Business Roundtable, Samuel L. Maury

Council of the Americas, and GE Latin America, John T. McCarter

Emergency Committee for American Trade, and McGraw-Hill Companies, Harold McGraw III

Institute for International Economics, Jeffrey J. Schott

National Association of Manufacturers, and 3M, Harold J. Wiens

National Pork Producers Council, John Hardin, Jr.

Purafil, Inc., William Weiller

Tarullo, Daniel K., Georgetown University Law Center

U.S. Chamber of Commerce, Thomas J. Donohue

SUBMISSIONS FOR THE RECORD

National Center for Asia-Pacific Economic Cooperation, Seattle, WA, Rudolph A. Schlais, Jr., statement and attachment

Rubber and Plastic Footwear Manufacturers Association, statement

U.S. Integrated Carbon Steel Producers, statement

FREE TRADE DEALS: IS THE UNITED STATES LOSING GROUND
AS ITS TRADING PARTNERS MOVE AHEAD?

Thursday, March 29, 2001

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

The Subcommittee met, pursuant to notice, at 10:04 a.m., in room 1100 Longworth House Office Building, Hon. Philip M. Crane (Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

Chairman CRANE. Welcome to this hearing of the Ways and Means Trade Subcommittee to examine the impact of bilateral and regional trade agreements being negotiated without U.S. participation.

I give a special welcome to our two new members of the Trade Subcommittee, Mr. Phil English of Pennsylvania and Mr. John Tanner of Tennessee, and I would like to thank our witnesses who have all graciously reorganized their busy schedules so they could testify today. The members of the Subcommittee and I look forward to your commentary and reports from the frontiers of what can be described only as a new era of world trade.

Since America's founding, new eras have usually been synonymous with new generations of American innovators, whether it was Frederick Douglass, Alexander Graham Bell, Susan B. Anthony, or Sally Ride, America has not sat in the bleacher seats of history. We have stood up, set the mark, and run the race. Likewise, in trade policy, the United States worked at the forefront of the creation of the General Agreement on Tariffs and Trade, which reopened and expanded the routes of international trade after World War II. More recently, America led in the creation of the World Trade Organization and guided efforts to negotiate the North American Free Trade Agreement (NAFTA).

Trade agreements such as those contributed to the longest period of economic growth in U.S. history. Thanks to the NAFTA, Mexico is now one of the fastest-growing export markets for the United States and Canada and Mexico are the first and second most important U.S. trading partners. Yet here at the onset of the new millennium and a new administration, we mark the beginning of the seventh year without Congressionally approved trade promotion authority, or what was formerly called fast track. We are not the leaders we once were. In our stead, our trading partners have actively opened and expanded markets for their exporters, and as a result, there has been a proliferation of free trade agreements in recent years.

There are now over 130 free trade agreements in force. The United States is party to only two, the U.S.-Israel Free Trade Agreement and the NAFTA. Europe, on the other hand, has in force Free Trade Agreements (FTAs) with 27 countries, and Mexico has 28. While our trading partners stand ready to negotiate trade agreements with the United States, we stand back and continue to debate among ourselves.

During the seven years since the President's trade authority expired, America's exporters and workers have faced higher tariff differentials and more and more discriminatory rules, unfamiliar product standards, and unnecessary threats to their investments. For example, Automated Food Systems, Inc., is a small 11-person outfit based in Duncanville, Texas. Automated is a successful distributor of food processing equipment and exports to Egypt, the Middle East, and Europe. In recent years, Automated tried to export its equipment to Brazil, where there is demand for the company's products. However, because the United States does not have a trade agreement with Brazil, Automated's wares are subject to import duties of over 14 percent, while regional competitors may import their products duty-free.

This differential treatment creates an insurmountable margin that prohibits small businesses like Automated from penetrating the market and expanding their operations. This is exactly the type of barrier that could be eliminated in trade negotiations if the President had the trade promotion authority.

My friends, opportunities for renewed U.S. growth are being squandered. High-wage export-related U.S. jobs are being lost and, compared to others, U.S. manufacturers and consumers are paying extra for the same goods and services. In pairs and groups, the nations of the world are passing us by, writing the rules for international commerce and promoting their exports and their business practices. The costs to our country for failing to get back in the race are unacceptably high. Let us agree to work quickly to find common ground to pass trade promotion authority and regain our position as the true leader and innovator in this new era of trade.

I would now like to yield to the ranking minority member of the Subcommittee, Mr. Levin, for any remarks that he would like to make.

[The opening statement of Chairman Crane follows:]

Mr. LEVIN. Thank you, Mr. Chairman, and welcome to each and every one of you. We are glad you are here.

