COMMITTEE ON WAYS AND MEANS BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois E. CLAY SHAW, Jr., Florida NANCY L. JOHNSON, Connecticut AMO HOUGHTON, New York WALLY HERGER, California JIM MCCRERY, Louisiana DAVE CAMP, Michigan JIM RAMSTAD, Minnesota JIM NUSSLE, Iowa SAM JOHNSON, Texas JENNIFER DUNN, Washington MAC COLLINS, Georgia ROB PORTMAN, Ohio PHIL ENGLISH, Pennsylvania WES WATKINS, Oklahoma J. D. HAYWORTH, Arizona JERRY WELLER, Illinois KENNY C. HULSHOF, Missouri SCOTT MCINNIS, Colorado RON LEWIS, Kentucky MARK FOLEY, Florida KEVIN BRADY, Texas PAUL RYAN, Wisconsin	CHARLES B. RANGEL, New York FORTNEY PETE STARK, California ROBERT T. MATSUI, California WILLIAM J. COYNE, Pennsylvania SANDER M. LEVIN, Michigan BENJAMIN L. CARDIN, Maryland JIM MCDERMOTT, Washington GERALD D. KLECZKA, Wisconsin JOHN LEWIS, Georgia RICHARD E. NEAL, Massachusetts MICHAEL R. MCNULTY, New York WILLIAM J. JEFFERSON, Louisiana JOHN S. TANNER, Tennessee XAVIER BECERRA, California KAREN L. THURMAN, Florida LLOYD DOGGETT, Texas EARL POMEROY, North Dakota
Allison 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.

Advisory of January 29, 2002, announcing the hearing

WITNESS

United States Trade Representative, Hon. Robert B. Zoellick

SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association (AdvaMed), statement

PRESIDENT BUSH'S TRADE AGENDA FOR 2002

House of Representatives,
Committee on Ways and Means
Washington, DC.

The Committee met, pursuant to notice, at 11:00 a.m., in room 1100 Longworth House Office Building, Hon. Bill Thomas (Chairman of the Committee) presiding.

[The advisory announcing the hearing follows:]

Chairman THOMAS. If our guests could find seats, please. Good morning to all of you.

Welcome, Ambassador Zoellick. Thank you for joining us today.

This is the Committee's fourth hearing this week on the President's budget; and, as I have said, the President has stated three very clear goals in the context of his fiscal year 2003 budget plan: win the war, protect the homeland and revive the economy.

The events of September 11 have challenged us in many ways, and we are being tested militarily and in our domestic economy and our commitment to remain engaged on the world economic stage. As we work to revitalize the economy, nearly 8 million people remain unemployed. We believe free trade will fuel the engines of economic growth and create new jobs and new income here and abroad -- I am sorry. You guys ready to go?

The United States is the world's largest exporter and for good reason. Our firms and workers are highly productive and committed to competing and winning in international commerce. Competition breeds innovation, and innovation leads to new and better-paying jobs. International trade agreements generate economic growth, spawn technological advances and help to advance American foreign policy objectives. One of every $4 in the U.S. economy is linked to trade. Twelve million Americans owe their jobs to exports. Each trade agreement excluding the United States represents an opportunity lost for American business and the workers they employ.

Those who complain about unfair treatment we receive abroad or unfair advantages enjoyed by their international competitors should see the importance of moving forward with negotiations. Unless we aggressively negotiate in our own interests, we will face the same disadvantages in the future.

We cannot negotiate, however, unless Congress gives the President the tools he needs. Senate passage of Trade Promotion Authority (TPA) passed by the House last year would complete Congress's commitment that American business have a fair chance to compete and win in the international arena. We will actively encourage the Senate to deliver tools the President needs to ensure America stays competitive.

The Senate has also not yet passed the Andean Trade Promotion Act and the Drug Eradication Act, part of a comprehensive approach to fight the illegal drug trade that continues to plague that region, indeed, our Nation as well. This bill will offer the people of these nations-- Colombia, Peru, Bolivia, Ecuador -- the opportunity to develop legitimate businesses, rather than engage in the production of illegal drugs.

In December, the Foreign Sales Corporation (FSC) replacement, the Extra Territorial Income Exclusion Act of 2000, was ruled an illegal export subsidy by the World Trade Organization (WTO). I intend to hold full Committee hearings and a series of subcommittee hearings to examine the issue, and the Committee will undertake the necessary and appropriate legislative steps to meet our WTO obligations.

We must preserve the international competitiveness of U.S. interests. We have railed long and hard against those who do not comply to international agreed-upon rules. It is then in our own interest when we have received the judgment against us to make sure that we comply with those rules as well.

Mr. Ambassador, you succeeded in breaking through the WTO deadlock that had prevailed since Seattle. As a result, we have an agreement on the need for a comprehensive 3-year negotiation covering the range of trade barriers in agriculture, especially services, industrial tariffs and investment. This Committee will work closely with you to develop priorities for the new round of WTO negotiation, the Free Trade Area of the Americas (FTAA), the indicated Singapore and Chilean free trade agreements (FTA) and, hopefully, additional negotiations that we can agree on and you have been able to arrange for us so that we can continue creating new arrangements with our close trading partners and allies.

At this point, I would recognize briefly the gentleman from Illinois, the Chairman of the Trade Subcommittee.

[The opening statement of Chairman Thomas follows:]

Mr. CRANE. Thank you, Mr. Chairman. I want to join in warmly welcoming Ambassador Zoellick to the Committee and to commend him on the impressive breakthrough he achieved at the World Trade Organization Ministerial meeting in Doha. As you know, I led a delegation of 19 from this Committee to Seattle in 1999, where we observed firsthand the deadlock and suspicion among our trading partners in the WTO.

Mr. Ambassador, at Doha you cleared away a black cloud on the horizon of our international economic strength. Americans are once again leading at the international negotiating table. The paychecks of hard working folks in plants and on farms across this country will be more secure as the result of the markets the new Doha Round can open.

As they say at Cape Canaveral, "We've got a launch." We also have a schedule and an outline of what can be achieved in terms of reducing unfair disparities in tariffs faced by American companies, discriminatory rules governing services unfamiliar and burdensome products standards and regulations and unnecessary threats to their investments.

Finally, you succeeded getting countries to commit to a deadline of 2005, and if I could do one thing today, it would be to urge you to stick to that date. It is great to have you before us today knowing that the Committee and the House have made the hard choices necessary to pass Trade Promotion Authority and we are only awaiting action on the other body. The rapid 18 to 3 bipartisan approval in the Finance Committee tells me that we struck the right balance in the House even from where I sit at one end of the seesaw.

Last year at this time when getting Trade Promotion Authority out of the House was in question, our economic future as a country was also warned out. Now I believe Congress may be very close to giving you and the President the tools you need. Our trading partners have been very active in opening and expanding markets for their exports, and I am optimistic we are positioning ourselves to do the same.

I believe that this year 2002 will be a significant year for the United States trade policy. We look forward to enhancing the Andean trade bill, concluding bilateral FTAs with Singapore and Chile which were initiated by President Clinton, initiating several other FTAA negotiations, achieving key milestones in negotiations to establish a Free Trade Area of the Americas and positive movement in many WTO matters, including agriculture services and industrial tariffs. The year ahead in trade holds the promise of job creation, economic growth and making the world more secure by expanding commercial ties among countries that should be doing more to work together.

I look forward to working, or hearing from you first and working with you on our trade priorities along with President Bush, and I thank you, Mr. Chairman.

[The opening statement of Mr. Crane follows:]

Chairman THOMAS. Prior to hearing from you, Mr. Ambassador, I will recognize the gentleman from New York, Mr. Rangel, for an opening statement.

Mr. RANGEL. Mr. Chairman, I intend to pass and to yield to Sandy Levin, but before I do I want to join with you in congratulating our trade representatives on these international efforts on behalf of our country.

I also would want to point out that this Committee in particular takes great pride in the unity that we have in the past shown in terms of our trade policy as the Congress tries to -- in terms of foreign policy, and I think that the trade bill with China as well as the Caribbean Basin Initiative (CBI) and the opportunities that we have made and you continue to expand in Africa throws away our party labels and makes us proud to provide the leadership that is expected of us by the House Members.

Having said that, it is apparent that on many tax policies especially as relates to FSC and in certain areas how we treat labor and environment and investments for U.S. firms that you know, as I do, that there are basic policy differences between our parties politically.

I want to thank you for the time you spend with me and Democrats, but I also want to ask you publicly to consider whether or not you can attempt to use your good office and that of the Administration to try to break down the political positions that both sides of the aisles of this Committee finds it so easy to lock ourselves into. And it is going to take a little more than just the shuttle that you so effectively ride between Democrats and Republicans, but it really means that if the President is talking about bipartisanship, he should know that it stops when it gets to this Committee. And so I hope you would consider that.

One of the examples, of course, is that some people believe that when you win by one vote and you have a half dozen Democrats it is bipartisan. It is okay with me because I can be just as political as anyone else. But it would seem to me when you go into an agreement with the Caribbean countries and then find out you have to renege on that agreement in order to pick up a vote that we should expect the Administration would resent this type of behavior no matter which party is the offending party.

It is my understanding that you have taken the position that this measure would have little commercial impact on the Caribbean countries. Well, this is not the position taken by the Caribbean countries, and I do hope that at some time and point we might be able to review what the Congress has done that does violence to what you are supposed to be doing representing all of us.

I would like to yield to Mr. Levin to get involved with more substantive issues. Thank you.

[The opening statement of Mr. Rangel follows:]

Mr. LEVIN. Well, I am not sure I can be more substantive than you, Mr. Rangel, but thank you for yielding and for your comments in truly the substance of trade. It was necessary to launch a new round at Doha, although there were some serious omissions and many vaguenesses.

We welcome you here today, Ambassador. Your role was clearly important in the launch of Doha and I commend you for that. Doha followed several years of hard work, and I emphasize that, and progress, and I emphasize that also, on the trade front. Cambodia, CBI, Africa, Vietnam, China permanent normal trade relations (PNTR), U.S.-Jordan FTA.

It is important to note those efforts for two reasons. One, and very importantly, they were developed in a broad bipartisan manner, and that is the only way we can move ahead productively on international trade. That is why I respectfully suggest that it is counterproductive to indicate, as you do in your testimony, that the thrust for trade liberalization had been lost before 2001 or that it was necessary to restore American leadership.

I don't believe that leadership had been lost. Indeed, there have been new energy in 1999 and 2000 on important issues of trade. Negotiations in 1999 and 2000 grappled with the integration among other issues of core labor and environmental standards into trade agreements. The list of successful initiatives is impressive: The textile and apparel agreement with Cambodia, which included positive incentives for the enforcement of labor standards -- and our staff was there and reported back that it is working; the efficacy of the legislation which expanded trade with Africa and the Caribbean countries while strengthening the labor provisions and building upon complement charities in the textile and apparel industry of our country; the China PNTR legislation which we worked on for a year, and that was the key, I think, to moving the issue within the WTO, which recognized the importance of the trade remedy laws and which created a commission to monitor the rule of law, human rights and labor rights in China. And the U.S.-Jordan agreement, which included provisions on core labor and environmental standards enforceable in the same way as any other provision in the agreement.

