive in international
markets.
Other market access issues that Puerto Rican exporters encounter in
the Caribbean Basin region involve inconsistent practices in matters
such as customs valuation and cumbersome customs procedures, excessive
import permits and other legal hurdles, discretionary product labeling
requirements, and import payments and financing. In this sense, we
believe it is important to incorporate trade facilitation discussions
as a central topic in FTAA market access negotiations.
We want to make special mention of the foreign trade zone (FTZ)
regime operating in Puerto Rico and how such special trade regimes may
be affected by FTAA negotiations. Puerto Rico's Foreign Trade Zone 61,
and its sub-zones, constitutes the largest such trade zone under U.S.
customs territory. Total value of forwarded merchandise from FTZ 61 for
fiscal year 2002 summed $130,602,231. More than two thirds of this
merchandise (69.46%) was forwarded to other parts of the U.S. Customs
Territory. The FTZ regime is a key feature of a new international trade
strategy in Puerto Rico that seeks to transform the Island into the
largest and most complete center for international merchandise
distribution and transshipment in the Caribbean Basin. Yet special
regimes such as FTZs have been recently criticized as unfair export
practices in certain academic and policy venues, and their future
configuration and functions will most certainly be a matter of
discussion in the current FTAA negotiations. Consequently, we propose
that the USTR also take notice of the importance of our FTZs as it
negotiates market access issues.
B. Intellectual property
Some of Puerto Rico's most important export products, especially
those associated with advanced biological, chemical, or electronic
technology, suffer from severe problems with respect to intellectual
property rights in many countries throughout Latin America. In this
sense, Puerto Rico supports all efforts to strengthen the enforcement
of copyrights and patents, as well as pursuing other related matters
affecting the proper implementation of intellectual property rights
through FTAA negotiations.
While some of Puerto Rico's most technologically advanced exports
face intellectual property issues that are being addressed through the
efforts of national associations such as the Pharmaceutical Research
Manufacturers of America (PHRMA) and the National Association of
Manufacturers (NAM), local Puerto Rican makers of indigenous products
have trademark concerns with respect to trade liberalization in Latin
America and the Caribbean. In particular, producers of rum and coffee,
who face fierce competition from other Caribbean and Central American
countries, do not possess geographical indications for their products
such that these may be indistinctly recognized and marked as ``rums of
Puerto Rico'' or ``Puerto Rican coffee'' under a free market regime. In
such circumstances it is possible for any producer in the region to
dump surplus output within the free trade area for the product to be
processed and sold later elsewhere under the denomination of another
country. In this sense, we believe that discussions about rules of
origin and trademark procedures should be an important part of
intellectual property and market access discussions in the FTAA
negotiations.
C. Investment
The link between free trade and foreign direct investment has been
extensively documented and empirically corroborated, particularly
within free trade agreements comprising developed and developing
countries. Latin America's proportion of U.S. foreign direct investment
in 2000 amounted to 25%, a figure that has dropped slightly in the
years 2001 and 2002 as a result of the slowing world economy and
macroeconomic instability in countries such as Argentina, Brazil, and
Uruguay. Nevertheless, based on the effects of NAFTA on foreign
investment in Mexico, and after taking into consideration the
gravitational direction of trade flows and the possibilities of intra-
industry trade in the Americas, some increase in the level of
investment to the region is to be expected as a result of the FTAA.
Foreign investment has been the backbone of Puerto Rico's
industrial development and its current role in participation in
international trade. Investments in Puerto Rico have yielded higher
returns to investment than in many countries of comparable size and
characteristics. Like many neighboring countries in Latin America,
industrial exports originating from foreign investment constitute
almost 95% of all exports. Nevertheless, as had been stated previously,
contrary to other cases of foreign direct investment (FDI) in the
Caribbean and Central America, such as the EPZs in the Dominican
Republic, FDI in Puerto Rico possesses multiple backward and forward
linkages to local capital industries and services (through sub-
contracting, joint venture agreements, supply chains, and banking,
among other activities). These linkages allow local companies to
develop a strong and productive industrial and services platform that
serves both the foreign and domestic sectors of Puerto Rico's economy.
Exports from local capital companies constitute only 5% of total
exports, but at a total of over $2 billion in 2001, their sales already
exceed in value the entire export amounts of other Caribbean and
Central American countries (especially if domestic industry is measured
separately from foreign-capital production). It also means that changes
in the foreign investment environment tend to have economies-of-scale
effects in the industrial platform and economic performance of Puerto
Rico.
Tax incentives and other fiscal instruments have been powerful
tools the Commonwealth of Puerto Rico has used for attracting foreign
investment. As indicated in Article 13 of the Draft Text on General and
Institutional Issues, the FTAA's potential member nations will provide
for special and differential treatment for various jurisdictions and
sectors as circumstances dictate. While certain preferences regarding
investment and competition policies may become abolished as a result of
the FTAA negotiations, Puerto Rico respectfully requests that its
specific circumstances and concerns be fully considered and addressed
by the USTR in negotiating FTAA investment matters.
D. Services
Like many other countries in the Caribbean region, services
constitute an important part of Puerto Rico's economy. We possess
regionally competitive service industries, particularly tourism,
telecommunications, banking, health and professional services. These
industries would benefit from a reduction in import duties, taxes, and
other trade obstacles, as well as efforts at harmonization of the legal
framework governing the movement of naturals and the provision of
professional services throughout the Caribbean and Central America. The
successful entrance of Puerto Rican firms in the Dominican Republic
once the government of that country liberalized its national
telecommunications market may serve as an example of potential gains
for Puerto Rican firms under an FTAA services regime in the region.
Inadequate maritime transport in the Caribbean and Central America,
however, has been a persistent problem in the region, especially in the
case of smaller island countries. The costs of merchandise shipping
from Puerto Rico to other destinations in the Caribbean region are
higher than the rates for maritime transport to the United States.
Although most of our exports go to the United States (see Table 1),
shipping costs in the Caribbean is an important matter for Puerto
Rico's small and medium sized producers whose natural markets lie in
the Caribbean area. An important reason for such expensive maritime
transport is the lack of economies of scale for shipping products to
the small islands in the Eastern Caribbean, market fragmentation, and
trade facilitation problems. However, there are other obstacles, such
as deficient port and maritime infrastructure to support merchandise
movement in both the Caribbean islands and Central America. These
factors hinder Puerto Rico's export potential in the region. In this
sense, we believe that the problems of maritime and air transportation
in the Caribbean and Central America should be addressed in the
Services Negotiating Committee of the FTAA.
In closing, we would like to reiterate Puerto Rico's commitment to
trade liberalization in the Western Hemisphere. We strongly believe
that the FTAA negotiations present a unique opportunity to open markets
and to create common trade rules that will foster a more prosperous
economic environment for all countries and regions involved. We look
forward to working with the Administration, Congress and our trading
partners to ensure that the FTAA will provide both free and fair trade
for Puerto Rico.
Table 1: Puerto Rico's main trading partners, 2002
PUERTO RICO'S IMPORTS, TOP 20 COUNTRIES OF ORIGIN
------------------------------------------------------------------------
COUNTRY CODE VALUE
------------------------------------------------------------------------
1. United States ------ $14,561,281,964
2. Ireland 4190 6,260,429,348
3. Japan 5880 1,435,648,062
4. Dominican Republic 2470 706,476,540
5. U.S. Virgin Islands ------ 687,183,238
6. Germany 4280 424,912,507
7. United Kingdom 4120 385,301,239
8. Italy 4759 339,939,640
9. France 4279 336,303,381
10. Mexico 2010 288,060,915
11. Brazil 3510 287,614,800
12. Venezuela 3070 284,877,430
13. China, People's Rep. 5700 258,827,241
14. Trinidad and Tobago 2740 257,907,864
15. Belgium 4231 233,930,201
16. Canada 1220 220,062,959
17. Switzerland 4419 207,700,495
18. Costa Rica 2230 156,434,658
19. Spain 4700 151,840,863
20. Argentina 3570 141,701,515
21. Others ------ 1,358,158,025
TOTAL $28,984,592,885
------------------------------------------------------------------------
PUERTO RICO'S EXPORTS, TOP 20 DESTINATIONS, 2002
------------------------------------------------------------------------
COUNTRY CODE VALUE
------------------------------------------------------------------------
1. United States ------ $41,739,694,192
2. United Kingdom 4120 731,169,566
3. Netherlands 4210 655,516,382
4. Dominican Republic 2470 633,492,403
5. Belgium 4231 424,569,643
6. Japan 5880 319,499,547
7. Germany 4280 316,237,347
8. France 4279 287,933,750
9. Italy 4759 292,341,881
10. Ireland 4190 236,629,230
11. Canada 1220 200,439,684
12. Israel 5081 122,025,446
13. India 5330 104,746,194
14. Switzerland 4419 82,082,528
15. Panama 2250 77,807,445
16. Mexico 2010 75,548,916
17. U.S. Virgin Islands ------ 69,741,694
18. South Korea 5800 50,336,232
19. China, People's Rep. 5700 41,848,842
20. Australia 6021 41,303,513
21. Others ------ 669,290,880
TOTAL $47,172,255,315
------------------------------------------------------------------------
Table 2: Puerto Rico's main export and import products, 2002
------------------------------------------------------------------------
Exports from Puerto Rico to Foreign
Countries ---------------------------------
---------------------------------------
Description SIC Value
------------------------------------------------------------------------
1. Pharmaceutical Preparations 2834 $2,220,333,795
2. Medicinal Chemicals and Botanical 2833 640,588,895
Products
3. Industrial Organic Chemicals, Not 2869 432,332,557
Elsewhere Classified *
4. Flavoring Extracts and Flavoring 2087 178,753,244
Syrups, Not Elsewhere Classified *
5. In Vitro and In Vivo Diagnostic 2835 177,122,111
Substances
6. Electronic Computing Equipment 3573 143,694,660
7. Surgical and Medical Instruments 3841 138,019,881
and Apparatus
8. Men's and Boy's Underwear and 2322 104,341,490
Nightwear
9. Computer Storage Devices 3572 97,597,599
10. Orthopedic, Prosthetic, and 3842 92,463,406
Surgical Appliances and Supplies
11. Pesticides and Agricultural 2879 64,299,376
Chemicals, Not Elsewhere Classified *
12. Brassieres, Girdles, and Allied 2342 48,677,526
Garments
13. Noncurrent-Carrying Wiring Devices 3644 47,386,457
14. Radio and TV Communications 3662 44,158,165
Equipment
15. Telephone and Telegraph Apparatus 3661 40,406,964
16. Relays and Industrial Controls 3625 37,296,065
17. Petroleum Refining 2911 33,641,031
18. Primary Smelting and Refining of 3339 33,015,725
Nonferrous Metals, Except Copper and
Alum.
19. Miscellaneous Plastic Products 3079 32,909,142
20. General Industrial Machinery and 3569 32,205,560
Equipment, Not Elsewhere Classified *
21. Others ------ 723,575,780
TOTAL $5,362,819,429
------------------------------------------------------------------------
------------------------------------------------------------------------
Imports to Puerto Rico from Foreign
Countries ---------------------------------
---------------------------------------
Description SIC Value
------------------------------------------------------------------------
1. Medicinal Chemicals and Botanical 2833 $5,591,083,171
Products
2. Industrial Organic Chemicals, Not 2869 2,370,657,695
Elsewhere Classified *
3. Petroleum Refining 2911 850,385,434
4. Pharmaceutical Preparations 2834 779,431,637
5. Motor Vehicles and Passenger Car 3711 672,505,608
Bodies
6. Crude Petroleum and Natural Gas 1311 217,123,226
7. Surgical and Medical Instruments 3841 195,482,712
and Apparatus
8. Men's and Boy's Underwear & 2322 147,999,306
Nightwear
9. Nonclassifiable Establishments 9900 109,104,469
10. Switchgear and Switchboard 3613 104,285,493
Apparatus
11. Steel Works, Blast Furnaces 3312 100,846,323
(Including Coke Ovens), and Rolling
Mills
12. Meat Packing Plants 2011 93,579,977
13. Miscellaneous Plastic Products 3079 81,615,783
14. Prepared Fresh or Frozen Fish and 2092 77,448,681
Seafoods
15. Brassieres, Girdles, and Allied 2342 69,376,931
Garments
16. Paper Mills 2621 67,623,331
17. Wood Household Furniture, Except 2511 64,420,109
Upholstered
18. Malt Beverages 2082 63,406,291
19. Ceramic Wall and Floor Tile 3253 50,499,285
20. Boot and Shoe Cut Stock and 3131 50,401,411
Findings
21. Others ------ 1,978,850,810
TOTAL $13,736,127,683
------------------------------------------------------------------------
Statement of Edward P. Denninger, Sr., J.G. Eberlein & Co., Inc., West
Islip, New York
TO: HOUSE COMMITTEE ON WAYS AND MEANS
SUBJECT: TRADE AGENDA COMMENTS
The legislative policy underlying the duty drawback program is to
increase the competitiveness of American industry in the global
marketplace when competing against lower priced exports from our
trading partners. The existing drawback program benefits American
manufacturers and exporters by increasing their competitiveness by
providing an advantage either at the margin for pricing goods in the
export market or at the lower overall costs of production.
The drawback program was initiated to create jobs and encourage
manufacturing and exports. U.S. Customs has acknowledged this by
stating that
LThe rationale for drawback has always been to encourage
American commerce or manufacturing or both. It permits the
American manufacturer to compete in foreign markets without the
handicap of including in its costs and consequently in its
sales price, the duty paid on imported merchandise.
Clearly, the intent of Congress it to grant drawback when and
wherever possible to the benefit of American companies, not to limit
drawback simply because the United States enters into an FTA, which
purpose is to provide the greatest overall benefit to American
exporters.
Many imported items are subject to Normal Trade Relations (NTR)
duty rates when imported into the United States. Therefore, to include
in any FTA a restrictive drawback program like that in the NAFTA, and
thereby limit drawback, would place American companies at a substantial
competitive disadvantage as compared to our trading partners.
Duty drawback lowers production costs and operating costs by
allowing manufacturers and exporters to recover duties that were paid
on imported materials when the same or similar materials are exported
either as finished products or as component parts of a finished
product. This advantage must be maintained as part of U.S. policy to
foster growth and development within the United States and to increase
United States export competitiveness abroad.
National Association of Foreign-Trade Zones
Washington, DC 20036
March 12, 2003
Trade Agenda Comments to the
Committee on Ways and Means
The National Association of Foreign-Trade Zones recommends that the
``National Treatment-Market Access Chapter'' of prospective free trade
agreements incorporate a modified version of NAFTA's Article 303
paragraph 6. This proposed modification would add a seventh set of
circumstances for which restrictions for so-called duty drawback rules
should not apply. This seventh set would cover:
L(g)(1) Any good manufactured in the territory of a party and
subsequently exported to the other party where the importing party's
effective external rate of duty is zero, or
L(2) Any part, component, or material used in the manufacture of
any good in the territory of a party that is subsequently exported to
the other party where the importing party's effective external rate of
duty for the part, component of material is zero.
This recommendation flows directly from the experiences observed
during the negotiation of NAFTA and measures initiated by our NAFTA
partners upon the agreement's inauguration.
So-called anti-platforming measures are sine qua non for the
conclusion of foreign trade agreements such as the North American Free
Trade Agreement and the recently concluded U.S.-Chile Agreement. These
measures usually include:
LRules of Origin that direct the flow of economic benefits
to the national economies of the trade agreement's participating
nations or parties.
LRestrictions on the use of duty deferral and/or duty
drawback measures that extend the flow of benefits upstream to supplier
industries, and
LThe Agreement's rate reduction staging schedule that (is
not strictly speaking an anti-platforming measure that nevertheless)
creates background pressure or guidance for deciding how strenuously
origin rules and drawback restrictions should be imposed for any given
product or industry.
Large amounts of effort were undertaken by U.S. negotiators during
the NAFTA negotiations to provide an efficient set of anti-platforming
measures. The Agreement's provisions are a self-evident statement on
the results of their efforts. Nonetheless, these efforts were greatly
undermined by our NAFTA partners by the stroke of their proverbial pen,
upon the inauguration of their NAFTA anti-platforming commitments. This
diminishment of the rules was put into effect because there was one
matter beyond the reach of U. S. NAFTA negotiators that was and is the
foundation upon which all the rules are based, i.e. how our partners
adjusted or modified their external tariff rate structure to offset the
consequences NAFTA's rules imposed.
NAFTA's current roster of anti-platforming measures combined with
the tariff suspension/elimination measures initiated by Mexico and
Canada (at the time their respective 303 responsibilities commenced)
are a hardship on all U.S.-based manu- facturing activity. These
measures are unassailable under NAFTA and/or the provisions of the WTO.
Nevertheless, these Canadian and Mexican measures, combined with
NAFTA's article 303, have created unanticipated and uncompensated trade
benefits in the U.S. market by non-NAFTA parties, while at the same
time diminishing the anticipated export opportunities for U.S.
manufacturers in the Canadian and Mexican markets. Both of the
unanticipated consequences are due to non-NAFTA participants' exports
to our NAFTA partners under conditions more favorable than those
available to U.S. based manufacturers.
We agree with those recommendations put forward to you that state
all of our nation's FTA's should adopt effective anti-platforming
measures. We believe our collective experiences with NAFTA provide
guidance on how effective anti-platforming measures should be defined.
We suggest the proposed seventh exemption from any future FTA's duty
drawback limitations will demonstrate a lesson learned.
Regards,
Donnie B. Barnes
President
National Association of Manufacturers
Washington, DC 20004
March 12, 2003
Ways & Means Committee
House of Representatives
Via E-mail: hearingclerks.waysandmeans@mail.house.gov
Members of the Committee:
The National Association of Manufacturers appreciates this
opportunity to submit comments for inclusion in the official record of
the Committee's February 26, 2003 hearing on U.S. trade policy and the
U.S. trade agenda.
Manufacturing in our country is challenged today as never before.
Our 14,000 companies find themselves on the front lines of the most
intense global competition in history, a competition that makes it
virtually impossible for them to raise prices even as costs continue to
rise appreciably. Despite outstanding productivity, innovation and
efficiency gains by U.S. manufacturers, the current economic climate
has yielded the slowest manufacturing recovery in decades and a decline
in manufacturing employment of more than two million jobs.
Many factors have led us to these sobering circumstances, and the
NAM's Board of Directors in February 2003 approved a multi-pronged,
comprehensive strategy to tackle a broad range of problems through
persistent governmental policy reform and action. One of the major
challenges is the continued existence of international trade and
investment barriers that inhibit manufacturing exports and the conduct
of business abroad. The reduction and removal of those barriers can
only be achieved through a proactive U.S. trade policy that includes
strong American leadership in negotiating trade agreements. It is on
this aspect of U.S. trade policy that we wish to concentrate our
remarks.