As I see it, the Fast Track bill that passed the House was a serious step backwards from this progress, as was the exchange of letters relating to the Jordan agreement, and also the failure to even raise the labor standards issue prior to Doha and at Doha through a working group on labor. The Rangel substitute that garnered 161 votes would have sustained the momentum in these areas as well as addressing, and I emphasize this, other key issues. I expect that its equivalent will be introduced within the next week or so in the U.S. Senate, and unlike the procedure that was adopted here that did not even allow us to introduce the bill on the Floor as a substitute for full debate, there will be ample time to debate that and other proposals in the Senate.

On Monday, this last Monday, Representatives Bentsen and Eshoo along with Mr. Rangel, Mr. Matsui, myself, and others introduced a bill to renew trade adjustment assistance (TAA) and to improve it. We need those reforms, including a strong health provision. However, improved TAA should not be used as a rationale to pass a flawed Fast Track bill. We need to get right both trade policy and a safety net for those who are hurt by the impact of international trade. We need to shave trade policies to both maximize its benefits, and there are many, and minimize its detriments, and there surely are some, and not only help those who lose out.

There are some, and I understand and respect their opinion though I very much disagree with it, who do not believe that we need to shave trade policy in this regard. In a sense, that is the basic issue confronting this issue on steel. One approach is to simply let the market run its course no matter what the consequences and rely only on a safety net to catch all those who suffer the consequences. My own judgment is that such an approach would be bad for the Nation, bad for our Nation's economy and bad for the many adversely affected companies, workers and communities.

We have -- I am almost done, Mr. Chairman -- we have a much better alternative. With a sensible, balanced set of policies, with broad perspectives and open minds rather than narrow thinking, we can do better in this case and in general in our approach to trade issues on a truly bipartisan basis.

I appreciate that you journeyed over here to talk to Mr. Rangel and to me over the recess. I encourage you to continue to work with us on the specifics on each of the issues as they emerge. I also urge the Administration to exercise its leadership in the legislative process to build a truly bipartisan consensus on trade policy. It will by no means be easy, but if we confront the tough issue head on, real progress can be made. Thank you.

[The opening statements of Mr. Levin and Mr. Ramstad follow:]

Chairman THOMAS. Thank you very much.

Mr. Ambassador, welcome. Through no preplanning or collusion in any way, I understand this is the first anniversary of your swearing in as Ambassador, so I take the opportunity to welcome you on your first anniversary. Thank you for appearing before us again. Any written statement you have will be made a part of the record, and you address us in any way you see fit.

STATEMENT OF THE HON. ROBERT B. ZOELLICK, UNITED STATES TRADE REPRESENTATIVE

Mr. ZOELLICK. Thank you, Chairman and Mr. Rangel and Chairman Crane and Mr. Levin, for both informal and formal opportunities to be with you. This Committee's work has been absolutely crucial in allowing us to regain momentum on trade to open markets for America's farmers, ranchers, workers and families. And I want to thank to start off, Chairman, in particular your role with Trade Promotional Authority and also the attention you are devoting to the FSC issue because it has been critical for us.

And I want to thank Mr. Rangel for -- I know the FSC issue is a difficult one and I appreciate your effort to try to be of assistance on this and also the role you played in putting together the AGOA, African Growth and Opportunity Act, bill, along with Mr. Levin and others, which I think has been a real foundation for our relation with Africa. I am going to be going there next week and I appreciate your help with that.

I also want to thank Mr. Levin for making the trek to Doha with us. I know it wasn't easy and it was very important to have you on the scene. I appreciated it and I appreciate we had some chance to work together, and I am also pleased that we were able to extend at the end of this year the Cambodia provisions that you referred to and which you contributed much to.

I would like to thank Mr. Tanner and Mr. Jefferson for their leadership on TPA. Together, I think all of our comments fit on one point and that we have made some headway in the year 2001 but we have got some more work to do.

There are a number of key components to our strategy. First, we are building momentum for liberalization and we are doing so on multiple fronts. We are trying to create a competition in liberalization with the United States as the center of a network because frankly it will help U.S. leadership and will give us more leverage to get more things done.

Globally we have the launch at Doha, but I also think we all take some pride in finally getting China in the WTO after 15 years and Taiwan after 9 years. I know this took a lot of work before I was on the scene with PNTR, Mr. Levin, Mr. Matsui, and Ms. Dunn, in terms of trying to get that piece of legislation through.

And I think now the good news is that the Doha agenda is off to a pretty quick start. In the past week we have started in Geneva to get the negotiating framework in place. Regionally we have the Free Trade Area of the Americas, and here is an incredible opportunity to create the largest free trade area in the world among 34 democracies.

We will start this spring with the market access negotiations, and later this year after the Brazilian elections, the United States and Brazil, two of the biggest economic powers, will be the cochairs to move this forward.

Bilaterally a number of you referred to Jordan and Vietnam, and we are pleased we got those passed. Those weren't so easy along the way and that was an accomplishment of last year.

We are now obviously trying to complete the Chile and Singapore Free Trade Agreements started by President Clinton. And this is one, as I mentioned to you, as we move in the final stage it is significantly importance to get the guidance from this Committee on some of the sensitive provisions.

As I noted in the testimony, we are looking at the possibilities with you of new free trade agreements. The Caribbean Basin Trade Partnership Act passed by the Congress encourages us to look at free trade with Central America, and the President spoke about our interest in moving forward with that. The AGOA bill talks about our interest in free trade with Africa, which would be a tremendous breakthrough for that continent and our relations with it.

And frankly we do have some catching up here to do. The European Union (EU) has 29 free trade and customs agreements, 22 of which they negotiated in the 1990s, and they are negotiating 12 more while we have 3. Mexico has 8 free trade agreements with 32 countries. The Japanese are moving ahead and even the Chinese just coming into the WTO are now pursuing a free trade agreement with the countries of Southeast Asia. So our movement is none too soon.

Second, we are enforcing agreements in managing disputes because while we pursue new agreements we recognize we have to actively defend our interests by pursuing and enforcing vigorously our trade laws, and here I want to be very clear in assuring each and every one of you we will use all the tools at our disposal to fight unfair practices.

We are also trying to manage disputes in ways that solve problems and achieve results. I know a lot of you have an interest in softwood lumber. Mr. Collins has talked to me about that. And then we have the critical challenge of the follow-through on China and Taiwan's accession because particularly in the case of China, we recognize this is a transformation of a country of 1.3 billion people and it is not going to be easy and we need to work together on it.

Third, we are trying to broaden the circle of trade opportunity, and here in particular there is an opportunity with developing nations. This is vital to build support for the global trading system, but it is also vital in these countries to support reform and rule of law in dealing with fundamental problems of poverty. Developing nations became key to putting together the coalition that was successful at Doha, and they will be key in anything else we do in the WTO. Indeed, all you have to do is look at the newspapers and you read about the reach of terrorism these days, you have a sense of how if this is going to be a long-term war and President Bush has clearly made clear that that is going to be a challenge for this generation, then we are going to have to address some of the other components.

Spig Ruginski made a comment over the weekend that I thought was powerful. He said, look, it is quite clear that poverty is not the root cause of terrorism, but it does provide fertile fields. And so, in that way, economic development and growth is a key component. The United States, I am proud to say, has been leading the efforts to try to help poor nations obtain the tools to participate in the global economy. Last year the United States spent $555 million on capacity building because for a lot of these countries, take the African and Caribbean which I work with Mr. Rangel, they don't have people who can attend the negotiations and they certainly don't have the ability to follow through. So this is an element that I hope we can work on together.

We also believe in renewing and expanding the preferential agreements. This Committee took an important step in terms of the Andean Trade Preference Act, but I think it is highly unfortunate that it did expire after 10 years. And those four Andean countries are hurting right now at the same time they are trying to deal with the scourge of narcotics.

The Committee also had some efforts to try to strengthen AGOA, which we support, and I hope we can over the course of the coming months. I also don't want to lose sight of the generalized system of preferences, something that the Congress put in place about 26 years ago and which also expired last year, and that deals with 123 developing countries and 19 territories. That expired September 30 and so those countries now do not have the benefits.

There is also the possibility of bringing in new members. One of the ones that is most exciting is Russia. Our enemy during the Cold War now is going through the process of actually joining the WTO, adhering to the rules, and I hope to make progress on this this year.

Fourth, we are reaching out to key stakeholders. This in part involves a lot of listening, building networks, educating and acting. We are pushing on all fronts for America's farmers and ranchers, working with this Committee, but also with the Ag Committee. We are seeking to help industries and workers become competitive and adjust to change. This is an area that I know is close to the heart for a number of you in the steel industry, Mr. English, Mr. Houghton, and Mr. Cardin, who I have talked to about this.

This is the Administration that launched the 201, and we are now in the final stages of that process. But I also want to point out that we have used these safeguards in other areas like wheat gluten and lamb, working out solutions that I think are important. Textiles is obviously a very sensitive area. This is another one where we are committed to the phaseout of the Apparel and Textile Agreement that will end quotas in 2005, but it has not been easy in this industry, and I have worked with Mr. Collins and others in terms of that adjustment.

A number of you have mentioned trade adjustment assistance, and Mr. Levin stressed this. I know the importance of this to many of your Members, and I just want to make clear, I am in full and emphatic agreement about the need to have good trade adjustment assistance programs if we are going to have a successful trade policy. And as my statement points to, and I hope my colleagues at the U.S. Department of Labor and the White House have also emphasized, I think there is a lot of common ground here that we can move forward on. I talked about this in the Senate yesterday, and I hope we will be able to have a product before long that we can all be proud of.

Also, part of reaching out is meeting with different groups, business, environment, labor leaders on a range of these issues. I was pleased, given the unusual security circumstances at Doha, that we were able to set up webcasts for the first time so we are able to draw in a lot of our advisers who couldn't make it to the scene.

I know a number of you, Mr. Doggett and others, have emphasized the North American Free Trade Agreement (NAFTA) Chapter 11. This issue came up in the course of all the Trade Promotion Authority bills. I just want you to know, I am in the process of meeting with all sides on this, the business community, the non-governmental organizations (NGOs), and others, to try to understand and sort through what we know is a tough issue. But reaching out also involves building the case for trade and correcting some misinformation. And here I think the American public suffer because they don't know what the benefits of cutting tariffs do.

For example, drawing on work of our predecessors in the Clinton Administration, we pointed out the very simple fact that the benefits of NAFTA in the Uruguay Round amount to about $1,300 to $2,000 a year for the average family of four in America. That is a hefty tax cut and it comes from growth and cutting tariffs. The University of Michigan has done a study, just a preliminary look at cutting just the tariffs on industrial goods and agriculture as part of a Doha agenda, and their estimate, admittedly a rough cut, is $2,500 a year for a family of four in America.