The NAM supports the Bush Administration's aggressive policy of
competitive liberalization, which aims to maximize U.S. leverage by
pursuing free-trade negotiations simultaneously at the multilateral,
regional and bilateral levels. We concur with the notion that it is in
the interest of the United States to have multiple negotiating options
and partners so as not to be held hostage to foot-draggers in any one
particular negotiation and in order to set trade-liberalizing
precedents that can be transferred from one set of talks to another.
We do believe, however, that optimal implementation of this pro-
active multi-front strategy may require additional human and budgetary
resources if it is to be sustained or expanded. The Ways & Means
Committee should take this into account and make appropriate funding
recommendations to its colleagues on the Appropriations Committee. If
the United States is to obtain high-quality trade agreements, it must
make available sufficient negotiating resources.
Beyond the raft of negotiations currently underway, the NAM would
be most enthused by an effort to obtain significant gains for U.S.
manufacturing exports by extending the cutting-edge disciplines of the
Singapore agreement to other Asian economies. In this regard, the
Enterprise for ASEAN Initiative announced last year by Ambassador
Zoellick remains of strong interest to the NAM.
The NAM also wishes to point out one section of the Trade Act of
2002 that does not seem to have been implemented yet. The Trade Act's
Paragraph 2102(c)(12) explicitly calls for consultative mechanisms to
be established among parties to trade agreements to scrutinize whether
a foreign government has manipulated its currency to promote a
competitive advantage in international trade. The NAM has not seen this
paragraph utilized by the Administration, and urges this be rectified.
There is widespread concern, particularly regarding Asian currencies,
that countries are intervening to maintain their currencies at
deliberately low rates, which puts U.S. agricultural, industrial, and
services producers at a disadvantage.
The remainder of our comments will focus on U.S. manufacturing
priorities in the ongoing WTO, FTAA, and bilateral negotiations.
WTO and the Doha Development Agenda
The NAM acknowledges agriculture's prominent place atop the Doha
Development Agenda (DDA). Without progress on agricultural reform, a
successful round is all but impossible. We recognize that to obtain the
enthusiastic participation of the developing countries in the WTO
talks, the United States, Europe and Japan must engage each other and
the rest of the world on agriculture. The Committee should remain
concerned, as are we, that there appears to be little progress toward
making the March 31, 2003 deadline on establishing modalities for
agricultural market access negotiations. A failure or postponement
there will no doubt reverberate throughout all other aspects of the
talks, including those of most importance to makers of industrial
goods.
Nonetheless, the NAM reminds the Committee that U.S. agricultural
exports will total to a little more than $50 billion a year, whereas
our manufacturing exports total nearly $50 billion each month. And this
tilt toward manufacturing trade is not exclusively an American
phenomenon. Nearly eight out of ten export sales across the globe are
also manufactures. What this means, of course, is that there are many
trading partners in the WTO who should share our interest in further
liberalizing trade in manufactured products.
However, U.S. industrial exports continue to face
disproportionately high trade barriers overseas. Whereas U.S.
industrial tariffs average less than 2 percent, we often face bound
tariff levels averaging 18 percent in the developing countries of Asia
or 31 percent in South America. This is a reality that the nation's
senior trade policymakers simply must take into account in determining
the optimal strategic approach for achieving the broadest possible U.S.
gains in trade negotiations.
Likewise, the NAM recognizes that a failure by the United States to
comply with the WTO decisions regarding the Foreign Sales Corporation/
Extraterritorial Income regime could also prejudice a successful
outcome to the WTO negotiations. However, repeal of ETI should be
coupled with an alternative, WTO-compliant benefits regime that
preserves as much of the benefit as possible for U.S.-based
manufacturers that currently employ ETI.
Another factor of concern to the NAM is the need to insist on
strict compliance by China and other new entrants to the WTO with their
accession commitments. Failure to insist on complete compliance and
fair practices would risk undermining support for the WTO among U.S.
business, Congress, and the American public.
The interests of U.S. manufacturers run throughout the entire Doha
Development Agenda of world trade negotiations. Here we will highlight
five areas of particular importance: industrial tariffs, non-tariff
barriers, transparency in government procurement, customs facilitation,
and intellectual property rights.
Industrial Tariffs
The WTO non-agricultural market access negotiations should aim at
achieving the broadest and deepest possible reductions in tariffs and
non-tariff measures, with the particular objective of totally
eliminating as many tariffs as possible. In the absence of substantial
gains in genuine non-agricultural market access, the DDA simply could
not be considered a success. Merely bringing bound rates down to the
level of existing applied rates, for example, would be an unacceptable
outcome--for no genuine improvement in market access would result.
We therefore are very pleased with the Administration's historic
WTO non-agricultural market access proposal calling for the total
elimination of all industrial tariffs by 2015. Achieving this ambitious
result would speed global economic growth and living standards
worldwide. Many of our members are especially pleased that the
Administration not only set forth the visionary goal of complete tariff
removal, but also incorporated some key intermediate steps designed to
move the world toward that goal in a pragmatic way.
As the Administration's proposal recognizes, a combination of
negotiating methods (``modalities'') is needed to achieve this bold
objective. This combination involves a sectoral tariff elimination
modality (STE--often referred to as ``zero-for-zero''), wherever
possible, supplemented by a more general approach that would rely
principally on an overall formula cut. Any formula, however, must
result in genuine reductions in tariffs--i.e., reductions in the actual
applied rates. Additionally, the modality combination must include a
request-offer approach for those industries whose complexities cannot
be addressed appropriately by a formula approach.
Many NAM members believe that the most practical method of
obtaining the greatest non-agricultural market access gains is through
the STE, or zero-for-zero, modality. STE is a proven approach that
solves negotiating problems other modalities cannot manage--
particularly in resolving the problem of the huge disparity between the
generally low U.S. industrial tariffs and the high tariffs in
developing countries. For more detailed information on how an STE
modality would work, we refer you to the submission from the Zero
Tariff Coalition, which is comprised of 25 U.S. industrial sectors that
believe this approach would work for them. That coalition, brought
together by the NAM in 1999, is now working closely with USTR and the
Commerce Department to promote support for a zero-for-zero modality
among other nations' industries and governments.
As not all sectors will participate in the STE approach, that
modality should be accompanied by a formula approach to ensure that
tariff cuts are made across the board in all sectors. The aggressive
U.S. formula proposal is ideal in this respect. It would be calculated
based on applied rather than bound rates and would slash all tariffs to
no more than 8 percent after five years and then eliminate them over
five more years.
The complexity of the market-access situation in some sectors,
moreover, means that there must be provision for some exceptions to
this overall guideline--including providing for a request-offer
approach for industries that view such an approach as more likely to
achieve the results they seek. The request-offer modality is necessary
to provide appropriate flexibility to U.S. negotiators in dealing with
some sectors and industries. Failure to mention this modality is
perhaps the only shortcoming, in NAM's view, to USTR's outstanding
industrial market proposal last November.
Non-Tariff Barriers
Negotiations on non-tariff barriers (NTBs) are explicitly provided
for in the Ministerial Declaration and need to be addressed as an
essential feature of the non-agricultural market access negotiations.
NTBs have been rising in importance as trade-distorting factors,
including such measures as discriminatory standards, conformity
assessment requirements, pre-shipment inspections, custom valuation
practices, regulatory requirements, port procedures, and security
procedures. Building on the incomplete NTB work of previous
multilateral trade negotiations, a strong effort should be made to
reduce or eliminate the trade-impeding effects of non-tariff measures.
Care must be taken, however, to ensure that any such effort in no
way is used to undermine legitimate health, safety, and environmental
protections that are WTO compliant and based on strong scientific
justification. Additionally, as noted above, WTO-consistent trade
remedies are not non-tariff trade measures.
A realistic way to proceed with NTB negotiations may be via a
request-offer process, in which countries develop lists of other
countries' practices that impede trade, and then exchange commitments
to eliminate or alter those practices. A rules-based approach may also
prove useful, reexamining issues such as customs valuation, pre-
shipment inspection, standards and conformity assessment, and others.
There may be considerable opportunity for improvement without reopening
previous agreements, particularly through the device of agreeing on
clarifications or interpretations to increase the effectiveness of
existing agreements. NTB concessions should be quantified in an
agreeable fashion, enabling their resulting reductions to be taken into
effect in calculating the overall balance of concessions.
Transparency in Government Procurement
Another Doha priority for the NAM continues to be the achievement
of an effective agreement for transparency in government procurement.
Government procurement represents nearly fifteen percent of the world's
GDP, a potentially massive global market. U.S. firms compete very
strongly and effectively in that market when purchasing decisions are
based on cost, quality and other competitive factors. Our exporting
firms are less successful when government purchasing decisions are made
behind closed doors--in non-transparent ways that allow bribery and
corruption to come into play. Unfortunately, the latter situation
describes the procurement process in many developing countries today,
where public notification and due process with respect to tenders are
often the exception rather than the rule.
Developing countries have not signed on to the existing WTO
Government Procurement Agreement, but the proposed new WTO agreement on
transparency of government procurement is one that would address many
of the problems in a way that we believe can be accepted by the
developing countries. Transparency in government procurement would
benefit not just U.S. exporters in competing against other exporters on
a more level playing field, but would also be a major factor helping
developing countries. It would be a strong force making corruption more
difficult and would channel much more of their resources into efficient
purchases and away from bribery.
The NAM was disappointed that the Doha Declaration pushed off
negotiations on transparency in government procurement until after the
Cancun WTO ministerial this coming September. The Committee and the
Administration should focus on ensuring that there is no further delay
in launching and concluding this critical aspect of the overall
negotiating round.
Customs Facilitation
Another area in which the start of negotiations has been delayed
until Cancun is that of business facilitation--agreement on simpler and
less costly customs and other trade rules. This is of particular
importance to the 95 percent of American exporters who are small and
medium-sized and see current trade rules as expensive trade barriers.
Additionally, small firms as well as large would benefit from WTO rules
that would ensure cyberspace would remain a tariff-free area permitting
the further rapid growth of global e-commerce. As with transparency in
government procurement, the Committee and the Administration should act
in coming months to ensure that formal negotiations move ahead in
Cancun.
Intellectual Property Rights
The competitive advantage of American manufacturing relies
increasingly on its advanced technology and the protection of that
technology--in other words, on effective enforcement of intellectual
property rights. In that regard, the United States should continue to
press our WTO trading partners for full and timely implementation of
the Agreement on Trade-Related Intellectual Property Rights (TRIPs)
negotiated in the Uruguay Round.
Lessening the protection of intellectual property would have
profound negative consequences not just for our global competitive
position, but also for the flow of new inventions that will allow
people all over the world to enjoy a higher quality life. President
Abraham Lincoln's reminder that ``the patent system added the fuel of
interest to the fire of invention'' applies as well to the TRIPs
agreement.
Further, the rampant counterfeiting and piracy of consumer products
that occurs in many developing countries also poses a severe risk of
personal injury or loss of life related to customer use. Legitimate
U.S. manufacturers have no control over the safety or quality of
ingredients that are formulated into these fake products. The risk to
consumers' health and safety, coupled with the severe economic harm
done to U.S. producers, warrant a higher level of attention by the
Committee to this issue.
Free Trade Area of the Americas (FTAA)
The NAM is strongly supportive of actions the Administration has
taken to move the Free Trade Area of the Americas negotiations forward.
The FTAA is the critical regional piece of Ambassador Zoellick's
``competitive liberalization'' strategy, and it is imperative that the
hemispheric talks stay on track for conclusion by early 2005. The
Committee should know that the NAM estimates that an effective FTAA
would result in a tripling of U.S. exports to Central and South America
within a decade of implementation--from today's $60 billion of annual
exports to nearly $200 billion.
The FTAA therefore represents a major challenge and a major
opportunity for the U.S. government, U.S. business, U.S. society, and
the Western Hemisphere as a whole. The process of obtaining Trade
Promotion Authority was a difficult, drawn-out struggle that cost the
United States in terms of its policy credibility in the hemisphere.
While congressional approval of the Trade Act of 2002 has helped reduce
concern about U.S. trade views to some extent, suspicion of U.S.
commitment to open markets is at an all-time high in the Americas. When
coupled with the recent period of financial volatility and political
uncertainty, the doubts about the U.S. commitment to open markets has
reduced the political constituency in favor of free trade in virtually
every Latin American country.
As in other negotiations, we believe a principal focus must be on
removing developing country tariffs on industrial goods as
expeditiously and comprehensively as possible. Our preliminary
understanding of the initial market access offer tabled by the United
States last month is highly positive. We look forward to learning more
about it and about the initial offers of other FTAA countries, and our
members plan to intensify their engagement with USTR in the months
leading up to the June 15 deadline for submitting requests for improved
offers.
The Administration's proposal calls for a wide range of industrial
sectors to have their duties eliminated immediately under the FTAA. NAM
members from those sectors applaud that initiative and expect the
Administration to follow-up its initial offer with aggressive pursuit
of other countries' agreement to up-front duty elimination. The NAM and
others in the U.S. business community continue to do their part through
active participation in the Americas Business Forum and in bilateral
discussions with foreign counterparts.
In the NAM's view, a successful FTAA must accomplish at least six
goals that are particularly critical for U.S. manufacturing. They are:
1) rapid removal of industrial tariffs; 2) design of simplified and
uniform rules of origin; 3) removal of non-tariff barriers, including
technical barriers to trade and customs-related measures; 4)
elimination of barriers and conditions on investment; 5) improved
protection of intellectual property rights, especially by stepped-up
enforcement; and 6) comprehensive, transparent, and effective access
for bidding on government contracts from a broad range of federal and
sub-federal entities.
Bilateral Agreements
The NAM strongly supports congressional passage of the recently
concluded free trade agreements with Chile and Singapore. We are
playing a leadership role in the U.S.-Chile Free Trade Coalition and
are also a principal member of the U.S.-Singapore FTA Coalition. Both
agreements provide front-loaded tariff removal for industrial and
consumer goods. They are largely state-of-the-art, cutting edge
agreements that advance disciplines of interest to manufacturers in the
areas of intellectual property rights, customs facilitation, access to
competitive services, investment protection, and electronic commerce.
They also faithfully implement the TPA compromise on labor and
environmental issues related to trade by incorporating labor and
environmental provisions into the dispute settlement provisions of the
core agreement, while emphasizing cooperative action and monetary fines
over resort to removal of trade benefits.
With respect to the upcoming crop of negotiations just getting
underway, the NAM takes strongest interest in the Central America and
Australia accords. Central America is of interest because of its role
in catalyzing the FTAA negotiations. Australia holds much promise
because elimination of its average 4.7 percent tariff on U.S. goods
could produce an estimated additional $1.8 billion in annual sales of
U.S. manufactured products.
Conclusion
The NAM appreciates this opportunity to inform the Ways & Means
Committee about its views on the U.S. trade policy agenda.
Respectfully yours,
Frank Vargo
Vice President
International Economic Affairs Dept.
Statement of the National Electrical Manufacturers Association,
Rosslyn, Virginia
Worldwide Tariff Elimination for All NEMA Products
LObjectives: The world-wide elimination of tariffs on
electrical products is a basic NEMA goal. We are founding members of
the Zero Tariff Coalition, and earlier played active roles in pushing
for the APEC EVSL and ATL initiatives. We therefore urge the U.S. to
pursue tariff elimination for electrical products in all fora,
including through sectoral talks under the World Trade Organization
``Doha Development Agenda'' (DDA) round of negotiations, and through
regional and bilateral negotiations. WTO members should agree to
implement so-called ``zero-for-zero'' agreements to eliminate tariffs
on electrical products as soon as possible, preferably on an early
provisional basis with immediate effect until these ``Free'' tariff
rates are bound into the DDA round's final concluding agreement.
L NEMA also urges the U.S. to push for completion of the
second phase of the Information Technology Agreement (known as
``ITA-2''), which would eliminate tariffs on a wide range of IT
items, including some NEMA products. NEMA also supports
continued efforts by U.S. officials to expand the membership of
the existing ITA.
LBenefits: While U.S. electrical exports have been
generally growing around the world over the last ten years, they have
increased most dramatically in two instances where tariffs were
eliminated: (1) to Mexico since the NAFTA agreement came into being;
and (2) for medical devices worldwide following the WTO Uruguay Round
medical devices sectoral zero-for-zero tariff elimination agreement. We
would like to see these stories emulated elsewhere; they don't just
benefit our companies, they serve to make the best, most price
efficient products available to consumers and companies in other
countries.
Negotiate and Ratify Free Trade Agreements (Bilateral, Regional and
Multilateral)
that Further Open Commerce in Electrical Goods While Upholding NEMA
Principles
LFree Trade Agreements: NEMA lobbied long and hard for
Trade Promotion Authority, and we now urge Congress to quickly ratify
the bilateral FTAs recently negotiated with Chile and Singapore. We
also encourage the Administration to pursue NEMA priorities such as the
following in the many other multilateral (as in the WTO Doha
Development Agenda), regional (as in the Free Trade Area of the
Americas), and ``bilateral'' (e.g., Morocco, Central America, Australia
and Southern Africa) negotiations it is pursuing:
LTariff Elimination
LNo Mutual Recognition Agreements (MRAs) For
Non-Federally-Regulated Products
LEnergy Services Liberalization
LOpenness and Transparency in Government
Procurement
LProtection of Intellectual Property Rights
LReduction in Technical Barriers to Trade
(TBTs) and Compliance with all World Trade Organization
(WTO) TBT Agreement Requirements
LInclusive Definition of ``International
Standards''
LVoluntary, Market-Driven Standards and
Conformity Assessment
LEffective Monitoring and Enforcement
Mechanisms
LFree Trade Benefits Not Encumbered By Labor
Or Environmental Provisions
LAs Many Other Market Opening Measures As
Possible
LFree Trade Area of the Americas (FTAA) Talks,
Particularly the Negotiating Group on Market Access (NGMA): As talks
toward the 2005 creation of an FTAA shift into a higher gear in early
2003, NEMA looks forward to continued leadership from the
Administration and Congress. NEMA also encourages all FTAA countries to
implement customs facilitation measures to which they have already
agreed. Moreover, NEMA urges the U.S. to convince the Hemisphere that
any standards and conformity assessment provisions included in an FTAA
must mirror the WTO TBT Agreement. NEMA will continue to be engaged in
the process, and exchange views with its industry counterpart
associations throughout the Americas.
LOpposition to Mutual Recognition Agreements (MRAs): In
NEMA's view, the use of MRAs should be limited and considered only as
an alternative for conformity assessment needs when applicable to
federally regulated products such as medical devices. MRAs are not the
answer to conformity assessment needs in non-regulated areas; if
anything, they serve to encourage the creation of unnecessary product-
related regulation. In this regard, while we strongly objected to the
inclusion of an electrical safety annex in the U.S. MRA with the
European Union a few years ago, we are pleased that the Administration
has either excluded electrical products from subsequently negotiated
MRAs or refused to sign on to any such accords that include them. We
look forward to a continuation of that stance, and trust that the
Administration will not entertain intergovernmental MRAs as a part of
current free trade negotiations.
L``International'' Standards: In addition, the U.S.
government must continue working to dispel the misinterpretation that
the use of the term ``international standards'' in the WTO TBT
agreement applies only to International Electrotechnical Commission
(IEC), International Standards Organization (ISO) and International
Telecommunications Union (ITU) standards. An interpretation should also
include widely-used norms such as some North American standards and
safety installation practices that meet TBT guidelines.
Misinterpretation can be disadvantageous to U.S. businesses' efforts to
sell in global markets. Moreover, the importance of openness and
transparency are lost when focus is placed only on those three
standards bodies.
LEnergy Services Liberalization: NEMA supports
liberalization of trade in energy services, in order to allow more
people worldwide to enjoy high quality, affordable energy, and also to
provide new opportunities to those energy service and electricity
providers who use the equipment made and services provided by NEMA's
members. Thus, NEMA is an active member of the industry coalition
campaigning for the inclusion of commitments on energy services in the
WTO's ongoing negotiations on services under the DDA. NEMA's primary
perspective is that of the industry that provides the equipment and
products used to build and maintain electrical energy systems, but many
NEMA members are active providers of energy services as well. The
liberalization that is good for utilities is also good for our
manufacturers, service suppliers, and for the users of electricity.
USTR has included energy services in its proposals for the WTO services
negotiations and, in the run-up to the WTO Cancun Ministerial, we look
forward to continued efforts from the Bush Administration and support
from Congress to secure commitments from our trading partners in this
crucial area.
LTransparency in Government Procurement: Around the world
a lack of transparency in awarding contracts has served to unfairly
exclude U.S. companies on countless occasions. It is time for U.S.
entities to be able to compete on equal footing with domestic
suppliers.
L While the U.S. has been a leader of efforts to achieve a WTO
agreement to make government procurement more open and
transparent, at Doha WTO members put off beginning negotiations
on this topic until the fall 2003 Cancun Ministerial. We look
forward to even more leadership from USTR and Congress in
pursuing a WTO agreement.
L NEMA also urges the Bush Administration to increase efforts
to obtain full implementation and enforcement of all
signatories to the 1999 OECD Anti-Bribery Convention and the
1997 OAS Convention on Corruption.
An End to Section 201 Tariffs on Foreign Steel Inputs
LAn End to Section 201 Steel Tariffs: NEMA strongly
opposes the tariffs on foreign steel products imposed by the President
last year, and is working to see them eliminated as soon as possible.
Most of our members are steel consumers, and these duties serve to
threaten a very large number of jobs in our industry. (In this respect,
NEMA believes the Administration's initiative to bring together global
steel producers under the auspices of the Organization for Economic
Cooperation and Development [OECD] should receive international
support.) We are keeping our members fully updated on developments
related to the exemptions process and applaud those exemptions that
have already been granted.
Help member Companies Benefit from the Emergence of China as a WTO
member
LChina: NEMA members continue to be intensely interested
in the Chinese market, lobbying hard in recent years for the U.S. to
grant permanent MFN/NTR status pending Beijing's entry into the WTO.
Our industry's sales to China have been growing rapidly over the last
decade, now exceeding exports to all but a handful of countries. We are
excited about future possibilities as the Middle Kingdom's economy
continues to expand impressively--though our members' products continue
to face a variety of tariff and non-tariff barriers.
L In this respect, while Beijing committed upon entering the
WTO to change its conformity assessment procedures so as to
accord non-Chinese product ``national treatment,'' for many
electrical products it has also recently made erroneous moves
to only accept goods built according to either Chinese national
standards or those ``international'' standards developed and
published by the International Electrotechnical Commission
(IEC) and International Standards Organization (ISO). (ISO and
IEC standards still frequently do not include products built to
North America-based international requirements.) Up to now, the
Chinese have also frequently accepted ``North American'' items
that are compliant with the National Electrical Code (NEC).
L Like many other sectors, the U.S. electrical industry also
continues to have fundamental, ongoing concerns about
intellectual property protection in the People's Republic. Our
members continue to be victimized by vast and repeated
trademark infringement abuse. NEMA seeks continued
strengthening of China's anti-counterfeiting measures and
enforcement.
Minimize European Union Penalties on Electrical Goods Stemming from the
FSC/
ETI Dispute and Other Issues
LForeign Sales Corporation/Extraterritorial Income (FSC/
ETI) Dispute: The electrical industry strongly encourages Congress to
enact an appropriate WTO-compliant reform to the FSC/ETI program. NEMA
does not take a position on the form this revision should take, except
that the revised law should not undermine the financial position of the
U.S. electrical sector. The European Union has indicated no immediate
plans to impose the tariff retaliation authorized by the WTO, but the
fact that the EU is moving into a position to implement sanctions
inherently raises the stakes. A wide swath of our product scope is
threatened with retaliation that would run into the millions of dollars
and likely price our members' goods out of the market. It is worth
noting that we have enjoyed very good working relations with European
electrical industry counterparts on this matter, since their members
have little interest in seeing the many U.S.-source inputs they use
become more expensive or unavailable.
LSuspension of the Electrical Safety Annex of the U.S.-EU
MRA: NEMA is pleased that the EU Commission has moved to suspend
implementation of the Annex, since our feeling is that it adds no value
to the existing electrical safety systems in the U.S. and EU. The
historical record of electrical safety, based on a private-sector-
promulgated standards and conformity assessment system, is a good
indicator that private-sector approaches are successful. The U.S.
Occupational Safety and Health Administration (OSHA) NRTL (Nationally
Recognized Testing Lab) Regulations call for OSHA accreditation of
conformity assessment bodies (CABs). EU CABs can be accredited by OSHA
for testing and certifying EU products to U.S. voluntary standards for
OSHA recognition in the workplace. In 2001, OSHA granted NRTL-status to
a German lab and thereby demonstrated the integrity of its approach, in
which EU applicant CABs are given the same consideration as U.S. CABs.
The Bush Administration should continue to maintain this OSHA NRTL
independence while working with the EU to achieve better understanding
of the U.S. position.
Build on 2002 U.S.-EU Principles of Regulatory Cooperation to Address
Various Eu-
ropean Regulatory Proposals such as Those Relating to Chemicals and
End-use-
Equipment (EuE)
LRegulatory Cooperation: NEMA applauds the Bush
Administration and the European Union for their 2002 agreement on
Guidelines on Regulatory Cooperation and Transparency. We ask that
pilot projects adopted for implementation of the Guidelines include the
current EU regulatory initiatives relating to Chemicals, End-Use-
Equipment (EuE) and Restriction of Hazardous Substances (ROHS). For
reasons elaborated in the previous paragraph, we do not think that
electrical safety is an appropriate pilot project.
L As we and other industry associations noted in a June 2001
paper for U.S. Trade Representative Robert Zoellick, and as
noted in greater detail below, the EU is increasingly
establishing regulations that are not justified by available
technical evidence and by sound science and whose cost is not
proportionate to intended consumer or environmental benefits.
Typically, these regulations are developed with procedures that
are not transparent to all stakeholders, including the U.S.
electrical manufacturing industry and other trading partners.
Further, stakeholders find they have no way to hold EU
authorities accountable for the regulations produced. In short,
EU legislation does not always meet the requirements of the WTO
Agreement on Technical Barriers to Trade.
L Our industry is committed to working with the
Administration, through engagement with the EU on questions of
governance and regulatory disciplines, to find solutions to its
systemic regulatory problems, ensuring justification,
transparency and openness in development of directives,
decisions and regulations, as well as ``national treatment''
and accountability in their application.
LProposed EU Directives Relating to Chemicals and End-use-
Equipment (EuE): Brussels will continue work on these two proposals in
2003. The Chemicals Directive as envisioned would have wide-ranging
reporting implications for downstream users such as the electrical
industry. The End-use-Equipment directive, an earlier version of which
was known as the Electrical and Electronic Equipment (EEE) directive,
would mandate eco-friendly design and require manufacturers to comply
with a series of requirements throughout the life-cycle of a product.
The planned EuE and its envisioned implementing measures would feature
product energy efficiency requirements, a concept NEMA has supported in
proposed U.S. energy legislation.
L We very much would like to avoid a repeat of 2002, during
which the EU completed two new directives that create
difficulties for U.S. electrical and electronics products by
raising costs and allowing differing standards and procedures
among the 15 member states. The first directive addresses take-
back and recycling of Waste Electrical and Electronic Equipment
(WEEE) while the second, known as the ROHS (Restriction on the
Use of Hazardous Substances) directive, imposes bans on the use
of certain substances currently used in manufacturing without
providing sufficient basis for processes to identify any needed
substitutes.
L NEMA urges the Bush Administration and Congress to clearly
identify these four measures as serious potential trade
barriers and to seek an accommodation that would emphasize
rational, cooperative and science-based measures as
alternatives to broad-brush regulatory mandates.
LEU Initiatives Regarding Electromagnetic Fields (EMF): In
1999, the EU Council issued a Recommendationthat set EMF exposure
limits for the general public over a range of frequencies. Although it
has been acknowledged by some supporters that the limits include an
excessive safety factor, EU member states may provide for a ``higher
level of protection'' than in the Recommendations, and thus can adopt
more strict exposure limits. Extensive U.S. Government research on
extra low frequencies (ELF) has concluded that ``the scientific
evidence suggesting that ELF/EMF exposures poses any health risk is
weak.'' Similar conclusions have been reached by health risk studies in
other countries.
L A series of emerging EU initiatives also lacking sufficient
justification pose additional EMF-related challenges to our
industry: the aforementioned EuE proposal, a forthcoming
proposal to regulate EMF exposure in the workplace only, and
the ongoing revision of a safety directive for low voltage
equipment (known as the LVD). Each of these will likely draw on
the same excessive limits used in the Recommendation.
L Manufacturers on both sides of the Atlantic have warned
their authorities through the TABD process that EMF could
become a major point of contention between the U.S. and Europe.
NEMA has notified the Commerce Department that EU member state
implementation of the EU Council EMF recommendations would
create a substantial barrier to trade by restricting the free
movement of goods, which would severely affect U.S. electrical
manufacturing interests. In the face of political pressures to
adopt EMF regulations, NEMA believes that standards for human
exposure to ELF-EMF are only warranted if a credible scientific
basis can be established for adverse effects. NEMA supports the
TABD position that EMF exposure standards must be harmonized
globally. The U.S. government must continue its efforts to work
with the leaders in the EU Commission and in the member states
to avoid another trans-Atlantic trade dispute over a sensitive
issue.
Ensure that Prospective and Current WTO members Comply with
International
Agreements Relating to Technical Barriers
LWTO Accessions: NEMA also hopes for greater progress in
bilateral negotiations with WTO accession candidates. Particularly with
regards to Russia, NEMA hopes that standards and TBT fundamentals are
not sacrificed for the sake of geopolitical expediency. In the case of
Saudi Arabia, NEMA appreciates and urges continuing emphasis on
standards and TBT issues in the ongoing negotiations. NEMA
representatives have traveled to Riyadh and established an effective
cooperative relationship with Saudi Arabian Standards Organization
(SASO) officials. A former NEMA employee now serves in place as the
U.S. standards attache in Riyadh.
LWTO Technical Barriers to Trade (TBT) Agreement: NEMA
supports the concepts outlined in the WTO TBT Agreement and believes
that all countries should implement, to the fullest extent, the
obligations outlined there. These obligations include: standards
development processes that are transparent and include participants
from all interested parties; a conformity assessment system that
upholds the principles of most-favored nation treatment (meaning equal
treatment in all countries); and national treatment (meaning equal
treatment of domestic and foreign products, as well as test
laboratories conducting conformity assessment services) in the
application of testing and certification procedures.
Resist Efforts to Give Supplier's Declaration of Conformity Legal
Standing at the Ex-
pense of Third-Party Certification
LLet The Market Decide: NEMA strongly believes that market
conditions should determine the appropriate means of certifying that a
product conforms with safety requirements, be it Third-Party
Certification or Supplier's Declaration of Conformity (SDOC). In this
respect, efforts to give SDOC legal standing should be resisted and
kept in perspective, since such moves could have significant
repercussions for the existing, successful U.S. electrical safety
system--the latter being largely set up along Third Party lines.
Ensure that NAFTA Parties Comply with Their Commitments
LNAFTA Implementation Issues: NEMA member sales to Mexico
have boomed since the inception of the NAFTA, and most remaining
Mexican tariffs on U.S. electrical products have reached zero in 2003.
Also, with an office in Mexico City, NEMA is well positioned to work
with U.S. authorities to monitor and influence the Mexican standards
development process for electrical products, ensuring that Mexican
norms do not act as barriers to U.S. products.
L In this respect, NEMA is becoming very involved in the
standards and conformity assessment processes in Mexico. The
country is developing 20 to 30 new national electrical product
standards (known as NOMs) each year and is moving in the
direction of making all of its standards mandatory. The
authorities do accept and take into account public comments on
proposed standards; however, a document that has been
substantially revised based on public comments may not be
circulated for final public review prior to publication as a
mandatory standard. Moreover, a standard adopted as mandatory
can incorporate by reference another voluntary standard without
any public review or comment opportunity. NEMA would welcome
the Mexican standards authority's application of consistent and
transparent procedures in the consideration and adoption of NOM
standards, which directly affect market access for many proven
commercial products.
L Mexico was required under its NAFTA obligations starting
January 1, 1998, to recognize conformity assessment bodies in
the U.S. and Canada under terms no less favorable than those
applied to Mexican conformity assessment bodies. However, so
far no U.S. or Canadian conformity assessment bodies have been
recognized by Mexico for conducting conformity assessment on
most products that are exported from the U.S. and Canada to
Mexico. Mexico has indicated that it is willing to conform to
these obligations only when the Government of Mexico determines
that there is additional capacity needed in conformity
assessment services. This procedure does not meet the intent of
Mexico's NAFTA obligations, serving to protect their conformity
assessment bodies and Mexican manufacturers from fair
competition from U.S. and Canadian exports into Mexico.
Continue Technical Exchanges with APEC Standards Officials
LAPEC Standards: NEMA is actively involved in bringing a
greater understanding of conformity assessment alternative processes to
the Asia-Pacific region. We have been presenters at two meetings of
APEC's Sub-Committee on Standards and Conformity Assessment, and we
have so far collaborated with the National Institute of Standards and
Technology on two workshops for APEC member country representatives.
Revise ``Buy America'' Procurement Regulations in Line with
International Commer-
cial Realities
L``Buy America'' Procurement Regulations: U.S. government
``Buy America'' restrictions on non-sensitive electrical products
should be re-evaluated in the context of both the increasingly global
economy and potential savings. By restricting access to the U.S.
market, these restrictions also have the reciprocal effect of
disadvantaging U.S. companies seeking to sell into foreign markets. The
United States should consider entering into bilateral and regional
agreements providing reciprocal access to government procurement in
countries that are not members of the WTO Government Procurement
Agreement.
Secure Adequate USG Resources for Negotiations, Monitoring, Enforcement
and
Overseas Presence
LMonitoring, Enforcement and Overseas Presence: NEMA
applauds the Administration and Congress for their successful efforts
to bring China and Taiwan into the WTO. NEMA welcomes the opportunity
to help our member companies take advantage of the market-opening entry
of China and Taiwan into the rules-based international trading system
and is working with USTR, the Commerce Department, and Congress to
monitor and ensure compliance.
L The U.S. Government needs to do more than simply reach
favorable trade accords; it also needs to be vigilant in making
sure that other countries live up to their commitments to
foster openness, transparency and competition. In this regard,
our view is that the Commerce Department's Standards Attache
program should be expanded and fully funded. Likewise, we
greatly appreciate the assistance provided by Foreign
Commercial Service (FCS) offices abroad, and hope that FCS
activities will receive ample support in FY 2004 and the years
ahead.
L With the support of a Market Development Cooperator Program
(MDCP) grant from the Commerce Department, NEMA opened offices
in Sao Paolo, Brazil and Mexico City, Mexico in 2000. The MDCP
is an innovative public/private partnership whose grant budget
should be expanded so that more organizations can enjoy its
benefits. NEMA looks forward to continuing its close
cooperation with the Commerce Dept. on this project.
L Similarly, the Bush Administration and the 108th Congress
should approve a generous increase in funding and staff for the
U.S. Trade Representative's Office, allowing it to even more
effectively negotiate, monitor and enforce trade agreements.
Economic Sanctions
LReform: NEMA supports passage of legislation that would
establish a more deliberative and disciplined framework for
consideration and imposition of economic sanctions by Congress and the
Executive Branch. In addition, existing economic sanctions should be
reviewed to determine if their effectiveness justifies the costs to
U.S. jobs and industries.
About NEMA:
The National Electrical Manufacturers Association is the largest
trade association representing the interests of U.S. electrical
industry manufacturers. Its mission is to improve the competitiveness
of member companies by providing high quality services that impact
positively on standards, government regulation and market economics.
Founded in 1926 and headquartered in Rosslyn, Virginia, its more than
400 member companies manufacture products used in the generation,
transmission, distribution, control, and use of electricity. These
products, by and large unregulated, are used in utility, industrial,
commercial, institutional and residential installations. Through the
years, electrical products built to standards that both have and
continue to achieve international acceptance have effectively served
the U.S. electrical infrastructure and maintained domestic electrical
safety. The Association's Medical Products Division represents
manufacturers of medical diagnostic imaging equipment including MRT, C-
T, x-ray, ultrasound and nuclear products. NEMA members' annual
shipments exceed $100 billion in value.
2003 Trade Priorities for the Administration and Congress
Highlights
LWorldwide tariff elimination for all NEMA products
LNegotiate and ratify free trade agreements (bilateral,
regional and multilateral) that further open commerce in electrical
goods while upholding NEMA principles (see below right)
LAn end to Section 201 tariffs on foreign steel inputs
LHelp member companies benefit from the emergence of China
as a WTO member
LMinimize European Union penalties on electrical goods
stemming from the FSC/ETI dispute and other issues.