If you look at particular sectors, Mr. Brady has an agriculture sector, one in three acres in America is planted for export; 25 percent of gross cash farm receipts are for export. So America's farmers depend on a healthy trading system.

Fifth and finally, Chairman, as you know, we have tried to work hard to connect our trade system to our values. Free trade is about freedom, and it is about opportunity and rule of law and openness, but we also have issues that we need to deal with; for example, the crisis in public health in parts of the world, and I was very pleased and proud working with a number of you that in the Doha meeting we were able to come up with a statement that I felt went a long way towards reconciling that there are flexibilities in intellectual property that we need to use to deal with problems like HIV/AIDS, malaria, and tuberculosis in the countries of Africa and elsewhere because if these countries are plagued by epidemics there will be no economic growth and free trade won't be sufficient for them.

At the same time, we have to preserve intellectual property because the advances in this field are enormous in terms of their opportunity, including, as I have talked with some chief executive officers recently, the prospect of a vaccine for AIDS and what an extraordinary development that will be, but it won't happen unless intellectual property is protected.

There are other win-win ideas. I was pleased that World Wildlife Fund and some other environmental groups worked with us on fish subsidies at Doha. We are also trying to work with the small business community much better in our country and others and draw them into the trade system.

So to sum up, we have a very full trade agenda ahead. We are looking forward to completing Trade Promotion Authority as soon as possible so we can move forward on all fronts to tear down barriers, open markets globally, regionally and, very important for me, to have a framework of guidance from the Congress of your objectives and have the procedures. We are moving ahead on many crucial and, I know, sensitive issues. The Foreign Sales Corporation, steel, softwood lumber, high fructose corn syrup, and in Geneva among our other goals we are going to push for a home run on agriculture, which is key to our agenda for trade. Thank you, Mr. Chairman.

[The prepared statement of Ambassador Zoellick follows:]

Chairman THOMAS. Thank you, Mr. Ambassador. As I indicated, the Foreign Sales Corporation issue will occupy some time before this Committee, hearings, both full Committee and subcommittee, examining legislative options. What we will be requesting from the Administration will be relatively close communications on what strategies the Administration is going to be pursuing. And I don't want any lengthy discussion now, but clearly at the Ambassador's choice he could either offer some brief comments, but I certainly expect shortly some written indication of the direction of the Administration's strategy so that we can coordinate the very real need to respond to this decision.

I might ask in that context, you have had communications with appropriate officials since a decision has been rendered, they are still in the process of determining the dollar amounts. What is the climate post decision?

Mr. ZOELLICK. Well, let me, Chairman, try to address the first one. We are very pleased with the prospect of working with the Congress, however all of you determine we can, obviously that involves heavily the Treasury Department, Office of Tax Policy, and the senior people there. But we as an Administration are trying to come up with interagency proposals on this and would be delighted to work with you and we appreciate your leadership on it.

In terms of the climate, Chairman, the frank answer is it is uncertain, as I think we have had a chance to talk among ourselves. This is an issue that has been around for a while. The United States had some of its legislation challenged, and we lost, we lost on appeal, and there was another round. And so frankly, my read of the situation is that the European Union, while not eager to retaliate, needs a sense that the United States is going to take the steps to come into compliance. They recognize this is an extraordinarily difficult issue, and it won't be done easily. That is why I think steps like hearings or other actions, things we can do from the Administration, will show good faith in taking on the topic.

The problem is we do have some near-term deadlines. By the end of April the WTO will have an arbitration panel that will decide the amount that the EU can retaliate. The EU has pushed for about $4 billion based on some revenue estimates dealing with the FSC. We are obviously going to push very hard for a lesser number based on various arguments we make partly related to the trade effects. But by that time period there will be an amount that the European Union can retaliate, and then we face a question can we hold off that process by showing that we are taking this on. I believe there is a chance to do it from my conversation with Commissioner Lamy, I know others here have. But, I think we can only do so if we show there is a serious and good faith effort, Chairman.

Chairman THOMAS. Well, I don't think anyone believes that the approach ought to be to simply ignore the decision. But at the same time, as we investigate ways in which we change our Tax Code, somebody has to take into consideration the season. I know oftentimes when I sat down with Europeans or even with others in discussing our abilities to move forward, if it isn't in the first or the second or the third sentence, the fourth sentence includes a phrase something like the elections in France or the elections in Germany, and that we have to be sensitive during this period because they are having presidential or legislative elections in a particular European country.

None of us are going to use the fact that this is in fact an election year and a fairly important one in this country as an excuse not going forward because we are going to go forward with hearings. But somebody has to put it in the context that we are addressing this, and we will address it in a fundamental way, in a very difficult climate. And I am hopeful that as you continue to discuss this issue with others, that the context in which the House is attempting to move forward and resolve the problem, not patch it over, not come up with another gimmick but fundamentally resolve it, understand that this is not a 3-week or even a 6-month pursuit.

Secondly, I am pleased that the President, all of us are pleased with the President's push for permanent normal trade relations with Russia. My concern is, and I have introduced legislation to that effect, during the long and arduous, as you described, process with China, I thought that the normal trade relations (NTR) vote was a useful one to frequently check and require people to make sure that the process of negotiating with China was a truly rigorous one and did not slide off to a politically convenient structure because you were able to do so because you didn't have the NTR votes taking place.

And I do want to put in context the fact that with Russia we want to make sure that there are no foreign policy pressures or other departmental pressures in making agreements, that it has to be as firm and as sound as it was with China in dealing with Russia.

And lastly, the President going to China, you had indicated the importance of agriculture. Here we have an opportunity to stress with someone who is and will be a major competitor in the agricultural area that there is sanitary and FAO or Food and Agriculture Organization sanitary requirements, their biotech regulations all need careful scrutiny if we are going to continue this growing and I believe mutually beneficial relationship. I know you will be in there scrapping. But we want the President to know that these are issues that ought to be on the front burner with the Chinese because these agreements need to be closed quickly.

With that, I will turn to the gentleman from New York.

Mr. RANGEL. I think I have said most of all the nice things about you that I can this morning. So we might as well get to the other issues, and that is that when you are negotiating for the United States with the WTO in this FSC problem you are not to be heard to say that the President is not in charge of taxes or the Treasury is not in charge or taxes or it is the Congress or it is the Committee on Ways and Means, you are carrying our flag. And as it relates to overseas, in order to avoid an appearance of disunity here, it appears to me, Mr. Ambassador, that you are going to have to bring a team to work with this Committee. When I say Committee, I mean Republicans and Democrats, because if it appears as though the majority has a permanent solution to this problem that the minority disagrees with, that is going to be just as public as it should be as relates to our Committee work.

So I would strongly suggest that you might want to put together a team from the executive branch to meet with us informally as a Committee to share with us your concerns so that we can as nearly as possible read from the same page, because there are all types of potential solutions to this problem but it doesn't mean that the end of today that we can all read from the same page.

And so, I know what you have been up against and you have done a tremendous job in trying to work between the Chairman and me, but that is okay for domestic stuff. But as it relates to dealing with the European Union I hope we can find at least an attempt to find a way that we can work more closely together. I discussed this with you privately. I just want to thank you for your agreeing to try to do that.

Mr. ZOELLICK. Mr. Rangel, just to add to what you and I have discussed, I want the whole Committee to know what I explained to Commissioner Lamy. We as an Administration will be putting together a task force, whatever one calls it, that is an interadministration group. Obviously the tax policy is the heart of it, but there are Commerce and United States Trade Representative (USTR) and others are very deeply involved. One of the things that I told him was that we would also be in consultation with tax policy experts, the business community, reaching out -- we know this is a difficult problem -- and then to try to come up with our series of ideas or proposals within some limited period of time, which we haven't yet defined.

I also told him that we would, through that group or another group, also want to have a similar discussion with Europeans, and here not only the Commission but with the Member States where the tax authority arises, because I know a number of you from both sides of the aisle have a sensitivity to making sure there is a level playing field here for tax systems.

And so if we are going to be able to put something together, together we need to try to do it so that the Europeans understand that this is finally over, we get it done.

So the third part obviously is, however the Committee and others want to try to work with us, we would be delighted to try to do so. What I want to emphasize here, I don't mean to suggest this is by any means an easy problem. And what I hope to do with the two of you and others on the Committee is frankly take our good faith action in tackling it, and I think the Europeans understand this is a big, big problem. As I have said to them, what would happen if the WTO said France had to change its tax law, how quickly would you be able to turn that around, going to the Chairman's point.

So I think we can win some time here, and I won't hazard a speculation exactly how long if we work on it together. That is what I have tried to get launched here. I will do my best to work with you on it.

Mr. RANGEL. Thank you.

Chairman THOMAS. The Chair notes that we are beyond second bells on a 15-minute vote. It will be followed by a 5-minute vote. And so we will probably not be able to sustain the Committee by having Members go over and come back. So Mr. Ambassador, if you will allow us, the Committee will stand in recess until as soon as we can get back, hopefully shortly before noon.

[Recess.]

Mr. CRANE. [Presiding.] Our Chairman cannot get back here right now, but we will continue and, as I understand it, I am next in line since Charlie already got his 5 minutes. Is that correct?

Mr. RANGEL. If you are the Chairman, whatever you have to say I would bend over backwards to make it so. I yield for the Chair.

Mr. CRANE. I thank you so much for that. I am meeting with Yugoslavian President Kostunica this afternoon, and one of the questions or the most important question from his perspective, of course, is reinstating NTR for Serbia and Montenegro. The Administration already has the authority to reinstate NTR but I am told we need to pass legislation. What is your position on this issue?

Mr. ZOELLICK. Chairman, we support the effort to try to restore the NTR for Yugoslavia, and we have been working with the Department of State in terms of trying to address the concerns that were reflected in the 1992 legislation to try to do so.

Mr. CRANE. Second question deals with your expressed interest in pursuing free trade agreements with especially our Latin American countries, but also I have heard of potential FTAs with Australia and New Zealand and South Africa and Morocco. What criteria are you using to identify potential candidates for bilateral FTAs?

Mr. ZOELLICK. Well, Chairman, I am particularly pleased you asked this because this is a topic that I wrote, as you know, to you, Chairman Thomas, Mr. Rangel, and Mr. Levin that I hoped we could get a good dialogue going forward.

Mr. ZOELLICK. The starting point is that Congress has passed legislation in the Caribbean Basin Trade Partnership Act that urged us to focus on the possibility of a free trade agreement with Central America. And the President spoke about our interest in pursuing that with the five Central American countries. In addition, AGOA also encouraged us to look at possible free trade agreements with African countries. And the South African Trade Minister has expressed an interest in exploring this perhaps in the context of the South African Customs Union. And that is one of the items I hope on my trip to Africa to explore it further.