LBuild on 2002 U.S.-EU Principles of Regulatory
Cooperation to address various European regulatory proposals such as
those relating to chemicals and end-use-equipment (EuE)
LEnsure that prospective WTO members such as Russia and
Saudi Arabia comply with existing international agreements relating to
technical barriers
LResist efforts to give Supplier's Declaration of
Conformity legal standing at the expense of Third-Party Certification
LEnsure that all parties to the NAFTA comply with their
commitments
LContinue technical exchanges with APEC standards
officials
LRevise ``Buy America'' procurement regulations in line
with international commercial realities
LSecure adequate USG resources for negotiations,
monitoring, enforcement and overseas presence
LReform economic sanctions
NEMA Principles for FTAs
LImmediate Tariff Elimination
LNo Mutual Recognition Agreements (MRAs) For Non-
Federally-Regulated Products
LEnergy Services Liberalization
LOpenness and Transparency in Government Procurement
LProtection of Intellectual Property Rights
LReduction in Technical Barriers to Trade (TBTs) and
Compliance with all World Trade Organization (WTO) TBT Agreement
Requirements
LInclusive Definition of ``International Standards''
LVoluntary, Market-Driven Standards and Conformity
Assessment
LEffective Monitoring and Enforcement Mechanisms
LFree Trade Benefits Not Encumbered By Labor Or
Environmental Provisions
LAs Many Other Market Opening Measures As Possible
NEMA is the largest trade association representing the interests of
U.S. electrical industry manufacturers, whose worldwide annual sales of
electrical products total $122.5 billion. Its mission is to improve the
competitiveness of member companies by providing high quality services
that impact positively on standards, government regulation and market
economics. Our more than 400 member companies manufacture products used
in the generation, transmission, distribution, control, and use of
electricity. These products, by and large unregulated, are used in
utility, industrial, commercial, institutional and residential
installations. The Association's Medical Products Division represents
manufacturers of medical diagnostic imaging equipment including MRI, C-
T, x-ray, ultrasound and nuclear products.
Preis, Kraft & Roy, PLC
New Orleans, Louisiana 70130
March 12, 2003
U.S. House of Representatives Committee on Ways & Means
1102 Longworth House Office Building
Washington, D.C.20515
RE: Written Comments Concerning the Hearing on President Bush's Trade
Agenda
We hereby file these comments for the printed record in response to
the above referenced hearing. We strongly urge that the U.S.
negotiating objective, during negotiations for the Central American
Free Trade Agreement, the Free Trade Area of the Americas and future
trade agreements, be for the inclusion of full drawback rights for U.S.
manufacturers and exporters, pursuant to the duty drawback program as
established under 19 U.S.C. 1313, in each free trade agreement
(``FTA''). FTAs should not restrict, limit or otherwise eliminate
drawback for U.S. manufacturers and exporters when exporting to U.S.
FTA member countries. These comments describe in detail and with
specificity the position taken on the above issue with supporting
evidence provided herein.\1\
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\1\ These comments are submitted on behalf of Danzas/AEI Drawback
Services, Inc., 1718 Fry Road, Suite 240, Houston, Texas, 77084, which
company is a drawback service provider to U.S. manufacturers, producers
and exporters. Similar comments were filed by Danzas/AEI Drawback
Services, Inc., in response to the following: Request for Public
Comments on the Second Draft Consolidated Texts of the Free Trade Area
of the Americas Agreement, 67 Federal Register 79232-79234 (December
27, 2002); Request for Comments and Notice of Public Hearing Concerning
Proposed United States-Australia Free Trade Agreement, 67 Federal
Register 76431-76433 (December 12, 2002); Request for Comments and
Notice of Public Hearing Concerning Proposed United States-Central
America Free Trade Agreement, 67 F.R. 63954, 63955 (October 16, 2002);
and, Request by USTR on February 27, 2002 to Industry Sector Advisory
Committees regarding the United States-Chile FTA negotiating objectives
as they specifically relate to the duty drawback program. Such comments
also were submitted to the U.S. Senate Committee on Finance,
Subcommittee on International Trade, and the U.S. House of
Representatives Committee on Ways and Means, Subcommittee on Trade.
I. The U.S. Must Support the Inclusion of Full Duty Drawback Rights for
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U.S. Companies in FTAs
Drawback restrictive language in FTAs must be removed in favor of
text that has no limitations or restrictions on drawback. Until all
tariffs into the U.S. are eliminated, U.S. exporters and manufacturers
require and should be granted every possible advantage to not only
compete on a level-playing field against their foreign competitors, but
to win in the global market.
The American Association of Importers and Exporters in its
September 2002 statement to the Trade Policy Staff Committee, when
commenting on the FTAA, best described how drawback should be treated
in FTA negotiations:
LThe FTAA should not repeat those arbitrary restrictions [of
NAFTA], but rather should allow each country to maintain its
own duty drawback program that has proven effective in
encouraging manufacturing, expanding exports and increasing
profitability. The simplest way to do this is to ignore this
subject completely in the FTAA, thereby allowing each member
country the freedom to continue its own duty drawback program
that has proven its value for that country. Unrestricted
drawback and free trade are designed to operate side-by-side.
To impose arbitrary restrictions on duty drawback is
antithetical to the concept of free trade itself. Let's keep it
simple and allow each member country the unrestricted freedom
to use its own duty drawback program to its fullest extent.\2\
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\2\ See Attached STATEMENT OF THE AMERICAN ASSOCIATION OF EXPORTERS
AND IMPORTERS TO THE TRADE POLICY STAFF COMMITTEE SEPTEMBER 9, 2002,
MARKET ACCESS IN THE FREE TRADE AREA OF THE AMERICAS.
Our major trading partners with whom we have FTAs, such as Mexico
and Chile, have started negotiations on drawback with the premise that
full drawback rights should be included within the FTA. Clearly, these
countries recognize the significant benefits that drawback provides to
domestic manufacturers and exporters even when exporting goods to
trading partners with whom they have entered into FTAs. The U.S. should
adopt this position dur-
ing FTA negotiations. Restrictive drawback programs would cause harm to
our U.S. exporters.\3\
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\3\ The U.S. currently has FTAs with Canada and Mexico (two of its
three largest trading partners), Chile, Singapore, Israel, Jordan, and
sub-Saharan Africa. With respect to the proposed FTAs with Central
America, Australia, Philippines, Taiwan, and Egypt, as well as the
FTAA, we request that the U.S. negotiating objective be for the
inclusion of full drawback rights.
II. Inclusion of Full Drawback Rights in FTAs Will Provide Significant
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Benefits to U.S. Companies
The inclusion of full drawback rights in FTAs would be of great
benefit to U.S. companies that rely in large part on foreign inputs to
manufacture or produce finished goods. Many foreign imports are subject
to Most Favored Nation (``MFN'') duty rates when imported into the U.S.
for inclusion in the manufacturing process. Eliminating or restricting
drawback in future FTAs as in NAFTA or the U.S.-Chile FTA would place
U.S. companies at a significant competitive disadvantage against other
trading partners that export to the Americas.
NAFTA-like, or any other, restrictions on export-conditioned duty
drawback and deferral programs do not best serve U.S. interests. In
fact, the potential opportunity costs of extending such restrictions in
future FTAs for U.S.-based firms significantly outweighs the possible
benefits of disciplines on the activities of producers in Australia. In
sum, the U.S.-proposed NAFTA-like restrictions do not best represent
U.S. interests, particularly those of the U.S. manufacturing, refining
and exporting communities.\4\
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\4\ The drawback limitations agreed to in the U.S.-Chile FTA are
positive only insofar as the limitations: (1) are phased in over a
twelve-year rather than a briefer period; and, (2) include NAFTA
Article 303.6 exceptions relating to same condition substitution
drawback. If all U.S. MFN rates are not reduced to zero by the year
2012, at which time the Chile FTA drawback limitations take full
effect, the drawback restrictions within the Chile FTA will become
detrimental to many U.S. manufacturers and exporters that require
drawback to remain competitive when exporting to Chile. In fact, the
recent Communication from the United States to the WTO Negotiating
Group on Market Access states that the U.S. proposes that all tariffs
be eliminated by 2015. See Market Access for Non-Agricultural Products,
TN/MA/W/18 (5 December 2002).
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For example, if drawback were allowed to Canada and Mexico today,
U.S. manufacturers and exporters (``U.S. companies'') would be more
competitive when making sales in those markets. First, many MFN rates
are still in place and U.S. manufacturers often require foreign imports
(non-originating NAFTA goods) to manufacture finished products that are
exported to our NAFTA trading partners. Second, many situations exist
today in which Canada's or Mexico's MFN rate is duty-free for product
categories; therefore, a NAFTA duty preference does not distinguish
U.S. from other non-NAFTA imports. Yet, drawback for U.S. companies is
restricted under NAFTA.
Consequently, the purpose of the NAFTA duty deferral program and
the benefits it provides to U.S. (or originating) goods is defeated. As
our NAFTA partners' lower MFN rates on an accelerated basis to provide
other countries' exporters with the same or similar market access that
the NAFTA grants to U.S. companies, U.S exporters become less
competitive in exports. This situation would apply to any FTA entered
into by the U.S. in which NAFTA-type drawback restrictions exist. In
either of these situations, the incremental benefit at the margin that
drawback provides to U.S. manufacturers and exporters means the
difference between making a sale, and thus competing in the importing
country's market.
Duty drawback reduces production and operating costs by allowing
manufacturers and exporters to recover duties that were paid on
imported materials when the same or similar materials are exported
either whole or as a component part of a finished product. This
advantage must be maintained as part of U.S. policy to foster growth
and development within the U.S. and increase U.S. export
competitiveness abroad.
III. Drawback Encourages Growth in U.S. Manufacturing and Exports
Drawback is the refund of U.S. Customs (``Customs'') duties,
certain Internal Revenue taxes, and certain fees that are lawfully
collected at importation.\5\ Customs administers the refund after the
exportation or destruction of either the imported or a substituted
product, or the article manufactured from the imported or substituted
product.\6\ The establishment of the duty drawback program, and U.S.
policy underlying the program, is to increase the competitiveness of
U.S. industry in the global market when competing against lower-priced
exports from our trading partners. In sum, the drawback program
benefits U.S. manufacturers and exporters by increasing their
competitiveness either at the margin for pricing goods in the export
market or through lower overall costs of production.\7\
---------------------------------------------------------------------------
\5\ See http://www.customs.USTreas.gov/impoexpo/impoexpo.htm.
\6\ See Id.
\7\ See Supra Note 4. It is of interest that the World Trade
Organization (``WTO'') has commented that the effects of drawback
programs in other countries create an export incentive, counteract the
negative effects of high import tariffs, create a strong magnet for
export-oriented foreign direct investment, benefit exporters and
manufacturers, and remove a bottleneck to private sector development.
---------------------------------------------------------------------------
The drawback program also was initiated to create jobs and
encourage manufacturing and exports.\8\ Customs recognizes this by
stating that
---------------------------------------------------------------------------
\8\ See Supra Note 4. The Continental Congress first established
drawback in 1789, and it was initially limited to specific articles,
such as salt used to cure meats, that were directly imported and
exported. Since that time, drawback has been expanded to include
numerous products as U.S. production and manufacturing has grown in
different industrial sectors.
LThe rationale for drawback has always been to encourage American
commerce or manufacturing, or both. It permits the American
manufacturer to compete in foreign markets without the handicap of
including in his costs, and consequently in his sales price, the duty
paid on imported merchandise.\9\
---------------------------------------------------------------------------
\9\ See Id.
The intent of Congress is to grant drawback when and wherever
possible to the benefit of U.S. companies. The purpose of both FTAs and
the drawback program is to provide the greatest overall benefits to
U.S. exporters. To limit drawback in the context of FTAs would thus
---------------------------------------------------------------------------
defeat the purpose of both FTAs and the drawback program.
IV. The Rationale for Restricting Drawback Rights in FTAs No Longer
Exists
The U.S. policy, or rationale, for restricting drawback rights in
FTAs no longer exists, and no empirical evidence has surfaced that
would lead us to believe otherwise. There were three primary reasons
for restricting drawback in a FTA, all of which have been proven false.
First, the U.S. believed that drawback restrictions were necessary to
create a disincentive for the development of export platforms. Yet,
such restrictions have had an effect adverse to that intended. Second,
the U.S. has said that drawback is an export subsidy that should be
eliminated. Drawback is not an export subsidy. Third, the U.S. has
stated the removal of tariff barriers through FTAs eliminate U.S.
companies need for drawback. This is false because drawback continues
to make a significant difference at the margin when exporting to FTA
partners that have low or zero MFN duty rates.
The above stated rationale for restricting drawback are not viable
and are inconsistent with the overall policy of the U.S. government,
which is to encourage U.S. exports with our trading partners. The
removal of WTO approved export promotion programs such as the drawback
program simply decreases what would otherwise be an enhanced
competitive advantage that U.S. companies would have under a FTA. The
U.S. historically, and before NAFTA, had FTAs with Jordan and Israel
with no restrictions on drawback. It is our understanding that the U.S.
negotiating objective for drawback, along with many other objectives,
in this and future FTAs is based upon the NAFTA. However, the rationale
developed for the inclusion of drawback restrictions within the NAFTA
and thus within FTAs is no longer viable, as addressed in detail below.
LA. Restricting Drawback Encourages, Rather than Discourages,
the Creation of an Export Platform
The continued proliferation of free trade agreements makes the U.S.
position on export platforms a moot point, with no empirical evidence
to substantiate the premise. The U.S. position in NAFTA was to
eliminate duty drawback and thus create a disincentive for the
establishment of export platforms in Mexico or Canada by Asian and
European countries, to the detriment of U.S. suppliers of imports and
manufacturers. This position was developed a decade ago, when the U.S.
had very few FTAs, and was based in large part on theoretical
assumptions.\10\
---------------------------------------------------------------------------
\10\ It was also alleged that not limiting or restricting the duty
drawback program in the context of a FTA creates an incentive to move
manufacturing out of the U.S., but there has been no empirical data
compiled to prove this theory. In addition, the government's
``manufacturing relocation incentive'' is greatly diminished when the
country with which we have the FTA is not a border country. The U.S.
has the lowest tariff burdens in the world. Thus, the presumption that
companies would relocate to save duties would have been proven by now.
---------------------------------------------------------------------------
Over time and with the imposition of NAFTA Article 303 drawback
restrictions our NAFTA trading partners have instituted trade policies
that diminish the financial impact on domestic manufacturers of the
duty-deferral mechanism and drawback restrictions contained in the
NAFTA. The U.S. has done nothing to counter the same adverse impacts on
U.S. manufacturers and exporters. For example, in anticipation of the
adverse economic impact on its maquiladoras that Article 303 would
have, Mexico instituted its Sectoral Promotion Programs (``PPS'').\11\
Under the PPS, Mexico reduced many of its Normal Trade Relation
(``NTR'') duty rates in order that domestic manufacturers could obtain
non-NAFTA inputs, primarily from Japan and Korea, as drawback to the
U.S. became restricted. In addition, Canada reduced its NTR duty rates
in order that the imposition of the drawback restrictions under NAFTA
had the least adverse economic impact upon domestic manufacturers when
exporting to the U.S. These actions not only circumvent the original
intent of drawback restrictions as relates to the creation of an export
platform, but also demonstrate that the premise is fallible. If
drawback restrictions are included in other FTAs, our trading partners
will likely take similar actions to ensure that their domestic
companies can obtain the necessary inputs at the lowest possible cost
rather than obtain them from the U.S. Thus, the analysis for the need
to restrict duty drawback based on the creation of export platforms has
proven false over time.
---------------------------------------------------------------------------
\11\ See Attached U.S. International Trade Commission, Industry
Trade and Technology Review, Integration of Manufacturing, Regulatory
Changes in Mexico Affecting U.S.-Affiliated Assembly Operations,
Publication 3443 (July 2001).
LB. Duty Drawback is Not an Export Subsidy, and It Creates
Incentives and Advantages for Domestic Manufacturers and
---------------------------------------------------------------------------
Exporters
Almost every country has a drawback program. Duty drawback is one
of the few GATT/WTO sanctioned programs that, as commented by the WTO
about the effects of drawback programs in other countries, has the
following positive effects: Creates an export incentive; Counteracts
the negative effects of high import tariffs; Establishes a strong
magnet for export-oriented foreign direct investment; Provides benefits
to exporters and manufacturers; and, Removes a bottleneck to private
sector development.
According to the WTO, as well as the intention of Congress and over
200 years of experience, duty drawback promotes, encourages and
benefits exports. Increased trade through FTAs does not reduce jobs in
the U.S., but rather moves them to those industries that export.
Workers in exporting industries have greater productivity and higher
wages than do workers in other industries. Export promotion programs
such as drawback are necessary to encourage exports and enhance U.S.
competitiveness abroad.
LC. It Is Illogical for the U.S. Government to Remove Export
Incentives for U.S. Manufacturers and Exporters
The U.S. should not remove WTO legal export incentives for U.S.
companies, but rather provide any additional incentives and competitive
advantages to U.S. companies that would allow them to win contracts for
the sale of goods and services abroad.\12\
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\12\ Other U.S. programs exist that provide export incentives for
U.S. companies, such as the USDA's Dairy Export Incentive Program
(``DEIP''), Export Enhancement Program, and the Market Access Program.
Although it is currently under attack by other WTO member countries,
the U.S. continues its attempt to resolve the disputes surrounding the
Foreign Sales Corporation (``FSC'') program in a manner having the
least adverse effect on U.S. entities.
---------------------------------------------------------------------------
The U.S. strategy for entering into FTAs is to lower the overall
tariff burden for U.S. companies when exporting to the particular
trading partner, thereby making U.S. companies more competitive in that
market or region. However, as in the case of Mexico and Canada, when
countries lower their own NTR duty rates to rates that match the level
contained in a free trade agreement with the U.S., any drawback
limitations become punitive to U.S. companies. The advantage provided
to the U.S. companies by the FTA diminishes when foreign exporters
receive the same or similar benefits (plus drawback, in many
instances). The result is a decrease in the competitiveness of U.S.
companies. The intent of the duty deferral program is to ensure that
exporters would obtain duty-free entry for originating goods.
For example, when U.S. goods enter Canada or Mexico free of duty
without NAFTA origination because the NTR duty rate is zero, there is
no benefit accruing to the U.S. export due to the restrictive nature of
NAFTA's duty-deferral program. Drawback restrictions are not contingent
upon NAFTA origination and thus apply to any exports--whether
originating or non-originating goods. Thus, any goods exported from the
U.S. that do not receive the benefits intended under NAFTA are denied
any drawback benefit when competing against foreign goods subject to a
zero MFN rate of duty. This places U.S. companies at a significant
competitive disadvantage compared to foreign companies when the
importing country has a FTA with the U.S. and a FTA with other
countries in which drawback is retained, i.e., the Chile-E.U. FTA. In
addition, this competitive disadvantage increases when the importing
member has a zero rate of duty for the product categories in which U.S.
exports compete against third country exports.
V. NAFTA Article 303 Created Many Problems Associated With the Drawback
Restrictions Imposed on U.S. Companies
Drawback restrictive provisions in future FTAs will pose the same
or similar problems created by Article 303 of NAFTA. Article 303 of
NAFTA created significant problems in both the interpretation of the
NAFTA drawback restrictions by Customs, leading to the inability of
many U.S. companies to obtain drawback on necessary foreign inputs.
LA. Customs Misinterpreted the Application of Article 303 of
NAFTA in Regard to Same Condition/Unused Merchandise,
Substitution Drawback
The exclusion of the Article 303-type language will alleviate the
problems associated with Customs' interpretation of Article 303 as it
relates to same condition/unused merchandise, substitution drawback. In
interpreting Article 303, Customs improperly eliminated same condition,
substitution drawback in all instances, even where the only
substitution that takes place is foreign for foreign merchandise. If
the above issue is not properly addressed within FTAs, then U.S.
exporters will likely face the same obstacles and problems as they face
with NAFTA Article 303.
1. Article 303(2)(d) of NAFTA and Customs Interpretation
Article 303(2)(d) of NAFTA prevents a party from refunding
``customs duties paid or owed on a good imported into the territory and
substituted by an identical or similar good that is subsequently
exported to the territory of another [p]arty.'' However, 303(6)(b)
specifically states that Article 303 (and the substitution prohibition)
does not apply to ``a good exported to the territory of another [p]arty
in the same condition as when imported into the territory of the
[p]arty from which the good was exported processes such as testing,
cleaning, repacking or inspecting the good or preserving it in its same
condition, shall not be considered to change a good's condition.''
Where same condition goods have been commingled with fungible goods,
the treaty provides that origin may be determined using one of the
inventory accounting methods in Schedule X to the treaty. Where there
is 100% foreign product, there is no need to perform an origin
determination and the exported good should be excepted from Article 303
all together. 19 U.S.C. Section 1313(j)(4) and 3333(a) recognize the
interplay of this language and make it clear that substitution is still
available for exports of same condition goods.
NAFTA negotiators were apparently concerned that a claimant
exporting NAFTA-eligible goods could claim drawback on the NAFTA-
eligible shipment by substituting those goods with commercially
interchangeable goods that were previously imported. Thus, the claimant
would receive the benefit of NAFTA and drawback at the same time.
Attached is a copy of U.S. Customs Headquarters Ruling No. 228209,
dated April 12, 2002 that is the best statement by Customs to date as
to how the agency has interpreted Article 303 in relation to unused
merchandise, same substitution drawback. Essentially, Customs has taken
the position that an export using substitution does not qualify as a
``same condition'' good (and, thus, is not excepted from Article 303)
because the exported item is not the actual item that was imported. Of
course, this presents a result in which an exporter of 100% foreign
goods is prevented from claiming drawback, contrary to NAFTA.
2. Recommend Changes to Article 303(2)(d) of NAFTA
If Article 303 or similar language is included in FTAs, which we
oppose, it is extremely important to ensure that the treaty text itself
provides clarifying language to address the problem described above.
Based on the information below, we would be pleased to provide proposed
changes in language to Article 303 of NAFTA as it relates to same
condition/unused merchandise, substitution drawback. Any proposed
language should clarify NAFTA Article 303(2)(d) by making at least two
changes to the implementing laws.
First, the treaty text must state that a party is only prohibited
from refunding duties on imported goods substituted with originating,
identical or similar goods that are then exported to the trading
partner. Thus, a party should not be prohibited from refunding duties
where the export is of non-originating goods. If a company has 100%
foreign goods, there is never an issue as to whether export is
originating. If the company does commingle originating and non-
originating goods, it must first use an acceptable inventory accounting
method to determine origin, and then it can use substitution drawback
only for those shipments deemed non-originating.
Second, any Article 303(6)(b)-type language referring to same
condition exports must be changed to address the use of the term ``same
condition,'' as a term used under the old drawback law, versus ``unused
merchandise,'' as a term used by Customs today. ``Same condition'' was
changed to ``unused merchandise'' under the Customs Modernization Act
(``Mod Act''). Unfortunately, because the Mod Act and NAFTA were
developed at the same time, the NAFTA text did not include the term
``unused merchandise'' and instead, uses the archaic term ``same
condition.'' This causes confusion and complexity under the drawback
law. In addition, Customs eliminated the term ``same condition'' in the
U.S. drawback law because it did not adequately define this type of
drawback, creating ambiguity where certain products were not subject to
drawback. Accordingly, Article 303(6)(b)-type language of NAFTA must be
revised to bring it in line with current drawback terminology.\13\
---------------------------------------------------------------------------
\13\ We also recommend that this issue be corrected under NAFTA as
it is currently implemented and administered.
LB. Article 303 Drawback Restrictions Increases Production
---------------------------------------------------------------------------
Costs for Certain U.S. Industry Sectors
Certain industry sectors within the U.S. cannot claim drawback
under NAFTA although they must import and pay duty on inputs that they
cannot obtain in the U.S. The result is that many U.S. entities are
disadvantaged when competing against foreign competitors in importing
countries' market. This situation is commonplace in U.S. petroleum
refining. These same drawback restrictions, if extended in FTAs, will
continue to place our petroleum refiners at a competitive disadvantage
compared to foreign refiners.
Many petroleum refiners will continue to pay MFN duty rates for
inputs even as the U.S. enters into FTAs. The cost competitiveness of
U.S. refiners in the global market depends on each additional
incremental advantage that can be obtained. U.S. petroleum refiners use
a combination of foreign and domestic feedstock in order to meet
domestic petroleum derivative production needs. U.S. petroleum refiners
pay Most Favored Nation (``MFN'') duty rates importing into the U.S.
because they import a large portion of feedstock from foreign sources
other than Mexico and Canada. Our refiners therefore face increased
costs in the form of duties not subject to drawback due to NAFTA
Article 303. This often makes U.S. refiners' product noncompetitive in
the North American market relative to finished product imported
directly into North America from non-NAFTA sources. To remain as
competitive as possible when competing for sales of refined product
exported by foreign producers to our FTA partners, eligibility for
drawback is a necessary part of decreasing costs of production to win
sales and contracts.\14\
---------------------------------------------------------------------------
\14\ It is important to note that the NAFTA and U.S. Rules of
Origin compound this problem by restricting the ability of U.S.
petroleum refiners to claim a NAFTA duty preference for their exports.
For example, molecules of crude oil cannot be traced through the
refining process (unlike the use of parts for the manufacture of goods)
to determine whether NAFTA crude or foreign crude was the input for the
final product. The use of NAFTA crude as the input establishes whether
the petroleum product is of NAFTA origin. Thus, it is all but
impossible to establish through the NAFTA rules of origin that the
final product is a NAFTA originating good under 19 U.S.C. Sec. 3332
that is eligible for NAFTA preferences upon export. Additionally,
petroleum FTZs are prohibited from using the NAFTA origin rules to
establish that non-originating goods undergo a tariff shift that would
classify the final product as a NAFTA good under 19 U.S.C. Sec. 3332
(a)(2). Finally, FTZ accounting methods for petroleum refiners also
prohibit or greatly restrict NAFTA duty deferral benefits when
exporting from the U.S.
---------------------------------------------------------------------------
Any extension of Article 303-type language to FTAs would continue
the prejudice against U.S. petroleum refiners and exporters created by
NAFTA.\15\
---------------------------------------------------------------------------
\15\ Based on the discussion set forth in V.B. above, we recommend
that merchandise within Chapter 27 of the Harmonized Tariff Schedule of
United States (``HTSUS'') be exempt from any limitations on drawback in
FTAs. Precedent already exists in Article 303, Paragraph 6, and Annex
303.6 of NAFTA for not subjecting goods to drawback restrictions in
FTAs entered into by the U.S. The exemption of petroleum products under
Chapter 27 of the HTSUS from drawback limitations is necessary due to
constraints placed on petroleum exports and benefits derived from FTAs
under current U.S. law.
Recommended language for such an exemption is as follows, ``An
imported good used as a material in the production of, or substituted
by an identical or similar good used as a material in the production
of, a good provided for in Harmonized Tariff Schedule of the United
States Chapter 27, that is subsequently exported to the territory of
another Party.'' We would be pleased to discuss this matter with the
TPSC, upon request.
Other U.S. companies are placed in a similar situation insofar as
they pay duty on necessary foreign inputs. Thus, exemptions from
drawback limitations for products in Chapters 84, 85 and 90, which
products often involve assembling a large number of foreign components
in the United States, would be beneficial to those manufacturers
competing against our trading partners in regions or countries in which
we have entered into FTAs. This includes assembly operations for
computers and other high technology equipment. The intent is to grant
full drawback rights to refiners and exporters of petroleum products,
similar to those exemptions provided for in NAFTA Article 303.
---------------------------------------------------------------------------
VI. A Possible Alternative to Full Drawback Rights
If the U.S. will not pursue the inclusion of full drawback rights
in FTAs, at minimum, a FTA provision on drawback should include the
Chile-E.U. FTA language on drawback, not the U.S.-Chile FTA drawback
language that eliminates drawback after the FTA is in force for twelve
years. Attached is a copy of the Chile-E.U. language, Final Text,
11.06.02, Annex III, Title IV, Drawback or Exemption, Article 14,
Prohibition of drawback of, or exemption from, customs duties. The
language of the Chile-E.U. FTA would provide significant benefits to
U.S. manufacturers and exporters, increasing their competitive
advantage when making sales in the Americas. First, the Chile-E.U. FTA
has no limitations on unused merchandise drawback and thus does away
with the problems associated with unused merchandise drawback that has
resulted from NAFTA Article 303. Second, as all countries begin to
reduce their MFN rates after a new round of GATT negotiations, there
will be situations where companies will not claim originating status
under the treaty and thus drawback will benefit our exporters. Thus,
companies will pay a smaller MFN rate when exporting within the
Americas and file for drawback on high value/high duty rate imports,
allowing them to be more competitive in making sales against E.U. and
Asian exporters.
We do recommend a slight change in the language of the Chile-E.U.
FTA regarding Paragraphs 1 and 3. These Paragraphs do not discuss the
situation when proof of origin is not issued for an exported good, and
the language must address the situation of when no proof of origin is
issued. For example, the following sentence should be included in
Paragraph 2, which sentence would state that
L``The prohibition in paragraph 1 shall not apply when a proof
of origin is not issued.''
With this change, Paragraph 1 would limit drawback rights only if a
proof of origin is issued. If proof of origin is not issued, the treaty
prohibition does not apply and each country is free to provide full
drawback rights pursuant to that country's program. Further, acceptance
of the Chile-E.U. provision should be clear in stating that there is no
additional limitation for unused merchandise drawback.
VII. Conclusion
If U.S. trade policy is to identify and provide mechanisms with
which to pursue greater market access for U.S. exports of goods and
services,\16\ then drawback should not be restricted in FTAs. Drawback
comports with U.S. trade policy in a number of areas, including export
promotion, export growth and increased productivity and development in
U.S. manufacturing and refining operations. The inclusion of a full and
unrestricted drawback right in FTAs will strengthen U.S.
competitiveness and productivity.
---------------------------------------------------------------------------
\16\ See NAFTA Sec. 108. Congressional Intent Regarding Future
Accessions.
---------------------------------------------------------------------------
Please do not hesitate to contact the undersigned by telephone at
504-581-6062 or by email at mhebert@pkrlaw.com if you have any
questions or would like additional information concerning the comments
herein. Thank you.
Respectfully submitted,
Marc C. Hebert, Esq.
Attachments
STATEMENT OF THE AMERICAN ASSOCIATION OF EXPORTERS AND IMPORTERS TO THE
TRADE POLICY STAFF COMMITTEE
SEPTEMBER 9, 2002
MARKET ACCESS IN THE FREE TRADE AREA OF THE AMERICAS
The American Association of Exporters and Importers (AAEI) is
pleased to offer its comments on a proposed Free Trade Agreement of the
Americas (FTAA), and we thank the Office of the U.S. Trade
Representative and the members of the Trade Policy Staff Committee for
providing us with this opportunity.
Negotiation of a trade agreement tying together the many and
diverse nations of the New World is an undertaking of extraordinary
scope and complexity. It is all the more important, therefore, to
remain focused on a few goals that will best assure the success of a
FTAA.
(1) Commit to a Genuine Effort to Remove Trade Barriers
The conventional objective of any free trade agreement is, of
course, to eliminate direct tariffs and quantitative restrictions
(quotas) on trade in goods. High tariffs and quotas not only restrain
wealth-generating trade among nations, they also commonly distort the
domestic economies of nations by perpetuating industrial and
agricultural inefficiency. Any country's tariff peaks are invariably
reliable indicators of its least competitive industrial or agricultural
activities.
AAEI members compete globally in a wide variety of economic
sectors, but we shall not use this opportunity to catalog the specific
areas in which we would hope to obtain early elimination of other
countries' tariffs and quotas, although you will hear more about this
from us in the future. Rather, we shall here state our strong support
for a readiness to offer our own high tariffs, including those embodied
in tariff-rate quotas, for reciprocal elimination.
Beyond elimination of high tariffs, they should be prepared to
accept some modification of the strong pro-petitioner bias in our
unfair trade remedies regime. Being in favor of ``free but fair'' trade
requires that both issues be addressed in a meaningful fashion. The
United States has been on the losing side of most recent WTO challenges
to its antidumping and countervailing duty determinations, for many
reasons, including dumping calculation methodologies and subsidy
presumptions, which are highly prejudicial to foreign exporters.
Therefore, the United States must be willing to engage in negotiations
to correct these procedural deficiencies, as circumscribed in WTO panel
decisions. Otherwise, many commodities in which our FTAA partners are
most competitive may be locked out of free trade area benefits by a
perennial barrier of ``unfair trade'' allegations that neutralize the
hemispheric advantages of the agreement.
We fully comprehend that removal of protectionist barriers is
widely perceived to be politically difficult, but removal will
strengthen the competitiveness of companies that depend on imported
materials, reduce living costs for American consumers, and reduce
pressures for foreign and international assistance as the economies of
our trading partners improve. We urge our negotiators to use the FTAA
as an opportunity to dismantle our own protectionist regimes.
(2) Keep It Simple
It is a gross misconception to believe that regional free trade can
be achieved simply by eliminating tariffs. Because free trade in the
context of a regional trade agreement is necessarily conditional, the
cost of complying with the conditions replaces the cost of tariffs as
the measure of the extent to which trade is actually ``free''. If
governments lose sight of this fact they will accomplish nothing
meaningful in terms of stimulating trade with a FTAA, because only
those very large companies with the resources, organizational systems,
and full access to upstream cost accounting records will be able to
take advantage of the FTAA, and the growth will not come to the small-
and mid-sized businesses that are the backbone of any economy.
We reiterate a point that AAEI made in our memorandum to you of
June 11, 2001: the North American Free Trade Agreement (NAFTA) rules of
preference for trade in goods are immensely complex and have limited
the benefits that could have been obtained from the NAFTA. One Canadian
study concluded that the ``tendency to trade'' of Canadian businesses
is twelve times greater east-west than north-south, over almost any
distance. Because the NAFTA has comprehensively eliminated duties, the
study's conclusion indicates that other factors are restraining north-
south trade. Those factors almost certainly relate to the complexity of
the NAFTA's preference rules, complexity that should be avoided in a
FTAA.
Specifically, governments should seek to limit to the extent
possible the use of regional value content as a criterion for
preferential treatment. In general, value content rules under the NAFTA
have been extremely onerous for traders. They rival the most arcane and
prolix sections of the tax code in complexity. The FTAA is unlikely to
reach its full potential for success if similar cumbersome value
content rules are adopted in the FTAA. Therefore, AAEI urges the USTR
to work towards an agreement based on more straightforward tariff shift
rules.
There are reasons for rejection of the value content criterion in a
FTAA other than the burden it imposes on traders:
LIt is highly unstable because of its sensitivity to
fluctuations in currency exchange rates. In fact, the month before the
NAFTA went into effect, Mexico devalued its peso from approximately
three to the U.S. dollar to five to a dollar, upsetting at the last
moment plans made for qualifying goods for preference under the NAFTA.
In June of this year, after the Government of Uruguay announced that it
would allow the peso to float against the U.S. dollar, the Uruguayan
peso dropped by nearly 20 percent in a few hours. The Argentine peso
has lost more than 70 percent of its value since it was freed from a
one-to-one exchange rate with the dollar in January. Exchange swings of
this magnitude significantly affect value content calculations,
upsetting the terms of contracts between parties in different countries
and invalidating compliance assessments performed by government
agencies.
LIt is also unstable because of its sensitivity to
fluctuations in the world price of key commodities, such as oil, animal
hides, sugar, coffee, all produced in quantity within the hemisphere.
LThere can be a lack of reciprocity of results. If an
article with a certain value is processed in one country with low costs
for labor, energy, and capital the value added by processing may not
qualify the finished good for preference, whereas the same processing
performed on the same article in another country with higher costs may
meet the value content standard.
LRegional value content rules can actually operate as a
disincentive to improved productivity. A producer of goods who narrowly
qualifies for preference under a value content criterion may be
reluctant to make process improvements that could reduce local costs.
LFinally, regional value content claims are difficult for
customs administrations to verify because they can be examined only by
trained auditors acquainted with the accounting rules of the country in
which a producer is located, and an examination can require weeks of
effort. This is a strain both on governments and on the companies that
are subject to audits, which must tie up records and key personnel
while the audit is ongoing.
Tariff shift rules, on the other hand, can in many cases be
verified by persons who know nothing about accounting and only the
basic rules of tariff nomenclature and classification. The
participating countries will be able to verify preference qualification
without extended delays or the variations of personal judgment. This
simplicity makes it possible for even those countries with very modest
resources to undertake a reasonable level of verification, while
verification of a regional value content standard is within the means
of only the most affluent Administrations that can afford to send
auditors abroad for weeks on end.
Another area that calls for simplicity is that of duty drawback.
Virtually each of the countries involved in the FTAA has its own
existing duty drawback program, the rationale for which is to encourage
commerce and/or manufacturing. Duty drawback permits companies in each
of the FTAA countries to compete in foreign markets without the
handicap of including in their costs, and consequently in their sales
prices, the duty paid on imported merchandise. Stated more positively,
duty drawback adds profitability to those companies and countries that
export their goods.
NAFTA imposed arbitrary restrictions on the drawback programs of
each of the member countries, with the unfortunate result of reducing
companies' profitability. The FTAA should not repeat those arbitrary
restrictions, but rather should allow each country to maintain its own
duty drawback program that has proven effective in encouraging
manufacturing, expanding exports and increasing profitability. The
simplest way to do this is to ignore this subject completely in the
FTAA, thereby allowing each member country the freedom to continue its
own duty drawback program that has proven its value for that country.
Unrestricted drawback and free trade are designed to operate side-by-
side. To impose arbitrary restrictions on duty drawback is antithetical
to the concept of free trade itself. Let's keep it simple and allow
each member country the unrestricted freedom to use its own duty
drawback program to its fullest extent.