But beyond that, Chairman, there are a number of benefits for this, I think. One is whether we can create some models of success; whether we can, for example, advance some of the trade agenda in a particular area; for example, in the high-tech area, intellectual property rights area, whether we can catch up in market access. For example, right now, Chile has an 8 percent tariff that doesn't apply to Canada but does apply to us, so we are losing vegetable oil and wheat and potatoes and other things. We also can use this to build support on other issues; for example, on biotech that a number of Members are interested in sanitary or the FAO sanitary issues. Another one is to support economic reform.

And what I think would be my suggestion is that we try to have an array of developing in developed countries in different parts of the world so we can create a network and show that the United States is willing to look for free trade in Latin America, in Africa, in Southeast Asia and in other quarters.

Obviously, there is a dimension of this that could help our foreign relations. For example, Jordan was a free trade agreement, our first with an Arab country in the Muslim world. It is important to do that at this time. And Morocco would offer another possibility. So those are some of the criteria that we are looking at, but it is an area where I very much want to have a good consultation and dialogue with Congress.

Mr. CRANE. And a massive effort will be required for China to comply with all its commitments and as part of its WTO accession. And for the United States to monitor and seek compliance with these commitments, China must create or revise and enforce scores of laws and regulations. What is the Administration doing to establish a system for promoting compliance?

Mr. ZOELLICK. With the help of the Congress, which at the time that it passed PNTR gave some additional resources not only to USTR but to commerce and others, we are trying to do this at a number of levels. One is we have an interagency group that has taken each of China's commitments and assigned it to an agency, and we have monthly meetings where we track the follow up on that. But, in addition, we are trying to reach out to the private sector, because in a country of 1.3 billion people, a lot of the information will be gathered by American businesses in China. And we are trying to link into that network so we can identify the problems at an earlier point and try to resolve them.

Third, we are trying to work with other countries. The WTO itself has a special process related to China's follow-through, but with Europe and with other countries we have a common interest in this delivery.

And let me just emphasize this point most of all, Chairman, because it is one that Chairman Thomas raised. This is going to be a very long road. This is a country that is going through a huge transformation and in many cases what Beijing decides is not necessarily what the provinces will do. So we are going to have work on these. And while we are certainly willing to take the dispute resolution process as necessary, I do hope we can try to pursue this in a problem-solving mode.

In the area of soybeans and biotech, which Chairman Thomas mentioned, I just want to reassure you, the interest starts at the top. When President Bush was in China for the Shanghai APEC or Asia Pacific Economic Cooperation meeting, he emphasized the importance of that issue. And we got some headway on that one as an interim measure, but we are now focusing very heavily on the Chinese implementation of their biotechnology regulations.

Mr. CRANE. Thank you very much Mr. Ambassador. Mr. Stark?

Mr. STARK. Thank you, Mr. Chairman. Mr. Ambassador, I would like to just touch on a topic. I have questions about FSC but another problem that seems to have invaded Capitol Hill has been the corporate ethics and some of the problems that many people have had recently with 401(k)s and accounting and so forth. And I wonder if it is your intention to voluntarily come to Congress and testify about your employment with the Enron Corporation and disclose all that you know, both formally and informally, to help us figure out what to do to see that that kind of thing doesn't happen again.

Mr. ZOELLICK. Mr. Stark, I am pleased to disclose all that I know. And as a starting point, I served on an advisory council, and I recused myself on all matters dealing with Enron. And before I left for India, I was asked by the Indian press whether I would push the issue and I told them I couldn't because I was recused. In addition, I was a stockholder and all this was disclosed at the time of my confirmation, and I sold my stock at a loss.

Mr. STARK. My concern is that you are probably aware of things that went on in the company when you were there. I am not suggesting that there was anything improper about your present position and your former position with Enron, but I am sure that you have a lot of helpful information that would be useful to us as we try and resolve this issue in the future.

Mr. ZOELLICK. Perhaps, but again, I know this is an important and sensitive topic and I know it is one there are hearings on right now. I served on an advisory committee that met twice a year. This involved people like Paul Krugman of the New York Times. And so while I am happy to try and cooperate in any way we can in trying to deal with this issue, when you said -- you used the words that said "my participation," or some such words--

Mr. STARK. As I say, I knew you were on some kind of a board -- but no more than the average person about what went on. On the FSC generally, there is I am going to say 20 or 30 major corporations in this country that get close to the $4 billion benefit from FSC. And however you are able to negotiate that -- these same companies, by the way, probably get 80 percent of the Ex-Im Bank guarantees and they probably get the majority of the AMT or alternative minimum tax giveback of 25. So they are quite comfortably compensated by our Tax Code.

If, as many of us feel, we are going to at best negotiate, what can you suggest to us or how can you assure us that if in fact there is $4 billion of retaliation, let's say, or whatever it is, that that money will be paid by the corporations who have enjoyed the benefit and not by all the average people in America that you are saying maybe saved a thousand bucks because of NAFTA. It seems to me whatever we come up with, that the people who got the tax benefit ought to end up somehow paying for whatever retaliatory penalties we have to pay. Does that sound fair to you?

Mr. ZOELLICK. The problem with it, Mr. Stark, is that is not the way the trade retaliation works. The trade retaliation would not be a payment. This would be the EU's right to raise tariffs on products. So it wouldn't be payments. And one of the reasons why--

Mr. STARK. Exactly, Mr. Ambassador, what I am getting at. That the people who got the benefit, who have the $4 billion in their pocket, these large American corporations would be the ones who would be retaliated against.

Mr. ZOELLICK. We don't know that. Unless we work something out with the Europeans, it is their choice.

Mr. STARK. There is certainly a way we could compensate. Let us assume that all of the tariff retaliation comes against agricultural products. Wouldn't it be fair then to raise the taxes on the corporations who got the $4 billion and distribute it through the Tax Code to the small farmers, for instance, who might suffer. All I am saying is, don't you think it would be worth our effort to make a good effort to see that we don't further hurt the average American who is already paying for the $4 billion that these big corporations are getting?

Mr. ZOELLICK. A lot of average Americans work for those companies and they get their paychecks. All I can say is I think we need to resolve this problem or else we are going to get retaliation against us.

Mr. STARK. As well we should, and we got caught.

Mr. CRANE. The time of the gentleman has expired. Mrs. Johnson.

Mrs. JOHNSON OF CONNECTICUT. Thank you, and welcome, Mr. Ambassador. I wanted you to enlarge a little bit on how you see the negotiations going forward in regard to trade remedies and the great importance we put on our laws that allow us to protect ourselves against what we usually refer to as unfair trade barriers. And this will be a big issue in the upcoming round. And I would like to hear how you think that is going to go.

Mr. ZOELLICK. Well, first, we believe that effective trade remedy laws are absolutely critical. And we not only supported them but we have supported their use. And whether it be softwood lumber or steel, or other categories, indeed I made some suggestions yesterday about possibilities of doing this against the Canadian Wheat Board. So we think it is a key part of our overall trade policy.

At Doha, we did not agree to change our trade remedy laws. And we, of course, didn't change the laws. What we set out first was an offensive agenda because a number of countries are putting laws like this in place without the due process, without the procedures. And they are increasingly being used against American companies. In fact, there are about 60 orders in place right now against American companies and they tend to focus most on chemical, steel, other metal firms, but also being used against agriculture. For example, our poultry industry is very concerned about this.

Our first step is to make sure that whatever is done in this area, it gets others to have a better performance and up to the standards that we have.

Second, Congresswoman, there have been a number of decisions in the WTO which frankly we, and I think most of the Members of this Committee, disagree with. For example, they have not given, in our view, the due deference that should be given to the U.S. International Trade Commission (ITC) or the government in terms of a standard of review. And frankly, we would like to get those and some of those changed.

What we also agreed in Doha was very important from our point of view, was that there is-- that we will not undermine the concepts, the effectiveness and principles that underlie these laws. And indeed we went back and fought again and said also the instruments which are applied. We also said if there is any discussion of these laws, you can't look at the remedy without looking at the disease. We have to go to the underlying problem of subsidies and dumping. So that is the framework for which the future of the Doha agenda will go forward.

And, again, our emphasis is primarily on the offense agenda because one of the issues that this Committee and all of us will be dealing with in the future is more and more countries are using these laws and they are going to be using them against American exporters and you are going to hear about it and I am going to hear about it.

Mrs. JOHNSON OF CONNECTICUT. Thank you very much.

Mr. CRANE. Mr. Houghton?

Mr. HOUGHTON. Thank you, Mr. Chairman.

Mr. Ambassador, I would like to talk about two points: one, about the general trade laws; and, secondly, about 201. I was not at the Senate hearing that you were at. But I think in questioning, Senator Rockefeller asked you about some of our trade laws, particularly in antidumping. And I think you said, well, there are certain things we have to negotiate and therefore we are prepared to put certain things on the table.

You may want to comment on that, because I was not there. But I would hope that you wouldn't put the antidumping laws on the table or really change our trade laws. Those are so important. And some of us who have been on the other side of this thing, being in business, have found ourselves really in very difficult straits. And I am not going to mention any names, but having been in business and being sort of thrown to the winds by our trade representatives at other times, it is good in terms of negotiating points -- we will give you this, we will give you that -- but the people who were given, it is very difficult. And that involves a lot of jobs. So I want to put in a plea for you to be very careful in terms of that. You may want to comment on that.

The second thing is in terms of 201. I am not a great historian but I do remember that in 1934 -- and, yes, I was alive in 1934 -- that Franklin Roosevelt and Cordell Hall organized the whole concept of relief for various industries. In other words, if an industry -- the reason Congress gave the President that authority to be able to negotiate and be able to give relief, that he would give relief if an industry was in trouble.

And I know there are an awful lot of suggestions about steel. And as you know the statistics as well as I do, 39 or 40 companies are now in bankruptcy. But one of the things that I worry about is that when the President makes a decision, whatever that decision is, that he will do it in a meaningful way and not just have sort of a cosmetic approach. In other words, there are some suggestions now that with steel imports coming in at the usual number, the usual amount, that you would let those come in and then you would give a 25 percent tariff for everything surged over that.

That would be wrong, I think, because what it does is everybody is lining up and creating a tremendous surge, which would be unfortunate. So you may want to comment on both those issues.

Mr. ZOELLICK. Let me touch on the steel one first, Mr. Houghton. As you know, President Bush and this Administration initiated this 201 because we believe that safeguards have an important role. Members of this Committee were pushing for this for the prior years and could never get the initiation. And just to further underscore that, we worked last year to try to work out some of the safeguard issues related to the lamb and wheat gluten industries. And this is based on the same strategic principle that you mentioned, which is there are times in which markets move more quickly than industries and the communities that live off them can adjust.

And so I am a firm believer that we need to have safeguard laws, but in a way that helps the adjustment process. The favored one that is pointed to in the 201 industry is the Harley Davidson industry, how it turned around. But we also have to be careful because it could just be a form of protectionism and that doesn't help anybody adjust. But if we have a restructuring plan and include time for an industry to catch its breath, I think that is an important part of the adjustment process.