(3) Keep Your Eyes on the Prize
A hemispheric free trade agreement is an opportunity not only to
stimulate trade and economic growth but also to solidify commercial and
political models that serve the long-term interests of the people of
the hemisphere. These are extremely important outcomes that have been
objectives of diplomatic policy in our hemisphere for over half a
century. But this opportunity will be fully realized only if
governments can resist their characteristic reaction to trade
agreements as benefiting only tax cheats and unscrupulous traders.
It is beyond dispute that governments have a right to prevent tax
fraud, and that they are entitled to deal with it aggressively. But
setting up draconian consequences for clerical errors, reasonable
mistakes of fact or misinterpretations of law, or even simple
negligence creates a chilling effect that may significantly reduce use
of the FTAA to expand trade, particularly if a trader's exposure to
liability is dependent on the comprehension of a foreign exporter.
To employ an analogy, the benefits of replacing an old road with a
new multi-lane superhighway will be minimal if police seize the
opportunity to line the new road with speed traps from end to end.
Similarly, if traders see the FTAA operating as a grand law enforcement
sting the enormous potential benefits of the FTAA, including the
revenue windfalls governments could enjoy as a result of expanded
trade, will be put in jeopardy.
Governments should not let the possibility that small amounts of
revenue may slip from their grasp cause them to lose sight of the real
prize: the enormous economic growth and political stabilization that
will result from a heavily-used free trade agreement.
(4) Use the FTAA To Begin To Build A Zone of Confidence
A free trade agreement will function most efficiently and deliver
the greatest benefits if goods are able to flow freely throughout the
free trade area with minimal cost and delay at national borders. Border
delays are likely to be exacerbated as trade volumes expand more
rapidly than the resources of government border regulatory agencies.
This divergence of workload and resources makes it necessary for
governments to re-think their approaches to functions such as trade
documentation, enforcement of products standards, and cargo security.
The key component of this new thinking is a willingness of FTAA
governments to work together to create an environment in which goods
arriving from a trusted trading partner will ordinarily not require new
documentation and physical inspection because the necessary
documentation and verification of compliance with standards has
occurred in the country of production. In other words, the FTAA should
aim to build a zone of confidence in which, based on shared
responsibility and mutual trust, interruption of trade at the border of
an importing country is the exception, not the norm.
Trade Documentation and Certifications. Building this zone of
confidence can begin with trade documentation generally and preference
certifications specifically. In any modern economy, import
documentation is almost invariably a restatement of information
provided to importers by foreign exporters. Customs officials worldwide
acknowledge that it is impractical to expect importers to open freight
containers at ports of arrival and verify the contents prior to filing
import documents. Governments continue to demand trade documents from
importers not because they are the best sources of information but
because they can be held accountable and, it is believed, exporters
cannot.
The NAFTA began to depart from this model by placing primary
responsibility for certifying eligibility of goods for preference on
producers and exporters, tacitly acknowledging the futility of placing
that responsibility on importers. The FTAA governments can expand on it
by allowing basic export documentation, filed under penalty of law in
the exporting country, to be used with the endorsement of importers as
the import clearance information in the country of import. Such an
arrangement would not only reduce the need for redundant filing it
would also allow customs administrations concerned about import fraud
and/or cargo security to obtain the same information filed in the
exporting country. This will enhance the complementary law enforcement
efforts of the trading partners.
A similar approach may help USTR to deal with the issue of
government or business chamber endorsements of export certificates.
Many of the countries that are potential participants in a FTAA
currently participate in trade agreements under which exporters'
certificates are required to be endorsed by a government agency or a
business chamber. The United States, in its trade agreements, has not
followed this practice for several reasons. Our experience is that the
endorsements are of minimal value, they are too frequently occasions
for extraction of petty bribes, and a challenge to a claim for
preference endorsed by a foreign government agency could become a
diplomatic incident (seen as questioning the integrity of another
government) rather than a routine act of revenue enforcement.
Additionally, there is no entity in the United States that is prepared
to offer reciprocal endorsement services.
However, these endorsement arrangements are deeply entrenched in
the business cultures of many countries, in large part because of the
revenues they generate for the endorsing agents. One option for
retaining them in a way that would add real value is to allow private
business chambers to guarantee the integrity of certificates executed
by exporters from their countries. This guarantee would be in the form
of a commitment to indemnify any importer in another FTAA country who
is required to pay duties on merchandise because of a false or invalid
exporter certification.
This would be a marked improvement over the NAFTA, which generally
allows an importer who relies on an invalid NAFTA exporter certificate
to avoid penalties but not regular duties. In a sense, the proposed
guarantees would operate along the lines of surety bonds obtained by
importers. An FTAA exporter would remain liable for compensating
foreign customers injured by his invalid export certificates (under
indemnification clauses typically in contracts); however, if an
exporter is unable to pay compensation the guarantor (business chamber
in the exporting country) would pay. Such an arrangement would preserve
a traditional role (and revenues) for business chambers in South
American countries, it would give real value to that role, and it would
stimulate greater trade by allowing purchasers of goods exported from a
FTAA country to do business with full confidence that they will not
suffer financial harm as the result of false or invalid exporter
certificates of eligibility for preference.
Business Confidential Information. Another key to building a
hemispheric zone of confidence is scrupulous handling by government
agencies of business confidential information. Timely submission of
data relating to movement of cargo is key to its efficient conveyance
around the world. Traders acknowledge the needs of governments to
document and review trade movement information for revenue collection,
health and safety protection, effective and efficient port operations,
and border security. However, businesses need from the governments to
which they entrust this data a commitment to ensure its
confidentiality. FTAA governments need to acknowledge and respect
business concerns that this information should not be publicly shared.
A commitment from governments to provide security for intangible assets
such as business data is paramount for traders. Agreements with
suppliers, partners, and business associates typically require that
they abide by confidentiality agreements. Traders do not expect less of
from the governments in the countries in which they operate.
Product Standards. Finally, governments can add to a zone of
confidence by improving cooperation on establishment and enforcement of
product standards. It is unlikely that any government takes lightly its
responsibility to protect the health and safety of its citizens, its
agriculture, and its environment. But it is certain that no government
wishes to lose privileged access to another country's market (certainly
if that other market is the United States) by allowing exports of
substandard products.
There is an opportunity here for regulatory agencies to work with
their counterparts in other countries to assure that regulated products
traded among FTAA countries move with a guarantee that they meet
mutually-recognized standards. The result will be reduced costs and
delays as goods cross borders, a larger percentage of low or unknown-
risk products in trade (and arriving at U.S. borders), and an
opportunity for the regulatory agencies of the U.S. and other countries
to perform their critical missions in a more effective manner that is
less resource-intensive and time-sensitive than border enforcement.
Summary
For businesses in the or elsewhere, a decision to import materials
or goods from another country or to seek markets in other countries is
heavily influenced by supply chain costs. Direct duties on goods are
only one of the costs that must be taken into consideration. Costs of
recordkeeping, compliance with conditions for obtaining preferential
treatment, border delays, certification requirements, a multiplicity of
product standards and labeling requirements, the risk that goods
certified as duty free by exporters will be determined by governments
to be dutiable with no recourse for importers, all of these factors go
into making the decision. A FTAA that accomplishes only elimination of
duties addresses only one of the costs that a business must take into
account. We urge USTR and the representatives of the other governments
of the hemisphere to build a New World free trade area that goes well
beyond mere elimination of duties, and that addresses all of the
obstacles to free trade. AAEI looks forward to the opportunity to work
with USTR as it moves forward on these issues and as it crafts and
negotiates FTAA rules of origin that avoid the pitfalls and
complexities that have come to be associated with NAFTA.
Gracias.
U.S. International Trade Commission Publication 3443
Integration of Manufacturing
JULY 2001
Industry Trade and Technology Review
Regulatory Changes in Mexico Affecting U.S.-Affiliated Assembly
Operations
By Ralph Watkins
NAFTA Article 303 and Restrictions on Duty Drawback
On October 30 and December 31, 2000, the Government of Mexico
issued changes to the decrees governing the Maquiladora and PITEX
programs (published in the Diario Oficial),\27\ bringing Mexico into
compliance with Article 303 of NAFTA, which restricted duty
drawback\28\ for goods traded between Mexico and its NAFTA partners
effective January 1, 2001. As a result, companies importing machinery
and components originating from outside North America for use in
assembly plants in Mexico began paying duties on such imports.
---------------------------------------------------------------------------
\27\ For additional information on changes to the Maquiladora
Decree, see Charles Bliel, ``Main Reforms to Sector Promotion, PITEX
and Maquiladora Programs,'' in North American Free Trade & Investment
Report, vol. 10, no. 21, Nov. 30, 2000, p. 7ff and Baker & McKenzie,
``Latest Amendments to the Maquiladora and PITEX Decrees,'' Client
Bulletin 09/00. For example, terms for registering under the
Maquiladora Program were liberalized to include companies whose annual
export sales are greater than $500,000 or whose exports equal 10
percent or more of its annual production. By 2000, the share of a
company's annual production that had to be exported to maintain
eligibility to operate under the Maquiladora Program was reduced to 15
percent, from 100 percent prior to NAFTA. However, there were no value
threshold requirements. In order to import machinery and equipment
temporarily under the Maquiladora and PITEX Programs in 2001, a company
must invoice exports equal to at least 10 percent of its total
invoicing (maquiladoras) or make annual sales abroad equal to a minimum
value of 30 percent of its annual sales (PITEX).
\28\ Under drawback, duties on imported components used in the
manufacture of products that are eventually exported could either be
waived or refunded. The NAFTA parties restricted duty drawback to
reduce the likelihood that one NAFTA party would be used by non-North
American companies as an export platform for duty-free assess to other
NAFTA parties.
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In compliance with Article 303, Mexico will reduce the duty owed to
it on the importation of non-North American inputs by the lower amount
collected by either Mexico or the other
NAFTA party (table 1). That is, if the assembled product is
exported to the United States and U.S. duties are higher than those
calculated when the inputs entered Mexico, no duty will be owed to
Mexico on the non-North American inputs. However, if the duties on the
inputs in Mexico are higher, Mexico may or may not exempt any duties of
its own, depending on the amount of duties collected by U.S. Customs on
the assembled product. Duties owed to Mexico must be paid to Mexican
Customs (Aduanas) within 60 days of export to the United States.\29\
Mexican duties on non-North American inputs imported by companies not
registered under either the Maquiladora or PITEX Programs are collected
by Aduanas at the time of entry into Mexico.\30\
---------------------------------------------------------------------------
\29\ Julia S. Padierna-Peralta, Changes in Mexico's Maquiladora
Industry 2001: Sectoral Development Programs, Neville, Peterson &
Williams, panel presentation at the U.S.-Mexico Chamber of Commerce,
Nov. 14, 2000.
\30\ Julia S. Padierna-Peralta and George W. Thompson,
``Maquiladoras and Mexico's Sectoral Programs in 2001,'' Neville,
Peterson & Williams memorandum dated Dec. 2000.
------------------------------------------------------------------------
Table 1 Illustrations of duty payment on non-North American inputs
under NAFTA duty drawback restrictions (U.S. dollars)
-------------------------------------------------------------------------
Import Import
duties duties Duties Final
payable to payable to exempted by duties Total
Case Mexico on U.S. or Mexico: the payable to amount of
``X'' Canada on lesser of Mexico duties paid
inputs from ``Y'' end the two (within 60 by exporter
Taiwan product values days)
------------------------------------------------------------------------
A 11 2 2 9 11
B 5 6 5 0 6
C 5 0 0 5 5
------------------------------------------------------------------------
Source: Prepared by Julia Padierna-Peralta, Neville Peterson LLP
(formerly Neville, Peterson & Williams) and reprinted with
permission.
The new regulations governing the Maquiladora and PITEX Programs
allow companies registered under these programs to continue to import
inputs for their assembly plants originating in the United States or
Canada free of duty, even if the staged NAFTA rates for these inputs
are not yet ``free.'' Inputs originating outside North America that are
imported into Mexico's Maquiladora and PITEX sectors are not subject to
duty on entry into Mexico because these imported components are
eligible for duty-free treatment if the assembled product is exported
to a country other than the United States or Canada. If the assembled
good is exported to the United States, the higher of the U.S. or
Mexican duty would apply.
Mexico's Sectoral Promotion Programs
In anticipation of the restrictions on duty drawback, a number of
companies with Maquiladora and PITEX operations have convinced
suppliers in Asia and Europe to establish parts production facilities
in North America to replace imports from non-NAFTA sources. Some have
found or developed alternative suppliers in North America. Nonetheless,
non-North American sources supplied 18 percent ($17.3 billion) of the
imported inputs used by Maquiladora and PITEX companies in 2000, led by
Japan (4 percent), Germany (3 percent), and Korea (3 percent) (table C-
4).
Maquiladora and PITEX operations that continued to rely on non-
North American inputs expressed concern to the Ministry of the Economy
\31\ that Article 303 of NAFTA would increase their costs to the point
of making their goods noncompetitive in the North American market
relative to finished goods imported directly into the United States and
Canada from sources other than Mexico. Many also claimed that they
could not find North American producers of certain parts required in
their assembly operations.
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\31\ The Ministry of Trade and Industrial Development (SECOFI) was
renamed the Ministry of the Economy in December 2000.
---------------------------------------------------------------------------
To ease the burden emanating from the effects of Article 303 of
NAFTA, the Ministry of the Economy established the Sectoral Promotion
Programs (PPS), effective November 20, 2000, for exports from companies
registered under the Maquiladora and PITEX Programs, and effective
January 1, 2001, for products exported from all other companies.\32\
The PPS unilaterally reduced Mexico's General Import Tariff (GIT) rate
of duty for thousands of tariff rate lines in 22 industrial sectors.
Import duty rates under the PPS on most qualifying inputs and capital
equipment are either free or 5 percent, although a number of products
have duty rates of 3, 7, or 25 percent.\33\ Most of the product
categories for which rates were reduced under the PPS had previously
been dutiable at rates that varied between 13 percent and 23 percent.
Each ``Program'' sector lists certain qualifying end-products and
inputs by tariff number. If the non-North American inputs are used to
manufacture any of the end-products listed, the non-North American
inputs may be imported at the import duty rate specified in the
particular Program.\34\
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\32\ For an overview of the Sectoral Promotion Programs, see David
Bond and Esther Moreno, ``SECOFI Publishes Automotive Sectoral Program
and Modifies Electric and Electronic Program,'' North American Free
Trade & Investment Report, Nov. 15, 2000, p. 8ff.
\33\ Mexico has 10 free-trade agreements. Most components used by
the maquiladora industry that are imported from Israel and 30 countries
in Europe and the Western Hemisphere subject to these agreements
currently are eligible to enter Mexico free of duty or at reduced
tariffs. The temporary reduction or elimination of tariffs under the
PPS primarily affects imports from Asia. See ``New Maquiladora Rules
Leave Asia Out in the Cold, but Asian Firms Pin Hopes on Fox
Administration,'' in Mexico Watch, Dec. 1, 2000, p. 9. Also, Padierna-
Peralta, Neville Peterson LLP, telephone interview with USITC staff,
July 11, 2001.
\34\ Padierna-Peralta and Thompson, ``Maquiladoras.''
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The Mexican Ministry of the Economy based its list of articles
eligible for reduced duties under the PPS on requests from the assembly
industry and reaction from the domestic industry in Mexico.\35\ Critics
of the PPS have expressed concern that it mitigates the impact of the
restrictions on NAFTA duty drawback and may reduce the incentive for
maquiladoras still importing parts from suppliers in Asia to find
alternative sources in North America.
---------------------------------------------------------------------------
\35\ For a brief overview of the operation of the PPS, see
``Sectoral Promotion Programs: Frequently Asked Questions,'' in Trade
Commission of Mexico Newsletter, Mar. 2001, available at http://
www.mexico-trade.com.
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Despite the reduction or elimination of Mexican tariffs under the
PPS, maquiladoras using parts that are not of North American origin
will be subject to the U.S. duty on the value of those imported parts
contained in the assembled article when it enters the United States. If
the U.S. rate of duty is lower than the PPS rate, the maquiladora must
pay duties to Mexico's Aduanas calculated at the PPS rate minus duties
paid to U.S. Customs.\36\ In addition, because a country's temporary
duty relief, including the new PPS tariff reductions, are not bound at
the World Trade Organization (WTO), the Government of Mexico can again
raise duties (to the higher bound or intermediate rate) without
violating WTO rules.\37\ According to an industry observer, a key
feature of Mexico's Sectoral Promotion Programs is that they are policy
instruments often subject to change; frequent revisions of existing
programs should be expected.\38\ Domestic producers in Mexico can ask
the Government to remove specific articles from the PPS, and industry
observers suggest that the Ministry of the Economy is likely to remove
articles from the PPS list if a request is made by a company that
initiates production anywhere in North America.\39\ At the same time,
manufacturing companies can seek the inclusion of their critical inputs
in the Programs.\40\
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\36\ For many goods in the electronic and electrical products
sector, which accounts for the majority of imports from Asia by
companies operating under the Maquiladora and PITEX programs, the U.S.
rates of duty were reduced to free under the multilateral Information
Technology Agreement (ITA). Mexico is not a signatory to that
agreement.
\37\ David Bond and Esther Moreno, ``New Versions of the Electric,
Electronic and Automotive Sectoral Promotion Programs Published,''
North American Free Trade & Investment Report, Jan. 31, 2001, p. 4.
\38\ Padierna-Peralta, Neville Peterson LLP, telephone interview
with USITC staff, July 11, 2001.
\39\ Bond and Moreno, ``SECOFI,'' p. 10.
\40\ Padierna-Peralta, Neville Peterson LLP, telephone interview
with USITC staff, July 11, 2001.
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Many maquiladora representatives from Japan, Korea, Taiwan, the
United States, and Mexico reportedly have been unable to locate
suitable component suppliers in North America. These officials claim
that the PPS as currently constituted is inadequate to meet their
competitive needs, and have requested Mexican officials to consider
additional financial incentives. Without incentives to compensate for
increased costs due to NAFTA Article 303, some companies currently
using maquiladora operations reportedly will start searching for
opportunities in other countries. For example, industry observers point
to an assertion by the president of the Korean Maquiladoras of Baja
California that Article 303 forces some maquiladoras to purchase raw
materials from suppliers that do not meet required quality standards.
However, Mexico's Economy Minister reportedly has encouraged the
maquiladora industry and members of the Industry Chambers Confederation
to design a program to develop suppliers for the industry.\41\
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\41\ David Bond and Paola Santos, ``Ministry of Finance Extends
Rectification of Import Duties for PPS; Ministry of Economy Refuses to
Modify NAFTA Article 303,'' North American Free Trade and Investment
Report, June 15, 2001.
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Maquiladora Taxation
U.S. companies operating under Mexico's Maquiladora Program have
expressed concerns about changes to Mexico's tax laws that went into
effect on January 1, 2000, that reclassified many maquiladora
operations as permanent establishments and could have resulted in
double taxation.\42\ Mexican and U.S. tax authorities reached agreement
on an ``Addendum to the United States-Mexico Competent Authority
Agreement on the Maquiladora Industry'' that entered into force on
August 3, 2000. The addendum provides for an indefinite extension of
the previously agreed exemptions from Mexican asset tax and permanent
establishment exposure for U.S. companies that use the processing
services of a maquiladora. The initial agreement, signed in October
1999, had established new standards for Mexico to impose in determining
the income tax liability of a Mexican maquiladora company as a
condition for maintaining the Mexican tax exemptions for the U.S.
company.\43\ That agreement only provided for application of the
specific standards through taxable year 2002, and created uncertainty
for maquiladora operations which the Addendum announced in August 2000
was intended to address. Some experts on Mexican tax law note that
significant uncertainty still remains regarding the manner in which
Mexico will implement the terms of the mutual agreement for 2000 and
later years, and the industry awaits the outcome of talks between the
United States and Mexico on this subject.\44\
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\42\ For background on U.S. industry concerns about maquiladora tax
issues, see Larry Brookhart and Ralph Watkins, ``Production-Sharing
Update: Developments in 1999,'' Industry Trade and Technology Review,
USITC Publication 3335, July 2000, posted on USITC Internet server at
www.usitc.gov (``publications'').
\43\ For information on the addendum and remaining concerns, see
John A. McLees and Jaime Gonzalez-Bendiksen, ``Maquiladora Tax Issues
Need Careful Attention as Mexico Extends the Current Maquiladora Tax
Regime Beyond 2002,'' Tax Notes International, Sept. 11, 2000, p. 1189.
\44\ John A. McLees and Jaime Gonzalez-Bendiksen, ``Mexico Lags in
Implementing Mutual Agreement on Maquiladora Taxation,'' Tax Notes
International, May 7, 2001, p. 2371.
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Phase-In of Domestic Market Access for the Maquiladora Industry
Mexico committed in NAFTA (Annex I for Mexico, p. I-M-34) to
``phase out'' the Maquiladora Program by each year increasing the share
of its production that a maquiladora operation could sell to the
domestic market in Mexico, until a maquiladora could sell 100 percent
of its production domestically on January 1, 2001. Instead of being a
``phase out'' of the Maquiladora Program, the NAFTA provision appears
to have resulted in further evolution of the maquiladora industry's
access to the Mexican market. This provision facilitated
intramaquiladora sales, which were not allowed prior to NAFTA. Further,
the ability to sell to both the U.S. and Mexican markets attracted
additional investment in the industry, particularly among parts
producers and companies in the durable goods sector. Instead of the
Maquiladora Program being phased out, employment in the maquiladora
industry grew from 468,000 at the end of 1993 to 1.3 million in
December 2000.\45\
---------------------------------------------------------------------------
\45\ ``Maquiladora Scoreboard'' in Twin Plant News, June 1994 and
July 2001.
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To comply with NAFTA, the Maquiladora Decree published in 1998
ordered the termination of all restrictions regarding maquiladora sales
to the domestic market as of January 1, 2001.\46\
---------------------------------------------------------------------------
\46\ See article 16 of ``Mexico's Decree for the Development and
Operation of the Maquiladora Industry for Exports,'' Diario Oficial,
June 1, 1998.
---------------------------------------------------------------------------
In order to maintain certification as a maquiladora operation and,
therefore, be eligible for exemption from the value-added tax,\47\ a
company's exports in the current year must be equivalent to at least 10
percent of the value of its previous year's production.\48\ If a
maquiladora is not involved in the manufacture of goods for export
markets, then a U.S. company that owns machinery and equipment used in
the maquiladora operation cannot claim eligibility for exemption from
Mexican asset tax and from Mexican income tax applicable to permanent
establishments; moreover, value-added tax applies on sales of finished
products into the domestic market.\49\
---------------------------------------------------------------------------
\47\ According to Padierna-Peralta (Neville Peterson LLP) and John
McLees (Baker & McKenzie) in telephone interviews with USITC staff,
July 11 and July 23, 2001, imports of components and materials entered
under Mexico's Temporary Import Programs (Maquiladora and PITEX) are
not subject to the value-added tax, but there are requirements for
imposition of value-added tax on temporarily imported machinery and
equipment if it is later determined to be a definitive import.
\48\ Based upon an amendment to the Maquiladora Decree issued
December 31, 2000. Bliel, ``Main Reforms,'' p. 7.
\49\ John McLees, Baker & McKenzie, telephone interview with USITC
staff, July 23, 2001.
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April 12, 2002
John S. Rode, Esq.
Rode & Qualey
55 West 39th St, 6th floor
New York, NY 10018
Re: 19 U.S.C. 1313(j)(2); 19 U.S.C. 1313(j)(4); 19 U.S.C. 3333(a);
19 CFR 181.41; 19 CFR 181.42(d); NAFTA
Dear Mr. Rode:
This is in response to the ruling request submitted by your letter
dated September 29, 1998, on behalf of Konica Business Technologies
Inc. (``Konica''), in connection with Konica's claims for unused
merchandise substitution drawback filed upon the exportation of certain
office machines and related products to Canada, after January 1, 1994.
FACTS:
The following are the facts as described in your submission. Konica
imports a variety of office machines, including electrostatic copying
machines, accessories, and supplies therefor (referred to collectively
as ``office products''), which Konica purchases from its parent company
in Japan. The office products are manufactured in Japan, China,
Thailand and the Philippines. After importation, the office products
are placed in inventory at Konica, where they are held until sold and
shipped to related and unrelated purchasers in the U.S., Canada,
Mexico, and other countries.
When imported, all Konica office products are marked with a model
number, for example, ``Model 4040,'' which denotes the physical
characteristics, specifications, and capabilities of that particular
article. Konica in Japan assigns a ``PCUA number'' to each article,
which is applied to the carton in which the article is packed for
shipment to the U.S. When the article is received into inventory at
Konica in the U.S., Konica enters the model number and PCUA number on
their inventory records. All office products which bear the same PCUA
number have identical model numbers.
The PCUA numbers are used to distinguish between Konica products
which bear the same model number, but which differ in certain other
respects. For example, a Model 4040 copying machine imported by Konica
from the manufacturer in Japan will bear one PCUA number on its carton
when it is received in inventory at Konica. If that copying machine is
placed in service upon rental, lease or sale to a customer, and is
thereafter returned to inventory, it will be given a new PCUA number to
distinguish that particular Model 4040 copying machine from others
which have not been used. Similarly, a Model 4040 copying machine
remanufactured by Konica after it has been in service, to restore that
machine to its original factory specifications, will receive a new PCUA
number when it is returned to inventory.
In preparation of drawback claims, the following merchandise is
excluded from consideration for drawback:
1) all exported office products which bear a PCUA number which
indicates they were not last imported into the U.S. by Konica, from the
manufacturer in Japan, China, Thailand, or the Philippines;
2) all exported office products with PCUA numbers which indicate a
previous withdrawal from inventory at Konica, and rental, lease or sale
to customers in the U.S., followed by return to Konica after having
been removed from the unit cartons in which those articles were
originally imported from Japan; and
3) all office products having PCUA numbers which show that prior to
exportation to Canada, they had been returned to Konica's inventory
after remanufacture to restore them to original factory specifications.
After the foregoing review, for the exported office products not
excluded under the review, the import and inventory records at Konica
are searched to determine whether, on the date of exportation to Canada
of the exported articles identified through their PCUA numbers as being
potentially eligible for drawback, Konica's inventory included an equal
or greater quantity of commercially interchangeable machines, i.e.,
products bearing the same model and PCUA numbers.
If the import and inventory records do reflect the presence at
Konica of the requisite quantity of commercially interchangeable
articles as of the date of exportation, and show that such articles
were imported less than three years before the date of exportation in
question, Konica's employees select an import entry or entries upon
which such articles were imported within the previous three year
period. The corresponding quantity of commercially interchangeable
articles imported on the entry or entries is then designated on the
claim for drawback; the import and inventory records are then annotated
to reflect the quantity designated on the drawback claim, and to
indicate the remaining quantity, if any, which may be designated in the
future.
Konica was advised by Customs in Boston that drawback cannot be
paid to Konica under 19 U.S.C. 1313(j)(2) upon exportation of office
products to Canada, subsequent to January 1, 1994, the effective date
of the implementation of the North American Free Trade Agreement
(``NAFTA''). It is your understanding that the opinion of Customs in
Boston is based on two conclusions: 1) because Konica's claims are
based upon exports to Canada, payment is precluded by section 203 of
the NAFTA Implementation Act, and 2) the claims in question cannot be
paid because Konica does not employ any of the inventory methods
described in Schedule X of the Appendix to Part 181 of the Customs
Regulations.
Comments on the foregoing were requested from Customs in Boston,
and none were received, other than a reference to HQ 228446, dated July
3, 2000.
ISSUE:
Whether under the facts described, the law provides for drawback
under 19 U.S.C. 1313(j)(2), on exports to Canada.
LAW AND ANALYSIS:
Under 19 U.S.C. 1313(j)(1), drawback is authorized if imported
merchandise on which was paid any duty, tax, or fee imposed under
Federal law because of its importation is, within 3 years of the date
of importation, exported or destroyed under Customs supervision and was
not used in the United States before such exportation or destruction.
Substitution of unused commercially interchangeable merchandise,
subject to certain conditions, is authorized under 19 U.S.C.
1313(j)(2), but 19 U.S.C. 1313(j)(4) limits that authorization.
Under 19 U.S.C. 1313(j)(4):
Effective upon the entry into force of the [NAFTA], the exportation
to a NAFTA country . . . of merchandise that is fungible with and
substituted for imported merchandise, other than merchandise described
in paragraphs (1) through (8) of [19 U.S.C. 3333(a)], shall not
constitute an exportation for purposes of [section 1313(j)(2)].
In pertinent part, 19 U.S.C. 3333(a) provides:
For purposes of this Act . . ., the term ``good subject to NAFTA
drawback'' means any imported good other than the following:
(2) A good exported to a NAFTA country in the same condition as
when imported into the United States.
Under 19 U.S.C. 3333(a), an imported good subsequently exported to
a NAFTA country in the same condition as when imported, is not a ``good
subject to NAFTA drawback''. Similarly, an imported good exported to a
NAFTA country in the same condition as when imported, is merchandise
described in paragraphs (1) through (8) of section 3333(a), therefore
it is not merchandise other than the described merchandise, for
purposes of 19 U.S.C. 1313(j)(4). Therefore, an exportation of a good
to a NAFTA country in the same condition as when imported is not
precluded from constituting an exportation for purposes of section
1313(j)(2), under section 1313(j)(4). The limitation of section
1313(j)(4) is applicable only to goods subject to NAFTA drawback.
In this case, the good exported to Canada, is not the imported good
upon which the drawback claim is based, but is the substituted good.
The designated imported merchandise, which is not exported is the basis
for the drawback claim. As it is not exported, it is not merchandise
described in paragraph (2) of section 3333(a), which describes an
exported good, and cannot be the basis for a claim under section
1313(j)(2).
This reading of the statutory limitation is supported by the
legislative history to the NAFTA, with respect to 19 U.S.C. 1313(j)(2).
The House Report states as follows:
Subsection (c) eliminates, effective upon entry into force of the
Agreement, ``same condition substitution drawback'' by amending section
1313(j)(2) of the Tariff Act of 1930 (19 U.S.C. 1313(j)(2), thereby
eliminating the right to a refund on the duties paid on a dutiable good
upon shipment to Canada or Mexico of a substitute good, except for
goods described in paragraphs one through eight of [19 U.S.C. 3333(a)].
See House Report (Ways & Means Committee) No. 103-161(I), pp. 39-
40, 103d Cong., 1st Sess. (1993 (reprinted at 1993 U.S.C.C.A.N. 2552,
2589-2590). (Emphasis added). According to the legislative history,
drawback under section 1313(j)(2), is not eliminated for imported goods
described in paragraphs (1) through (8) of section 3333(a), which are
also goods ``not subject to NAFTA drawback''. As the imported good was
not exported, it is subject to NAFTA drawback.
In your submission you refer to the potentially confusing double
negative language in 19 U.S.C. 1313(j)(4)) and 3333(a)(2), and conclude
that the mandate of the two provisions is as follows:
`The exportation to a NAFTA country . . . of merchandise that is
fungible with and substituted for imported merchandise . . . shall . .
. constitute an exportation for purposes of paragraph (2) [of section
1313(j)(2)]' if the exportation consists of `merchandise described in
paragraphs (1) through (8) of section 3333(a) of this title.' Similarly
it is evident that section 3333(a) effectively provides that an
`imported good--[which is] exported to a NAFTA country in the same
condition as when imported into the United States . . . ' is not a
`good subject to NAFTA drawback.'
We do not agree that the limitation in (j)(4) applies to the
substituted merchandise which is not the basis of the drawback claim,
but find that the limitation applies to the imported good which is the
basis of the drawback claim.
Given the admittedly confusing language of the statute, we turn to
the NAFTA, to determine the intent of the statute. Customs construction
is consistent with paragraph 2 of Article 303 of the NAFTA, which
specifically provides:
No Party may, on condition of export, refund, waive or reduce:
(d) customs duties paid or owed on a good imported into its
territory and substituted by an identical or similar good that is
subsequently exported to the territory of another Party.
Clearly, the NAFTA prohibits the refund of duties paid on imported
merchandise on the basis of an exportation to Canada or Mexico of
substituted identical or similar goods. Paragraph 6 of Article 303,
describes the goods Article 303 does not apply to, and therein
describes certain goods described in 3333(a), paragraphs (1) through
(8), including:
(b) a good exported to the territory of another Party in the same
condition as when imported into the territory of the Party from which
the good was exported (processes such as testing, cleaning, repacking
or inspecting the good, or preserving it in its same condition, shall
not be considered to change a good's condition). Except as provided in
Annex 703.2, Section A, paragraph 12, where such a good has been
commingled with fungible goods and exported in the same condition, its
origin for purposes of this subparagraph may be determined on the basis
of the inventory methods provided for in the Uniform regulations
established under Article 511 (Uniform regulations);
The imported merchandise which is the basis for drawback in this
case, the office products, are not exported goods under subparagraph
(b) above, therefore, Article 303 does apply to them, and the drawback
for substituted merchandise is precluded under the NAFTA.
The Customs Regulations implementing the NAFTA Implementation Act
are found in 19 C.F.R. Part 181. Subpart E of Part 181 contains the
regulations providing restrictions on drawback and duty-deferral
programs. According to section 181.41, which is the first section in
Subpart E:
This subpart sets forth the provisions regarding drawback claims
and duty-deferral programs under Article 303 of the NAFTA and applies
to any good that is a ``good subject to NAFTA drawback'' within the
meaning of 19 U.S.C. 3333. Except in the case of 181.42(d, the
provisions of this subpart apply to goods which are imported into the
United States and then subsequently exported from the United States to
Canada on or after January 1, 1996, or to Mexico on or after January 1,
2001.
(Emphasis added). As the imported office machines, on which the
drawback claim is based, are not goods exported to a NAFTA country in
the same condition as when imported, they are a ``good subject to NAFTA
drawback,'' and Subpart E is applicable to such good, and therefore the
limitations therein are also applicable to such good.
The pertinent limitation, implementing 19 U.S.C. (j)(4), is in
Subpart E, 19 CFR 181.42, which provides for duties not subject to
drawback:
The following duties or fees which may be applicable to a good
entered for consumption in the Customs territory of the United States
are not subject to drawback under this subpart:
(d) Customs duties paid or owed under unused merchandise
substitution drawback under 19 U.S.C. 1313(j)(2) on goods exported to
Canada or Mexico on or after January 1, 1994.
The emphasized ``except'' in section 181.41, pertains to the dates
as of which the limitations apply. Generally, subpart E applies to
imported goods exported to Canada on or after January 1, 1996, and to
imported goods exported to Mexico on or after January 1, 2001. However,
section 181.42(d), applies to goods exported to Canada or Mexico on or
after January 1, 1994.
This position has been previously taken in Customs decisions. In HQ
227272, dated May 1, 1997, 19 CFR 181.42(d) was cited as authority for
the statement that ``[i]t is clear from the above provisions that, with
the exceptions specifically provided for in 19 U.S.C. 3333(a)(1)
through (8) (e.g., [goods not subject to NAFTA drawback]), substitution
drawback under 19 U.S.C. 1313(j)(2) no longer exists for shipments to
Canada or Mexico of merchandise imported into the United States.''
Based on the foregoing analysis, we conclude that drawback under 19
U.S.C. 1313(j)(2) may not be claimed for drawback on the basis of a
good subject to NAFTA drawback, in this case an imported good for which
a substituted good is exported to a NAFTA country, in the same
condition as when imported. This conclusion is consistent with prior
Headquarters decisions. In prior Headquarters decisions, Customs has
addressed the limitation in 19 U.S.C. (j)(4). See HQ 227272, dated May
1, 1997; HQ 227876, dated August 21, 2000; and HQ 229027, dated August
13, 2001.
In HQ 226541, dated July 24, 1998, this office stated in an
information letter, that there can be no substitution unused
merchandise drawback for commercially interchangeable merchandise of
non-NAFTA origin exported to Mexico. One of the grounds for the
conclusion was that paragraph 2(d) of Article 303 of the NAFTA
expressly provides that no Party may, on condition of export, refund
Customs duties paid on a good imported into its territory and
substituted by an identical or similar good that is subsequently
exported to the territory of another Party. As discussed above, Article
303 applies to all merchandise unless it is exempted in paragraph 6 of
Article 303. Paragraph 6 does not exempt the imported merchandise,
which is not exported to a NAFTA country.
As the substitution drawback of unused merchandise is not
permissible with the goods described in this case, we do not need to
address the issue of allowable inventory methods with respect to the
specific merchandise at issue. The issue of the use of inventory
methods described in Schedule X of the Appendix to Part 181 of the
Customs Regulations, was addressed in HQ 227272, dated May 1, 1997, and
HQ 227876, dated August 21, 2000 (copies enclosed).
HOLDING:
Under the facts described, the law does not provide for drawback
under 19 U.S.C. 1313(j)(2), on exports of substituted goods to Canada,
unless the imported goods on which the drawback claim is based are
described in paragraphs (1) through (8) of 19 U.S.C. 3333(a).
Sincerely,
John Durant
Director, Commercial
Rulings Division
CHILE-EUROPEAN UNION FREE TRADE AGREEMENT
FINAL TEXT, 11.06.02
ANNEX III
TITLE IV
DRAWBACK OR EXEMPTION
Article 14
Prohibition of drawback of, or exemption from, customs duties
1. LNon-originating materials used in the manufacture of
products originating in the Community or in Chile for which a
proof of origin is issued or made out in accordance with the
provisions of Title V shall not be subject in the Community or
Chile to drawback of, or exemption from, customs duties of
whatever kind.