In steel, after we received the ITC's recommendations -- and as you know, they varied somewhat by Commissioner -- we had very good discussions with all branches of the industry. The ports look at it a little differently. And some of the other users obviously have concerns. But what I can assure you is this is something now that is at the Cabinet level of discussions. We look at it very thoroughly, about the effects on the economy and on this industry. So it is getting a very serious examination. And I know the President has a personal interest in it from discussing it with him, and we are on track to try to get the decisions in early March.

Mr. HOUGHTON. Before you leave that, Mr. Ambassador, I guess my point is that if you do have relief, it ought to be real relief and it shouldn't be gobbled up with different proportions and surges and things like that. This is an industry -- and I never was in the steel industry but I identify with them totally -- that is not fat and happy. They really have done almost a resurrection of what they have been about in years in the past. And frankly they do need some help here, some real help.

Mr. CRANE. The time of the gentleman has expired.

Mr. ZOELLICK. I will speak briefly because I think part of my answer to Mrs. Johnson was on a similar point about the trade remedy laws. And what I was emphasizing is we know how important they are. I would not take your characterization or my exchange with Senator Rockefeller as being an accurate description of reality.

But here is the other situation that we face and then we will fight to protect these and I believe they need to be protected.

As I mentioned, there are two other things. One is at Doha. There were 141 countries that wanted us to at least discuss this topic. And so yes, we had to make a discussion should we crater the round -- and that is what it would have involved -- or should we try to craft what I think is a darn good agenda in terms of our offensive points without giving anything up defensively.

And the other point I will put on the table here is that we are going to need to figure out a way to get other people to improve their laws while protecting ours because there is now a gap. American lawyers, God bless them, and they have been going around the world helping other countries to put these in place, and they have nowhere near the standards, transparency, due process, that we have. And we are going to hear about it to increasing degrees, and that is what we will target in the negotiations.

Mr. CRANE. It is hard for any of us to believe that you were running your business back in 1934.

Mr. HOUGHTON. I didn't say that.

Mr. CRANE. Mr. Levin.

Mr. LEVIN. I am tempted to take up Mr. Houghton's question. Let me just say that I am not sure how people will read your answer, but I think the feeling is clear, as I stated in my opening statement, that just providing a safety net isn't enough. And I guess the Europeans have now suggested something that is essentially a way to finance a safety net.

Let me also, on the countervailing duties on antidumping, just indicate that I hope very much that we will be emphatic that we will not agree to renegotiate what we negotiated in great detail, at great length during the Uruguay Round. And the problem is that the language within the Doha agreement, I think is read by many people as essentially saying everything is on the table. And it may well be the judgment was we had to agree to that or else the round wasn't going to proceed. But that is the way it has been interpreted. And it is quite different the way it was worded in article 28 from the provisions, for example, on competition -- and you know this, you negotiated it -- where a decision to proceed had to occur by explicit consensus. And essentially there is no such language in the antidumping provisions, the provisions on rules.

But I don't want to make it more difficult for you. So let me just go on and just say a couple of other things quickly. On Chapter 11, we have talked about this and you and I have talked about other areas of disagreement and I won't go into them, the labor and environment provisions et cetera.

An investment in our bill that we brought up, we had some very specific provisions. And what I would like you to do, if you would, is to send to us your analysis of those provisions. We have talked about them, but we have never had any written communication as to any objections you have as to how we laid out what should be the negotiating objectives on Chapter 11. If you would do that, it will help the dialogue.

And in that regard, getting to Chile, we talked a little bit about this, but if you could give us a somewhat more specific timetable as to when you think the investment provisions will be taken up -- you said you are going to be talking about market access next month -- I forget, but if you could tell us the timetable on investment and also on the labor and environment provisions, just the timetable. We have our differences but let us see if we can possibly move ahead.

So let me talk for one minute about agriculture. Could you tell us--

Mr. ZOELLICK. About what?

Mr. LEVIN. Agriculture. Could you tell us how you think the present discussions or work on the farm bill could affect the negotiations on one of the two or three key sensitive issues, and some people think may be the most sensitive-- I think there are others-- in the next year or two?

Mr. ZOELLICK. Certainly, Mr. Levin. Since you mentioned the EU proposal, I don't want you to misstate it because I am not sure you would like it if you really looked into it. It is the idea of taxing the steel industry for a fund. That is what the Europeans did, and I am not sure our steel industry would be very excited about having a new tax imposed on it.

Mr. LEVIN. And the tax would essentially go to pay legacy costs. So that only addresses the safety net. I am not saying it is a good idea, but only addresses the safety net issue and not the basic issues of whether we want a steel industry, how it is structured, et cetera.

Mr. ZOELLICK. And, Mr. Levin, I would be pleased on the written points on Chapter 11. What I would urge we also do is we talk about it more, because I looked at a number of those points and I think they are focusing on a lot of the same issues that we are focusing on. I may feel, for example, that a required appellate level for an agreement that is not likely to have many appeals might be something that is not a workable approach, but we need to address that issue in some other way. So we will try to follow that up.

On your farm bill question, obviously, the Department of Agriculture is in the lead in terms of trying to deal with that. And you know, we support forward-looking farm legislation, as the President has made clear, that helps both the prosperity of our farmers but also meets our WTO commitments.

There is language in the House farm bill that authorizes the Secretary of Agriculture to make necessary adjustments if our spending exceeds WTO limits. And right now, the USDA or U.S. Department of Agriculture staff is working with the Committee to get a sense of how that would be administered, how it would work in the process. So it has been, you know -- our emphasis is in the Administration that we need to have a farm program that allows us to meet the needs of farmers but also meets our international obligations and helps us to continue to move forward in terms of eliminating export subsidies, reducing production support and opening markets around the world. And I have talked with Members on both sides of the aisle on that in the Ag Committee about trying to do that.

Mr. CRANE. The time of the gentleman has expired. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman.

Mr. Ambassador, congratulations on your 1-year anniversary, and thank you for your outstanding leadership as our Country's Trade Representative. Certainly the President has the best and brightest on his trade team, and I certainly applaud the work that you are doing.

I want to raise an issue that is critically important to America's medical technology industry, very important segment of our economy as you know. And as you also know, on December 12, the Japanese Ministry of Health and Welfare adopted foreign reference pricing, commonly known as FRP, which is a new pricing policy going into effect April 1 which allows the Ministry to cut reimbursements for medical devices based on the overseas prices.

Our country has long opposed FRP schemes. They discriminate against the U.S. medical device community. They failed to recognize the high costs of doing business in Japan. Now, the way in which it was quickly adopted also violates U.S.-Japan trade agreements according to all neutral observers.

Congress, in a bipartisan way, has expressed its strong opposition to FRP. Letters have been sent from Senate and House leaders, Republicans and Democrats alike. Speaker Hastert and Representatives Dunn and Blunt raised their concerns during their trip in January last month. Secretary O'Neill has raised his concerns, as has your Deputy Huntsman.

Despite all of the efforts by Congress and the Administration, the Japanese do not appear willing to alter their proposal, which would be a huge, a huge setback to the progress that has been made over the last 15 years in opening up Japan's protective marketplace. Now since the MOSS or Market -Oriented Sector Selective trade agreements in 1986, aggressive U.S. trade policy has turned $100 million device trade deficit into a $1.3 billion trade surplus today. And we need that strong United States leadership to continue.

I know -- we all know the President will be visiting Japan on February 17. And my question to you, Mr. Ambassador, I believe is a very, very critical one. If this policy is not removed by then, that is, the time of the President's visit to Japan on February 17, will the President raise our serious concerns and our strong opposition to FRP during his visit?

Mr. ZOELLICK. First, Mr. Ramstad, thank you for your kind words. I obviously can't say what the President will or won't do. I work for him and not vice versa.

Mr. RAMSTAD. Will you encourage him to raise this?

Mr. ZOELLICK. Yes. And indeed, he has helped and pressed on a number of trade issues, as I have mentioned, on these visits. He has always -- frankly, it is a big help to me, more than willing to me to try and push these.

I will say that we have been working closely with the industry, as you know, and others -- in addition, you know, Secretary Evans and Ambassador Baker -- Senator Baker has been pushing it very vigorously. And I think there have been discussions this week, Mr. Ramstad, that are making some headway with the industry.

But we know the importance, and it is a critical industry for the United States and also it is an unfair pricing system. So we will work with the industry with it and I will certainly also talk to the White House and the President as they go forward.

Mr. RAMSTAD. The fact that you are encouraging the President to raise this is very encouraging to us certainly, and he is aware of the terrible consequences of such a policy; is that correct?

Mr. ZOELLICK. Yes, I am sure.

Mr. RAMSTAD. And just met, as I think you did or your Deputy Huntsman, with a number of Chief Executive Officers (CEO) from Medtronic -- from Minnesota's medical valley, Silicon Valley -- from Representative Thurman's district who were here. And this truly, this FRP scheme truly, truly has devastating consequences. I can't speak in strong enough terms as to how devastating to this critical industry, to our country, and to our economy.

So I am certainly glad we are on the same page. Appreciate the fact that you are going to encourage the President himself to raise this when he is visiting Japan on February 17, because this is so important to a big part of our economy and to the medical device community. So thank you very much, Mr. Ambassador.

Mr. CRANE. Mr. Tanner.

Mr. TANNER. Thank you, Mr. Chairman; and, Ambassador, thank you for being here. And I have got three items I would like to mention. They are enforceability issues, and I know we all agree that whether we are for or against a particular bill, the enforceability of what we have is important to both the supporters and the nonsupporters of what we are trying to do here.

So let me just mention these, if I could, and then you could respond. As you know, the House has passed and the Senate is considering to renew the extension of trade benefits to Andean countries. We have a telecommunications company that is involved in a dispute with Colombia. I have talked to you about it before and we get a lot of promises and assurances and so forth from the Colombians but nothing changes. Deadlines have passed without resolution. I understand that their own laws are not being followed with respect to the enforcement or execution of a judgment.

And my question is even though we have Andean Trade Preferences Act (ATPA) concessions, there is some conditionality in that regime where benefits could be suspended or lifted for a particular country. And I hope that we can give the attention it deserves to this situation, because it is one of really shocking noncompliance if one could use those terms.

Second, Korea has some new biotech regulations with respect to corn and soy items that many feel are regulations that are a barrier to trade and are done to stifle competition. Has to do with documentation, certification and so forth. I understand someone in your office has recently met with the Koreans and, if so, if you could give us the status of that involving corn chips and so on.

And then, finally, the EU has had a moratorium on biotech products from our agricultural sector. I understand they -- the EU has recently suggested that they would start their approval process later this year having to do with such issues as traceability, labeling requirements and so forth. And if you could give us the status on that and where we are with that. It relates to the Korean situation as well. Thank you.

Mr. ZOELLICK. Sure. Well, first on the Colombian matter, as I know you have been pushing this issue and we have been working with you on it, I have written President Pastrana, and I have written Colombian Trade Minister Ramirez, and she responded in a way that she thought they were moving it forward. In fact, I saw her just this past weekend and raised it with her. She is going to be moving onto another post so I will have to follow up with somebody else in the process.

But I thought the next step is actually -- we will meet with Nortel and get their side about why they don't think it is moving in the process, and then we will work with the Colombians further as we go forward. The ATPA right now, since it has not been passed, we can't use it in that way, but we can use it in terms of trying to get it passed. And the Colombians have been responsive in some other areas like acrylic fibers.

I will point out one point and this is an issue of perhaps interest to Mr. Levin and Mr. Doggett as well. This is one of the reasons that the investor provisions are a double-edged sword. This is a company that employs people in your district that wants to have investor provisions and wants to have them enforced. Some other people are then a little leery about how those work. So this gives you a little sense of the balance we need to strike here.

On the Korea biotech, I know generally about the work we have been trying to do with the Korea biotech. I don't know particularly about the corn one, so I will have to follow up on that one. You are right. It is definitely related to the larger problem out of the EU. And I am glad you raised it because I want to put a real focus on this this year, because biotech is so critical not only for our industry and our employment, but it is critical for the development of agriculture around the world, including a lot of developing countries. And frankly the EU sort of stymieing of this is totally unacceptable economically, and I think morally, because in many developing countries around the world, this will be what leads to increased yields, less use of fertilizer; you know, the development of nutrients in a lot of these products.

So I was in Europe in December. I talked to four or five commissioners on this. And frankly, Mr. Tanner, they are not going to move. And one of the things I am considering is bringing a WTO action against the fact that they are not approving products. And I am working right now to talk with other countries around the world to see if we might do so.

That is separate from the traceability and labeling. Right now, they are not approving a darn thing. But on top of that would be the traceability and labeling rules, and frankly we think they are unworkable. So we are also trying to work with industry to see how we can fix those.

Mr. CRANE. The time of the gentleman has expired. Mr. Cardin.

Mr. CARDIN. Let me thank you for the way you have had an open door policy with Members on both sides of the aisle and the way you have consulted with us. We very much appreciate that in the way you are conducting your office. Let me just mention two issues that we talked about before so that I can just advance these issues.

First on steel, we have talked about that frequently and I want to thank the Administration for the actions that it has taken. The key decision, of course, will be made next month, or by next month, on what remedy to seek in regards to the damages that were caused on our companies. I would just urge you to take advantage of at least recommending to the President a tariff significant enough that it will deal with the true cost of steel. And I would urge you to look in the range around 40 percent. I would also urge that you look at that revenue as being used to help deal with the legacy cost.

As you know, the European countries do not have to incur the costs of our trading partners, incur the costs because there is a social cost in their country, and that makes it difficult for U.S. steel to be competitive with the high legacy cost.

And lastly you have probably been the leader in encouraging the restructuring of the steel industry in the United States, and we have had different views on that over time. But I would urge you to look at the antitrust laws to see if there is a concern there and what we are trying to work out on the restructuring and whether we need to look at some recommendations in that regard so that the restructuring can move forward in an orderly way.

And then on the second issue that we have talked about, and that is the permanent normal trade relations with the former republics of the Soviet Union. I look forward to working with you as we advance that legislation.

I would just caution that when we looked at PTNR for China it was with a strong WTO accession agreement, and that made it a lot easier for some of us to move forward in that area.

I would also point out that each of these republics are different and it would at least be helpful for us if we consider them independently. And with China, we put in a strong monitoring commitment on human rights, which is important in some of the former Soviet Union. So I would just urge, as this process unfolds, look for a way that we can bring broad consensus to the legislation that the Administration seeks. And I thank you for your help.

Mr. ZOELLICK. Would you like me to-- let me take the last one first, because we haven't really discussed it today and I think it is very important and I appreciate your help and I take your counsel about looking at these individually. In the case of Russia in particular, one thing just so you know how the Administration looks at this, is that this is an important step in recognizing the Cold War is over. I mean it has been 10 years.

And so, as you know, the history of the Jackson-Vanik with Russia and China were always different. In terms of Russia, it had focused on immigration and human rights. And Russia has been in compliance since 1994. So the focus that we have had -- and I look forward to working with you -- is on human rights and religious groups to make sure we try to get the assurance that we need to be able to go forward. I would distinguish that, and if someone said, look, we like to keep this as a club over Russia as it gets into the WTO -- and I want to try and explain why I think that would be a mistaken idea.

President Putin and the other Russians have said, look, we want to play by the same rules everybody else does. And so we will agree whether it is agriculture or other topics, but please don't use something that distinguishes us from the Cold War as Jackson-Vanik would. We are in the midst of 20 other applications. And this I think would be counterproductive if we use it in that way, and particularly we don't need it because the WTO accession requires a consensus, not only us, other countries. We have the ability to say no unless they take the steps.

And so I have had a number of meetings with the Russians in the nitty-gritty detail of this. They are making efforts to comply. We want to bring them into the system. We won't do it unless we have the right market access, agricultural communities are particularly concerned about this, and deal with the subsidy and other issues. But I think it would be wisest to focus the Jackson-Vanik issue on its origin with Russia, the immigration, the human rights, the freedom aspects. And I know that is one you worked on and I will be pleased to work with you in the future.

Mr. CARDIN. I understand that and I think that makes good sense. Looking forward to working with you.

Mr. ZOELLICK. Then on steel, obviously we are at a point when we are looking at the full range of remedies. As you know, the ITC commissioners, some suggested tariff rate quotas, some of them suggested higher tariffs. We are looking at the full range.

And on the issues of legacy costs there are different ways to try to address this and we are looking at the full range. As you know, USX or the United States Steel Corporation proposed basically $13.5 billion over 10 years to deal with six companies. One of the issues we have to look at is what about the other six companies where you have workers that are similarly situated. And this has also led, I think, to a focus on wherever one goes about the programs for the workers, for example. You know, the Administration has had a proposal about a refundable tax credit for health insurance. Pension funds as you know, by and large for retirees, are covered by the PBGC or Pension Benefit Guaranty Corporation. The numbers we have is that it should cover about 93 percent of the pensions. But I think one of the issues we will have to balance here is some fairness not only on steel companies but other companies. And for what it is worth, Congressman, my view on this is that try to focus the aid on the people who are going through the change.

Mr. CRANE. The time of the gentleman has expired. Ms. Thurman.

Mrs. THURMAN. Thank you, Mr. Chairman. Thank you, Mr. Ambassador, for being with us and staying for a rather long time as well. And we especially appreciate it down here on this row, because a lot of the time our guests have to leave and we never get an opportunity to ask questions. So we do appreciate you being here.

Ambassador, I just have a couple of issues that have been brought to me and as I can see from the line of questioning, other Members of this Committee have brought specific issues because of specific contacts they have had with people. And, quite frankly, I am always amazed at just how big this county is and the kinds of things we do and the kind of trade that goes on. There is so much going on.

But in saying that, as you know, during the negotiations over TPA there was a lot of concern in Florida specifically dealing with our citrus industry and other agriculture industries. Evidently there are some questions dealing with some of the cartel practices that I guess the Senate has maybe brought up to you. We just would like to know whether or not you plan to negotiate remedies to eliminate cartel practices and how do you plan to address them.

And then, secondly, with the TPA, while it gives you the tools to expand trade through U.S. and foreign tariff reductions, there are many unsubsidized U.S. agricultural commodities which have been forced to address what we believe to have been unfair imports repeatedly. Will you commit to us to avoiding U.S. tariff reductions for those commodities which have been faced with dumped and subsidized import competition like citrus?

Thirdly, and I did get a memo, and I actually was surprised because I didn't remember hearing much about this during even TPA on the tariff reductions, how many other countries actually use this? And it was alarming to me that we weren't able to negotiate any of that when we were doing some of it, but on the idea why we would take a position that ties our hands on the issue and harms our import-sensitive industries while our trading partners take the opposite course in their own self-interest. And this is on our tariffs.

And then in the FTAA, are you prepared to sacrifice unsubsidized agricultural industries like citrus for the sake of a negotiating principle which only the United States follows?

Then the last comment that I need to make, it has come to my attention that in Florida, as you can imagine, we have a lot of people doing business in Peru and other areas. And it came to my attention that there is a business over there that has actually been trying to work with the government to take care of an issue where they feel like they have been harmed in telecommunications. And I guess the Senate actually put some language in their Committee report that is asking USTR to closely examine these matters and determine whether Peru should be designated as an ATPA beneficiary country because of these particular-- I guess there are about three or four different cases. One just happens to come from Florida.

On the telecommunications issue, you might be familiar with it, Telephonico -- maybe not.

Mr. ZOELLICK. Let me try on some of these. I think they are interconnected. There is a general theme of the citrus industry which wouldn't surprise me.

Mrs. THURMAN. I didn't think it would.

Mr. ZOELLICK. I think at least on the second and the fourth as I had them, there is language in the Trade Promotion Authority bill that establishes a series of additional procedures to deal with sensitive products, and citrus was kind of the lead in the train on this. And it would require that as we undertake any negotiations and if we want to try to negotiate any reductions in tariffs, we have to go to the National Trade Commission and have various reports done and then explain the logic for moving forward. And then, of course, it states clearly that any ultimate decision in change of tariffs belongs to the Congress and not us. And I would be happy again to give you more information about those provisions.

On the cartel point, I am not 100 percent sure I have this, but it is our negotiating position that we want to try to address the problems of state trading monopolies and state trading enterprises. This is most actively in the news actually related to the Canadian Wheat Board. And I think the practices are wrong. And I am actually talking with the wheat industry again tomorrow about some options we might be able to take dealing with that, using our unfair trade laws and maybe also the WTO.

On the Peru and telecommunications issue, I am afraid I don't know the precise points. Mr. Tanner mentioned -- I don't know if it was with the Nortel and Colombian case, but I will be pleased to look into it with you.

I would say, again, and you can share this with your colleague, Mr. Doggett, this is one of the issues -- why we have difficulty on these investment issues is that we want to try to protect our investors abroad and make sure they get the protection that foreigners get here. And sometimes that creates a little complexity in the legal regimes we have.

Mrs. THURMAN. To note this, it was in the Senate language on page 31. And that will give you an area to go to.

Mr. CRANE. The time of the gentlewoman has expired. Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman. And, Ambassador, it is a privilege to have you here to comment upon, in the wake of the President's budget submission, our trade priorities. I want to congratulate you on the extraordinary job you have done in the last year. I thought your predecessor set a very high standard and I think you have done a remarkable job of strengthening our trade policy within a very short time and without as much cooperation from Congress as we and this Committee would have liked.

I have a couple of specific issues that I would like to raise with you. One, I would like to once again congratulate the Administration for launching its 201 action in steel. I realize this entailed a great deal of political capital on your part, that this was a controversial move in some areas of the business community and manufacturing.

As someone who represents a district that both produces steel and also has steel-consuming manufacturers, I appreciate the challenge that you faced in crafting that policy and that you have a final upcoming decision. As Chairman of the steel caucus, I would urge you to go to the President and urge him to pursue an aggressive solution to the 201 action, one that while I realize will create some animosities with some of our trading partners, one that I think is necessary for us to preserve on a level playing field our domestic steel manufacturers. You are welcome to comment.