2. LThe prohibition in paragraph 1 shall apply to any
arrangement for refund, remission or non-payment, partial or
complete, and of customs duties, as defined in Article 59 of
this Agreement, applicable in the Community or Chile to
materials used in the manufacture, where such refund, remission
or non-payment applies, expressly or in effect, when products
obtained from the said materials are exported and not when they
are retained for home use there.
3. LThe exporter of products covered by a proof of origin shall
be prepared to submit at any time, upon request from the
customs authorities, all appropriate documents proving that no
drawback has been obtained in respect of the non-originating
materials used in the manufacture of the products concerned and
that all customs duties applicable to such materials have
actually been paid.
4. LThe provisions of paragraphs 1 to 3 shall also apply in
respect of packaging within the meaning of Article 7(2),
accessories, spare parts and tools within the meaning of
Article 8 and products in a set within the meaning of Article 9
when such items are non-originating.
5. LThe provisions of paragraphs 1 to 4 shall apply only in
respect of materials, which are of a kind to which this
Agreement applies. Furthermore, they shall not preclude the
application of an export refund system for agricultural
products, applicable upon export in accordance with the
provisions of the Agreement.
6. LThe provisions of this Article shall be applied as from 1
January 2007.
Statement of the U.S. Tuna Foundation
The U.S. Tuna Foundation (USTF), in response to the February 26,
2003, House Ways and Means Committee hearing on President Bush's trade
agenda, requests the following statement be included in the record:
The U.S. Tuna Foundation is a trade association representing the
interests of the U.S. canned tuna industry, including all U.S. canned
tuna processors--Bumble Bee Seafoods (a wholly-owned subsidiary of
ConAgra), StarKist Foods (H.J. Heinz), and Chicken of the Sea (Thai
Union)--as well as all U.S. purse seine vessels that harvest tuna for
the canned tuna market.
The U.S. Congress and the U.S. International Trade Commission have
deemed canned tuna to be an ``import sensitive'' product. Within the
ITC, Section 201 (1984) and Section 332 (1986, 1990 and 1992)
investigations reiterated that canned tuna is import sensitive. The
facts that made canned tuna an import sensitive product then still
apply today. For this and several other reasons, canned tuna should not
be included in the products deemed eligible for duty-free treatment in
any upcoming Free Trade Agreement.
Background on industry:
LCanned tuna is consumed by 96 percent of U.S households
(Source: A.C. Nielsen Homescan data)
LCanned tuna represents the number three item in U.S.
grocery stores (behind only sugar and coffee) based on dollar sales per
linear foot of shelf space (Source: A.C. Nielsen and industry analysis)
LThe U.S. represents the largest single country market for
canned tuna in the world. It is estimated that the U.S. canned tuna
market represents 28 percent of global consumption. (Source: U.S.
Department of Commerce--National Marine Fisheries Service, Eurostat,
Foodnews, industry analysis)
LThree U.S. brands, Bumble Bee, StarKist and Chicken of
the Sea represent more than 85 percent of U.S. tuna consumption
(Source: A.C. Nielsen)
LCanned tuna represents a tremendous value versus other
sources of canned protein. In May of 2000, lightmeat tuna retail prices
were $0.10/ounce while albacore tuna retail prices were $0.23/ounce.
Competitive proteins were significantly more expensive (canned
chicken--$0.40/ounce, canned turkey--$0.40/ounce, SPAM--$0.33/ounce,
corned beef--$0.20/ounce). (Source: Industry market basket survey, May
2001)
LDomestically canned tuna is currently processed in
California, American Samoa, and Puerto Rico.
U.S. Pack of Canned Tuna:
------------------------------------------------------------------------
Year 11,000 Pounds*
------------------------------------------------------------------------
1992 608,981
------------------------------------------------------------------------
1993 618,743
------------------------------------------------------------------------
1994 609,514
------------------------------------------------------------------------
1995 666,581
------------------------------------------------------------------------
1996 675,816
------------------------------------------------------------------------
1997 627,032
------------------------------------------------------------------------
1998 680,860
------------------------------------------------------------------------
1999 693,816
------------------------------------------------------------------------
2000 671,330
------------------------------------------------------------------------
2001 507,417
------------------------------------------------------------------------
*Canned weight
------------------------------------------------------------------------
Source: Fisheries of the United States, 2001, Department of Commerce,
National Marine Fisheries Service
LThe quantity of canned tuna imports between 1990 and 2000
increased by 10.0 percent while imports of frozen tuna loins increased
by 67.3 percent. (Source: U.S. Department of Commerce--National Marine
Fisheries Service)
LDuring the same ten-year period, U.S. tuna processors
moved towards heavier utilization of imported tuna loins (which carry a
negligible import duty) taking advantage of low cost labor in Southeast
Asia and Andean Pact countries. This led to reduced employment in U.S.
factories.
LDuring the ten-year period between 1990 and 2000, one of
the two remaining tuna processing facilities in California closed and
four of the five tuna processing facilities in Puerto Rico closed. The
two U.S. factories in American Samoa continue to operate, as they are
not obligated to pay the U.S. minimum wage rate.
LWith the advent of canned tuna imports from low wage rate
countries, retail pricing of canned tuna, when adjusted for inflation,
has decreased by 53 percent between 1980 and 2000 (Source: Federal
Trade Commission and industry data and analysis)
------------------------------------------------------------------------
2003 Canned/Pouched
Tuna Tariffs: General Special
------------------------------------------------------------------------
1604.14.10 (canned/ 35% FREE (A+,CA,D,IL,J+)
pouched tuna in oil) 11.6% (MX,R) 24.5%
(JO)
1604.14.22 (canned/ 6% FREE (A+,CA,D,IL,J+)
pouched tuna not in 2% (MX,R) 1.5% (JO)
oil, below quota*)
1604.14.30 (canned/ 12.5% FREE (A+,CA,D,IL,J+)
pouched tuna not in 4.1% (MX,R) 5% (JO)
oil, above quota*)
------------------------------------------------------------------------
*The tariff rate quota for tuna in airtight containers not in oil
(water pack) is based on 4.8 percent of apparent U.S. consumption of
tuna in airtight containers during the preceding year.
A+ = GSP least-developed beneficiary countries
CA = NAFTA--Canada
D = Africa Growth and Opportunity Act
IL = Israel
J+ = Andean Trade Promotion and Drug Eradication Act. Only pouched tuna
is granted duty-free status. The tuna from which the pouched tuna is
prepared must be caught by U.S.-flagged or ATPDEA-flagged vessels.
JO = Jordan
MX = NAFTA--Mexico
R = Caribbean Basin Trade Partnership Act
Canned/Pouched Tuna Tariff Impact:
The current import tariff provides critical and necessary benefits
to what is left of the U.S. tuna processing and fishing industry:
LSupport for more than 10,000 U.S. tuna processing jobs in
California, Puerto Rico and American Samoa, which jobs would be in
jeopardy if the tariff were to be significantly reduced or eliminated
LSupport for the American Samoa economy where 88 percent
of private sector employment is provided by the U.S. canned tuna
industry
LSupport for the U.S. tuna fishing fleet of approximately
33 vessels that operate out of American Samoa and supply the U.S. tuna
processors located there. These vessels enable the United States to
have a strong voice in fishery conservation and regulation activities
in the Pacific Ocean, the largest tuna fishery in the world.
LThe U.S. canned tuna industry has maintained for years
that there should be international parity regarding tariff rates. We
understand the desire of the United States to work toward the
elimination of tariffs in the future. However, it makes no sense to us
to unilaterally reduce tariffs when this causes an even greater
disparity between the major world markets for a product like canned
tuna that has repeatedly been found by the ITC to be import sensitive.
International:
LAn import tariff of 12.5 percent is well below import
duties on canned tuna imposed by other major canned tuna markets. The
European Union, the largest canned tuna market in the world, maintains
a tariff of 24 percent on all canned tuna products and on all imports
of tuna in any other form; Mexico, our NAFTA trading partner, imposes a
tariff of 20 percent on canned tuna; and most other Latin American
markets maintain tariffs on canned tuna at 20 percent or more. These
tariffs obviously provide an unfair trade advantage against U.S. tuna
processors.
LThe U.S. trade deficit in fishery products has reached an
all time high. The U.S. canned tuna market, once the most dominant
canned tuna market in the world, has recently been surpassed by the
European Union and continues to steadily decline in volume.
LAs importantly, it is estimated that there is currently a
50 percent over-capacity in the international tuna processing sector.
Encouraging new processing capacity without cutting the existing over-
capacity situation makes absolutely no sense.
LThe U.S. represents the largest single country market for
canned tuna in the world. It is estimated that the U.S. canned tuna
market represents 28 percent of global consumption. (Source: U.S.
Department of Commerce--National Marine Fisheries Service, Eurostat,
Foodnews, industry analysis)
LDue to the intense competitive environment caused by low
cost foreign imports, retail prices of canned tuna in the United States
are the lowest among all developed nations of the world. Comparison
includes Australia, Canada, France, Germany, Italy, Spain and the
United Kingdom (Source: Industry analysis)
LU.S. canned tuna processors face significant wage
disparities when compared with major tuna exporters. Average hourly
wage rates in U.S. processing facilities in California, Puerto Rico and
American Samoa are approximately $11.00, $6.50 and $3.75, respectively.
The average hourly labor rate in the key exporting country of Thailand
is approximately $0.60.
LMost canned tuna processors in foreign nations are not
required to abide by the same health, welfare, safety, regulatory,
conservation or environmental standards imposed on U.S. processors. In
addition, they often receive government and other financial subsidies
that provide an unfair economic advantage.
LU.S. tuna vessel owners are similarly disadvantaged as
they are required to abide by strict regulatory, environmental and
conservation standards that are rigorously enforced by the U.S.
Department of Commerce--National Marine Fisheries Service and the U.S.
Coast Guard. Many of these standards are not observed by foreign flag
vessels and are not enforced by their respective governments.
Conclusion:
For all of the above reasons, canned and pouched tuna should not be
in- cluded in the products deemed eligible for duty-free treatment in
any up- coming Free Trade Agreement.
Verizon
Washington, DC 20005
March 19, 2003
The Honorable William Thomas
Chairman
House Ways and Means Committee
Longworth House Office Building
Washington, D.C. 20515
Dear Chairman Thomas:
Verizon appreciates having the opportunity to submit comments to
the House Ways and Means Committee as a follow-up to the Committee's
February 26 hearing on the Bush Administration's trade agenda.
As one of the world's leading providers of telecommunications
services, Verizon applauds the Bush Administration's efforts to pursue
new trade agreements at the multilateral, regional and bilateral
levels. The liberalization of global markets and the elimination of
trade barriers will be critical to ensure the long-term growth of the
telecommunications industry, both in the United States and overseas. We
believe that robust trade will stimulate necessary investment in the
telecommunications sector, and in turn fuel the expansion of all
industries and sectors that rely immeasurably on the telecommunications
infrastructure.
During the course of the past few years, Verizon has worked closely
with the Office of the U.S. Trade Representative to discuss goals and
objectives for the negotiation of telecommunications commitments in
trade agreements. We have advised USTR that the most appropriate
approach to negotiating telecommunications commitments would encompass
the following:
LFull market access to permit U.S. telecommunications
companies to develop telecommunications facilities and services in the
markets of parties that are subject to trade agreements;
LElimination or significant reduction of foreign ownership
restrictions;
LCommitment to pro-competitive regulatory principles, such
as those contained in the Reference Paper of the WTO Agreement on Basic
Telecommunications Services;
LApplication of trade principles such as non-
discrimination, national treatment and transparency to
telecommunications commitment.
LProvide mechanisms for ``institution building,''
including the strengthening of the independent telecommunications
regulator through strong enforcement authorization and dispute
resolution procedures.
Additionally, we remain firmly committed to the view that trade
commitments made for the telecommunications sector should not encompass
regulatory obligations that are more specific or prescriptive than the
principles articulated in the Reference Paper. The inclusion of
detailed telecommunications regulatory provisions in trade agreements
would be damaging for several reasons. First and foremost, the parties
to any such trade agreement could be bound in perpetuity to regulatory
obligations that are likely to become outmoded as technologies advance
and market forces change the nature and scope of the telecommunications
sector. As we have witnessed in the U.S., there are multiple regulatory
proceedings under consideration at the Federal Communications
Commission that are the subject of tremendous controversy. At a time
when the U.S. is struggling to determine appropriate levels of
regulation versus forbearance in its domestic markets, it would be
wrong to require our trading partners to adopt a mirror image of the
U.S. telecommunications regulatory regime as a trade obligation.
Furthermore, overly prescriptive regulations may inadvertently tip
the competitive balance in favor of one form of telecommunications
competition, such as resale, over facilities-based development. Given
the fact that so many of the U.S.' trading partners urgently require
the deployment of telecommunications facilities to provide universal
telecommunications services and support advanced electronic commerce
applications, every effort must be taken to ensure that trade
agreements encourage investment in, and development of,
telecommunications infrastructures.
There is no question that in order to achieve full liberalization
in the telecommunication sector, many countries will find it necessary
to undertake substantial regulatory reforms. Be that as it may, Verizon
does not believe that the achievement of open market access can be
realized through overly stringent regulations. The advantage of using a
Reference Paper approach to regulatory reform is that it provides
meaningful guideposts for the establishment of pro-competitive
regulatory regimes, while at the same time, ensuring that each country
retains sufficient flexibility to develop regulations in a manner that
responds to specific economic and market conditions on the national
level.
On a final note, Verizon encourages the USTR to negotiate with our
trading partners to ensure the elimination of any barriers that may
impede the development of electronic commerce. One important aspect of
e-commerce negotiations will be efforts to establish a balanced model
for protecting intellectual property rights (IPR) in an on-line
environment. We have advised USTR that any trade agreements pertaining
to on-line IPR protection must carefully balance the interests of all
rightsholders, network operators, service providers and users,
including limiting the liability of online service providers in
accordance with the U.S. Digital Millennium Copyright Act (DMCA).
In conclusion, Verizon is confident in the capabilities of U.S.
trade negotiators to secure vibrant trade agreements that will benefit
U.S. corporations and citizens, as well as serve the interests of our
foreign trading partners. We also believe that the U.S. Congress will
continue to play an extremely important role in the trade arena, and we
encourage the House Ways and Means Committee to work closely with the
USTR as negotiations proceed in the WTO Doha Development Round, the
Free Trade Area of the Americas (FTAA), and the bilateral free trade
agreements that have been initiated.
Sincerely.
Karen Corbett Sanders
Vice President, International Public Policy
and Regulatory Matters
Statement of the Zero Tariff Coalition
Members of the Committee:
Thank you for the opportunity to provide these written comments as
part of the official record of the February 26, 2003 hearing on U.S.
trade policy.
The Zero Tariff Coalition represents 25 sectors of the American
economy that believe that the most practical method of obtaining the
greatest non-agricultural market access gains for their sectors in the
World Trade Organization Doha round is through a Sectoral Tariff
Elimination (STE) approach. A list of the Zero Tariff Coalition sectors
is attached to this submission.
STE is a proven approach that solves negotiating problems other
modalities cannot manage--particularly in resolving the problem of the
huge disparity between the generally low U.S. industrial tariffs and
the high tariffs in developing countries. The approach is basically the
same as the Uruguay Round's successful ``Zero-for-Zero'' initiative and
the WTO Information Technology Agreement (ITA), though modifications
have been incorporated to broaden its applicability.
The Ways & Means Committee endorsed such an approach in its report
on the Trade Act of 2002. We urge the Committee to join us in pressing
U.S. negotiators to 1) ensure that zero-for-zeros, i.e. STEs, are
incorporated as a modality for the non-agricultural market access group
negotiations in any decisions reached on modalities, as called for by
the current deadline of May 31, 2003; and 2) that U.S. priority
sectors, including all the sectors of our coalition, be listed as
sectors that will pursue STE agreements at the WTO ministerial meeting
this September in Cancun, Mexico.
Under STE, countries comprising a satisfactory ``critical mass'' of
trade in a particular sector would agree to eliminate tariffs in that
sector at the earliest feasible time. Countries would only agree in
those instances in which their specific sectors wanted to participate
in particular sectoral arrangements. By requiring only a critical mass
of countries in each sector, the STE modality provides flexibility to
exempt least developed countries as well as others that want to be
excluded, while ensuring that the sectoral agreement remains
commercially meaningful. To assure flexibility, the definition of
``critical mass'' must be sector-specific rather than an overall
grouping of countries that participates in all sectors.
Flexibility would be maximized by avoiding defining these sector-
specific ``critical masses'' early in the negotiations. Moreover,
product coverage for any given STE sector would be determined by the
participating countries. Further flexibility can be gained by allowing
longer transition periods for some countries and for certain sensitive
products. Moreover, for some sectors, a critical mass of countries may
be unable to agree on the goal of zero duties, but ultimately might be
able to decide on a harmonized rate that is significantly lower than
current applied rates.
The possibility of negotiating an initial STE package of sectors as
an interim result prior to the conclusion of the DDA should be
considered as an option, as is provided for in the Doha ministerial
declaration. An interim STE result could be provisional and should be
taken into consideration in determining the DDA's final balance of
concessions.
To ensure wide interest, all WTO members should be encouraged to
recommend sectors for STE treatment. Maximum attention should be given
to STE candidates raised by developing countries. Additionally, the
Doha Declaration calls for environmental goods and services barriers to
be cut, and this sector should be an STE candidate.
In addition to new STE's, country and product coverage should be
expanded in existing sectoral measures initiated in the Uruguay Round.
Emphasis should also be given to increasing the country participation
and product coverage of the Information Technology Agreement (ITA), and
to gaining complete elimination of tariffs (as opposed to
harmonization) in the chemical sector by more countries than just those
currently party to the Chemical Tariff Harmonization Agreement (CTHA).
Most of our sectors also want their products included in the
``immediate elimination'' basket of the tariff phaseout schedules
negotiated in the Free Trade Area of the Americas or any bilateral or
sub-regional trade agreements.
Attachment
U.S. Sectors Advocating Sectoral Tariff Elimination (STE) in WTO's Doha
Development Agenda Non-Agricultural Market Access Negotiations
chemicals
crop protection chemicals
construction & mining equipment
copper & copper alloy brass mill products
cosmetics
distilled spirits
electrical equipment
energy products
environmental products
fertilizer
fish & seafood products
information technology & electronics products
gems & jewelry
medical equipment
paper products
pharmaceuticals
printing, publishing & converting technologies
processed foods
soda ash
sporting goods
steel products
toys
wood machinery
wood products
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