Mr. ZOELLICK. Well, I think the key point that you added, Mr. English, and thank you for your kind words on this, is that regardless of complaints from trading partners, safeguards provisions are acceptable under WTO rules. And we have been going back to the ITC to make sure we try to do this as cleanly as we can to proceed in accordance with those rules. And if we have the industry undertaking the restructuring as they will need to become competitive, I think safeguards are appropriate.

That is something that my Cabinet colleagues and I will be discussing with the President in the nature and the form. And as you probably point out, there is a balance here. You have different users and you have different steel industry companies that are developing different business plans in how they are trying to approach this. But I would really thank you and your leadership with the steel caucus all year for working with us on this so we can try to deal with what we know has been a difficult problem for many communities in America.

Mr. ENGLISH. One of the other issues that is frequently associated with steel and other heavy manufacturing is the status of our antidumping laws. And I know you have had some very difficult decisions to make on this as the Doha negotiation progressed. I wonder if you would care to comment on whether the Administration would be open to some ideas being advanced not only by myself, but by Mr. Levin and Mr. Cardin and Mr. Houghton, to potentially within the WTO standards strengthen our antidumping laws, take out some of the -- take out or replace some of the provisions that have been proven to be antiquated and/or create problems. We have not had a major overall of our antidumping laws in quite a few years, and I don't count in this the minor revisions that were made in 1994. I think a major overhaul of our antidumping laws has not been done since the seventies.

Would the Administration be open to entertaining this kind of initiative?

Mr. ZOELLICK. Well, first, we would certainly be pleased to discuss this with you and others on the Committee. And just to give you a sense of the importance of this, the House passed a resolution before we went to Doha that we looked at and followed very closely in terms of our approach in dealing with these issues in the WTO context.

On the domestic front, as you know, the Commerce Department applies these laws, and so I have to defer a little bit here to my colleague, Secretary Evans, but we work very closely together and we would be pleased to get into dialogue on these laws and how they could be improved and strengthened, obviously, in accordance with our WTO obligations.

Mr. ENGLISH. As the author of the House resolution, I am grateful you followed it religiously.

And one last point I would like to make. I noticed you recently visited Morocco. I was delighted to see that. My own view is that Morocco is potentially a good partner that we can engage in a bilateral trade agreement along with some of the other Magreb countries: Tunisia; potentially, Egypt. Would you like to comment on the potential for a bilateral or multilateral initiative here?

Mr. ZOELLICK. Also, Mr. English, I don't know if you were on this trip. Mr. Gephardt preceded me, and I know that he was interested in trying to express help in terms of strengthening U.S. trade with Morocco. So perhaps we can even get a broader base here. And I talked with Mac Collins about how he tried to promote some paper from Georgia in terms of sales.

Morocco is a country that has pushed forward with economic reforms and pushed forward with political reforms as well. There will be parliamentary elections. So at a time there is turmoil in the Magreb, I personally feel and I think all of us have a sense that it would be extremely good for the United States if we could strengthen the reform process in a way that also opens markets.

The Europeans have preferential access. We have lost out in various areas. So I think we can do good and do well at the same time through this negotiation. And I do believe that the Magreb made -- there may be a window through some of the other Magreb countries.

You mentioned Egypt. And here we have had discussions, but I will also just share with you the need that we have to be realistic with Egypt. Right now, Egypt has not implemented some of the WTO obligations in terms of intellectual property and customs and other areas. We want to support Egypt and want to try to help Egypt but, going to Chairman Crane's questions about standards, one of the standards I look at is whether a partner is ready. And a good test as to whether they are ready is whether they are willing to follow through on the reforms and their current obligations. Morocco has. Egypt has some work ahead of it.

Mr. CRANE. Gentleman's time has expired. Mr. Doggett.

Mr. DOGGETT. Thank you Mr. Chairman, and Ambassador in the last year when you have come before this Committee on two occasions, I have voiced my very strong concerns about the misuse of the investor State dispute provisions by multi nationals to challenge governmental actions that were designed to protect the water we drink and the food that we eat. But, during that year, there have been few public signs that anything is being done about it, though I was pleased there some cosmetic clarifications last July that were announced. And I believe that the concerns of every major environmental organization in the United States remain the same as when I raised this issue with you last year.

I know that within the last few days, as you testified, you met with one part of the environmental community to offer some trial balloons about how to address this concern. 

But of course the Methonex case concerning the pollution of the water supply in California is still pending. The recent Lindane case is pending now, where there is a challenge to a Canadian pesticide ban evn though the same pesticide is banned in the United States, by an American company that involves health and safety. Last week, a Chilean official was reported in the trade press to have said that Chile doesn't like the wording of Chapter 11 either. Given the threat to our environment and safety, the Chilean's stated concerns, and the year you have had to act, can you commit today that you will be personally urging that any trade agreement with Chile or any other agreement that you plan to negotiate and submit to Congress in the near future will have significant reforms in the investor-state issue?

Mr. ZOELLICK. Well, one thing I really differ with I guess, Mr. Doggett, in your statement is the notion of we are just raising trial balloons. I am in a very serious dialogue with people based on the concerns that you had, Sandy Levin and others have raised with both the business and environmental community. And let me tell you, what I am struggling with, and I'm honestly struggling with it, is we have a balance here, because on the one hand we want to try to make sure, as we have had testimony today from your colleagues --

Mr. DOGGETT. And I will be glad for you to supplement. I understand the need for the balance. That's what I asked about last year, so there is no conflict between what I am urging and the concern you raised with reference to Mr. Tanner, whether there was a contract breach. But what I want to know, is there going to be something you are urging to have happen in this on the Chilean agreement that you say you will be submitting?

Mr. ZOELLICK. We haven't decided on our position, because I'm honestly --

Mr. DOGGETT. After a year, you have not decided which way to go on it?

Mr. ZOELLICK. Well, one of the things that happened during the course of the year, Mr. Doggett, is I was getting advice from this Committee in terms of the TPA process, and I wish it would have happened earlier but it didn't happen until December. So working on that guidance, and I am trying and I am reaching out the best  I can, Mr. Doggett, to get ideas, and I think it is best that I not decide until I do.

Mr. DOGGETT. Thank you, Mr. Ambassador. If you haven't decided, I can quite accept that as the answer, though I am troubled by it. I know that you are aware of the Public Broadcasting System special that Bill Moyers did called "Trading Democracy." The Deputy Chief Negotiator of NAFTA, there before of course you were in charge, was quoted on the program as saying, "If expropriation means anything that diminishes the value of your investment, then that is probably a big mistake because that is just too greedy."

And I wonder if you agree with that view: Does NAFTA require compensation anytime governmental health and safety regulations diminish profits.

Mr. ZOELLICK. What I feel, Mr. Doggett, is we need to do two things. One is make sure that American investors abroad get the same protection that foreign investors get in the United States. And the second thing we need to do is to make sure that our ability to have health and safety, environmental regulation, is not compromised in any way. And that is what we are trying to do.

Mr. DOGGETT. Does that first principle mean that you also subscribe to the view that foreign investors should have more rights with regard to property than American citizens do?

Mr. ZOELLICK. No. And that is one of the reasons that we are trying to work to see, given the framework of these agreements -- and you know it is important, but this is a serious topic and I want to deal with it seriously, and I believe we need to as well. We have had about 60 of these agreements and bilateral investment treaties. There are about 1,600 of these around the world. And one of the things we have to be careful about is also not leaving the United States in a bad position compared to other investors.

Mr. DOGGETT. Since the yellow light is on and I welcome your supplementation, am I correct that in a NAFTA arbitration panel, it is possible for a foreign corporation to deny this Committee, the public, and the press from reading legal briefs that are submitted, even if you personally think that the foreign investor's filing should be public?

Mr. ZOELLICK. I have to check on that, because one of the things we did in July was to try to make sure we opened up the documentation for the agreements. So one of the things in July, when you thought we weren't acting, might have been able to address this. But also I would say it is my view that all of these should be opened and the hearings should be opened up as well.

Mr. DOGGETT. And I urge you to begin with Chile. Just finally, Mr. Chairman, some have suggested that you were involved in plans to settle the Loewen v. United States case as soon as the fast track vote is over with. Are there any negotiations underway?

Mr. ZOELLICK. Is this the --

Mr. DOGGETT. The Mississippi Supreme Court case. You are not consulted about it in any way?

Mr. ZOELLICK. I monitor the case because I know that it is an important case, but I don't think we are part of it.

Mr. CRANE. The time of the gentleman has expired. Mr. Pomeroy.

Mr. POMEROY. I thank the Chairman. Mr. Ambassador, I think the President chose well when he selected you to be the Trade Representative, and I think you are doing a very good job on behalf of the Administration, on behalf of all of us. That is to say, we will always agree about the philosophical directions of your -- the way you take your responsibilities. By and large I have found you personally, and your staff, particularly Ambassador Allen Johnson, to be very responsive to the issues that I have had relative to the North Dakota agriculture. I appreciate it.

Coming up next week is a termination that you will be making on this 301 petition brought against the Canadian Wheat Board. We are waiting with bated breath about what might happen there and appreciate the fact that tomorrow, you will be meeting with a number of Senators and some House Members -- although most of us, unfortunately, will be clearing out of town without votes on this question -- to further discuss it prior to the ruling.

There were some responses that you made yesterday that I find a little troubling as you testified at the Senate Finance Committee in terms of your thoughts on this matter. We have visited in the past, Mr. Ambassador, about the range of options: What do you do when you have an entity, Canadian Wheat Board, a state-subsidized monopoly, where it is illegal to sell wheat other than through this monopoly if you are in western Canada, and this monopoly we believe routinely exercises internal subsidies? Can't prove it because they adamantly refused us access to their books and have taken, in my opinion, extraordinary lengths to secure utter secrecy in internal pricing.

And finally, the ongoing frustration then resulting from languishing market price for wheat and the demise of the durham wheat market in particular for U.S. farmers have really brought this situation to a very serious point that has caused very extensive evaluation of what our options might be. The section 301 wasn't picked in a vacuum; it was picked after very thorough deliberation in terms of the elements of establishing the case and then establishing the remedy under antidumping or a countervailing duty. It was exhaustively deliberated and determined that really the only shot was to go and sit for the section 301.

You hold your responsibilities at a very important point in time because issues that have -- I mean that have been out there -- they are fully ripe and they come to a point where they have to be resolved. Sometimes it seems to me that reality causing political forces is at a totally different track than the regimen of international trade laws, and somehow you have got to span those two. You have got to deal with real reality and the political consequences coming from it, as well as apply your expertise as our trade negotiator.

I am telling you that it is my sincere evaluation of the stakeholders in this question in North Dakota and through the northern tier of wheat production that anything less than a holding or finding under 301, the difficulty in establishing tariff rate quota to deal with it, is not going to be responsive to what they are hoping for. It is understood that that is going to be challenged, that that is going to involve a challenge that would even involve a risk of being overturned -- WTO. But that is where they are, and that is the way they think this has to advance. And I wanted to bring you that message in these final days before you must make your determination. I would be interested in anything you care to say on the record.

Mr. ZOELLICK. First, Mr. Pomeroy, let us make sure if we can, if you are not going to be able to be there tomorrow, that we have a chance to follow up by phone, because I want to compliment you because you have been leader on this and we have learned an awful lot from you and we very much appreciate the engagement as we have gone through.

Let me tell you how I briefly see it today, and I will discuss with your colleagues, is that the 301 just gets us the information and we work with you and others to try and really do a much more thorough job about trying to dig and get as much information surveys, and then to release that publicly. And then the question is what do we do with it.

The problem with the tariff rate quota, there is no doubt that under our NAFTA regulations and with a little bit more of an increase in the tariff under our WTO obligations, that we would be in violation, and then that means automatically they retaliate against us, probably the Ag commodities. Maybe some that hurts against North Dakota and it is not a durable solution.

So, then, the question is what can we do? And what I was putting forth yesterday, and I hope we can talk with the industry about it a little bit more, is I know some of their initial look at the antidumping countervailing suit -- we think there is some additional information gained through the 301 process that is worth a look to see whether this might be a useful approach.

And indeed we looked at -- and I know, because we are talking about farmers that don't necessarily have the ability to bring actions -- but we have looked at other States who have supported groups, citrus in Florida for one, to be able to bring action. And I wanted to share our thoughts about one offensive route.

The other offensive route that we have talked about with you is the WTO case. And I talked about this with Chairman Bachus yesterday. And this is a very uncertain area in the WTO set of rules. And so there is no, you know, sort of clearance, and we may or may not be successful, but I think by pushing the issue in that route as well, we would be in a position to heighten it for the third element of the offensive, which is to do this in the context of the Doha agenda. And this is where we are good to have the round going because, look, I think these are monopolies and I think they are rotten and I think they allow various types of credits and subsidies and they ought to be changed.

And so we have a rules-based system as it is and, as you probably said, that is what we have to try to address. Just so you know, Mr. Pomeroy, we can talk about this more. I am not saying one or the other. I am looking at all three. And they might be able to help and interrelate with each other. And I know the tariff rate quota looks facially appealing.

But what I can't get over is if it is a violation, it won't last. Then where does it leave the North Dakota wheat industry? And that is kind of a summary of how I am looking at it. I feel and I felt for a long time that this State monopoly ought to be changed.

Mr. POMEROY. I will call you and I appreciate that invitation.

Mr. CRANE. The time of the gentleman has expired, and with that all time has expired, and we want to commend you, Mr. Ambassador, for your endurance and we look forward to working with you over the course of this year. And we are guardedly optimistic that we will be able to make positive accomplishments, thanks to your efforts. And with that, the hearing stands adjourned.

[Whereupon, at 1:35 p.m., the hearing was adjourned.]

[Questions submitted from Messrs. Rangel and Tanner, Shaw, Jefferson, Doggett, and Ryan to Ambassador Zoellick, and his responses follow:]

Questions for U.S. Trade Representative Robert B. Zoellick
From Congressman Clay Shaw

• The Administration and the President fully considered the potential impact on steel consumers and ports in the Section 201 steel remedy announced on March 5th.

• The Administration has fashioned the relief to exclude certain steel products for which no relief is necessary at this time. The level of relief provided for each product was also limited to the level needed to provide relief for the domestic industry.

• The Administration has also worked with U.S. steel consumers and producers on excluding foreign steel products from the Section 201 relief that are not available in the U.S. market from domestic producers.

• The Administration was presented with a full range of economic information from interested parties in the Section 201, including economic studies that produce dramatically different results.  Studies estimating job losses as a result of the Section 201 are subject to all of the vagaries and imprecisions of economic modeling.  Informed judgment must be used when considering such studies or models in formulating policy. 

• The Administration considered the quantitative economic evidence, as well as qualitative factors when it formulated its Section 201 recommendation to the President, and this evidence was ultimately weighed by the President in his decision. In fact, I met personally with the ports and was selected Port Person of 2002.

(b) Please note all the concerns raised to date in this review process, including but not limited to: opinions on an exhaustion of remedies requirement, the scope of "expropriation," "investment," and "investor" and all other procedural and substantive reform ideas.

(a) Please provide a comprehensive answer to this important question since the "clarification" is apparently not clear enough for you to clearly state whether access is permitted.

(b) On February 7, 2002, you stated that you believed all NAFTA investor-state arbitration tribunals should be open to the public. Why have you not publicly urged our two NAFTA partners to promptly open the tribunals?

Office of the United States Trade Representative
Washington, DC 20506
March 29, 2002

The Honorable Paul Ryan
U.S. House of Representatives
Washington, DC 20515-4901

Dear Congressman Ryan:

Thank you for your recent letter regarding our investigation of the Canadian Wheat Board (CWB) in a section 301 case. I appreciate your concern, and certainly agree, that U.S. millers and pasta makers must have access to sufficient supplies of a specific quality of durum wheat to operate their businesses. The objectives of the actions that we announced on February 15 are not to restrict trade but to ensure free and fair trade for millers, consumers and producers of wheat. Enclosed are both the news release and the findings of the investigation.

Question 1:

One of the main complaints by U.S. wheat growers is the existence and operation of the Canadian Wheat Board (CWB). Such State Trading Enterprises are not tolerated by the United States and should be eliminated. However, since Canada is a NAFTA partner, why has the existence of the CWB not been brought up before the World trade Organization? What is the USTR's rationalization for handling this matter? 

In response to your first question, state trading enterprises (STEs) are permitted under international trade agreements. In fact, the United States does have STEs which are notified under rules of the World Trade Organization (WTO). Article XVII of the General Agreement on Tariffs and Trade establishes disciplines under which STEs are to act in order to be consistent with the principles of non-discrimination. Our concern with the CWB is that it is a monopoly STE with monopoly control of all western Canadian wheat exports and shipments for human consumption. The CWB is able to unfairly compete with U.S. wheat producers and undermines the integrity of the trading system, because it is insulated from commercial risks, benefits from subsidies and special privileges, has a protected domestic market and has competitive advantages due to its monopoly control over a guaranteed supply of wheat.

Two of the actions that we are pursuing reflect your suggestion to pursue the CWB in the WTO. First, USTR will examine taking a possible dispute settlement case against the CWB in the WTO. Second, the United States is committed to pursuing comprehensive and meaningful reform of monopoly state trading enterprises, such as the CWB, in negotiations in the WTO.

Question 2:

It is my understanding that U.S. millers buy durum wheat from Canada because the U.S. cannot grow enough domestically to meet pasta production needs. In fact, in 15 of the last 15 years, U.S. durum production was insufficient to meet total usage. Further all durum wheat grown in the U.S. is not milling quality. According to the North Dakota Wheat Commission, only 49 percent of the domestic durum wheat crop was milling quality. Combined with the fact that the International Trade Commission found that in 59 out of the last 60 months, Canada has sold durum wheat at prices above domestic durum wheat prices, upon what data is the USTR Section 301 case based that warrants action taken against Canadian durum wheat growers?

In response to your second question, the North Dakota Wheat Commission (NDWC) alleged unfair trading practices of the CWB not only in the U.S. market, but also in third country markets. The NDWC requested that we impose an immediate tariff rate quota (TRQ) on imports of Canadian wheat. We recognized, however, the need of U.S. millers and pasta makers to have sufficient supplies of durum at an acceptable quality. In addition, imposing a TRQ on imports of Canadian wheat would significantly detract from our reform objectives for the CWB during the same period we are trying to build an international consensus to support these objectives. Imposing a TRQ on wheat from Canada could open the United States to a challenge under the WTO or the North American Free Trade Agreement. For these reasons we elected not to impose a TRQ on imports of Canadian wheat.

As we work to ensure that Canada meets its international obligations, we will also ensure that the needs of U.S. millers and pasta makers are met. I look forward to working closely with you to be sure we achieve these goals.

Sincerely,

Robert B. Zoellick
USTR Ambassador

OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE

Executive Office of the President
Washington, D.C.
20508

For Immediate Release
February 15, 2002
02-22

Contact:
Richard Mills (202) 395-3230

United States to Pursue Action Against Monopolistic
Canadian Wheat Board

WASHINGTON – Responding to a complaint filed by the North Dakota Wheat Commission (NDWC), U.S. Trade Representative Robert B. Zoellick announced today that the United States will pursue multiple avenues to seek relief for U.S. wheat farmers from the trading practices of the Canadian Wheat Board (CWB), a government monopoly trading enterprise.

USTR also today released an "affirmative finding" that reviews the results of its investigation, details the CWB's monopolistic characteristics, and describes the steps USTR intends to take to address this issue.

"The Government of Canada grants the Canadian Wheat Board special monopoly rights and privileges which give it competitive advantages that hurt U.S. wheat farmers," said Zoellick. "We agree with North Dakota wheat farmers that Canada's monopolistic system disadvantages American wheat farmers and undermines the integrity of our trading system. We are committed to using all effective tools at our disposal to stop the Canadian monopoly wheat board from hurting our farmers. We will undertake several strong initiatives, working with producers in North Dakota and others in the wheat industry, to address our problems with the Canadian Wheat Board."

USTR will aggressively pursue a four prong approach to fight for a level playing field for American farmers:

• First, USTR will examine taking a possible dispute settlement case against the Canadian Wheat Board in the World Trade Organization (WTO);

• Second, the Administration will work with the North Dakota Wheat Commission and the U.S. wheat industry to examine the possibilities of filing U.S. countervailing duty and antidumping petitions with the U.S. Department of Commerce and U.S. International Trade Commission.

• Third, working with industry, USTR will also identify specific impediments to U.S. wheat entering Canada and present these to the Canadians so as to ensure the possibility of fair, two-way trade.

• Fourth, these short-term actions are complemented with the Administration's ongoing commitment to vigorously pursue comprehensive and meaningful reform of monopoly state trading enterprises in the WTO agriculture negotiations. Those negotiations gained new momentum with the launch in November of the Doha Development Agenda, set to conclude by 2005.

This decision is in response to a petition filed by the North Dakota Wheat Commission in September 2000 under section 301 of the Trade Act of 1974. USTR undertook an unprecedented 16-month investigation examining the practices of the monopoly Canadian Wheat Board. In addition to inviting public comment twice on the investigation, USTR requested that the U.S. International Trade Commission (ITC) examine the competitive practices of the Canadian Wheat Board in the U.S. market and overseas. As part of its investigation, the ITC held a public hearing, requested public comments and pursued multiple avenues to obtain information on the Canadian Wheat Board.

USTR has decided not to impose a tariff rate quota (TRQ) at this time since such an action would violate our NAFTA and WTO commitments, could result in Canadian retaliation against U.S. agriculture, and would not achieve a durable solution or a permanent change to the market distortions caused by the monopoly of the Canadian Wheat Board.

[The USTR "Affirmative Finding" is being retained in the Committee files.]

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