The issue is not whether there should be an expansion of world trade. The question is how that expansion occurs. Globalization is surely here to stay. The real question is whether and how that globalization should be shaped. That involves examining the role of bilateral, regional, and multilateral agreements. That includes an examination of the increasing number of free trade agreements, as I believe is the basis for this hearing today. That examination is necessary before we rush to conclusions as to the interaction between bilateral, regional, and multilateral agreements, and the actual impact of these types of agreements on the U.S. economy.

In this examination, I urge that we need to look not only at the number of agreements, but beyond sheer numbers, to their contents, including the level and actual scope of trade covered by the agreements. I think we will find that many of these free trade agreements, as they are called, are much less comprehensive than agreements such as NAFTA. Indeed, some may be vulnerable to challenge under Article 24 of the General Agreement on Trade and Tariffs (GATT) and similar World Trade Organization (WTO) rules. We should give serious consideration to bringing challenges in appropriate cases.

When it comes to the question of how to shape expanded trade as we enter into more trade agreements of our own, it is vital that we take into account the evolving nature and the new issues of trade. Trade policy is no longer just about tariffs, as important as they were and remain, and the more glaring non-tariff barriers. It is also about labor standards, environmental regulations, health regulations, among other issues, and the impact that these have on the terms of competition. Each issue should be included in fast track and in the agreements negotiated pursuant thereto.

Finally, as I have said before, the best way to move ahead with agreements on expanded trade is as we did last year with very substantial success, is to proceed step by step. The first step is clear. There is a free trade agreement that was negotiated and signed last year and transmitted to Congress at the beginning of this session. I am referring, of course, to the U.S.-Jordan Free Trade Agreement. Legislation to implement that agreement was introduced in the Senate yesterday and will be introduced by me and others in the House in the coming days, and that agreement, as written, should be acted upon expeditiously. With the King of Jordan visiting the United States next week, the time is now to send a clear message that we intend to make the U.S.-Jordan Free Trade Agreement operational.

Thank you, Mr. Chairman, and I look forward to the testimony.

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

Chairman CRANE. Thank you, Mr. Levin.

Mr. Ramstad, I will recognize with panel two, I guess is when your constituent is here?

Mr. RAMSTAD. That is right, Mr. Chairman. Thank you.

Chairman CRANE. With that, I now welcome our first panel to the Subcommittee. Mr. Donohue, you can lead off. May I suggest that if you folks could try and keep your oral testimony to five minutes, any written testimony will be made a part of the permanent record. Mr. Donohue?

Mr. DONOHUE. Good morning, Mr. Chairman. I am here today to suggest that the United States is rapidly losing ground in the free trade arena and failure by Congress to grant the President trade promotion authority threatens our global economic leadership further.

Let me just give you a few statistics. I think we lose sight of the fact that only four percent of the population in this world lives in the United States and the people we want to trade with live somewhere else. The World Trade Organization counts more than 130 regional free trade agreements that are currently in force around the globe, and that number, by the way, is increasing, but the U.S. is a party to just two, with Canada and Mexico through NAFTA and with Israel.

Only 11 percent of the world's exports are covered by U.S. free trade agreements, compared with 33 percent of the European Union's. I came back just last night from a four-day visit with the European Union and find them aggressively pursuing further discussions around the world. And while Western European nations have negotiated 909 bilateral investment treaties, the U.S. is a party to just 43. This country can no longer afford to sit on the sidelines while our competitors are busy cutting deals with one another, often doing it at our expense.

America must reengage global markets and the President must have trade promotion authority for that to happen. Under the authority, Congress agrees to grant the President the privilege of an up or down vote, assuming and demanding that during the process, the President consults with the Congress and if they do not like the agreement he made, they can vote against it. Every President since Gerald Ford, up until the first term of Bill Clinton, had this process and protection and our new President needs it, as well.

Trade promotion authority gives U.S. negotiators the type of credibility they need. Negotiators from our potential trading partners have to feel confident that the U.S. government and Congress will not come back and take the agreement apart piece by piece. As anyone in business knows, you do not negotiate with people who are not in a position to keep their promises.

Finally, I would like to emphasize that trade promotion authority must not be encumbered by extraneous labor and environmental positions. The business community does not oppose discussion of labor and environmental positions, but not as a direct part of the trade agreement and not backed up by sanctions. Mr. Chairman, in long discussions in the European Union (EU) with Commissioner Pascal Lamy and others, they are now coming to that decision and conclusion themselves. Our potential negotiating partners have told them and told us, and they told us in Seattle, that trade agreements that have these provisions directly involved and supported or pushed by mandatory sanctions are not going to fly with them and they are not going to fly here.

Now, history has proven that countries that trade with the United States not only create more jobs, but they raise the standard of living and they generate wealth to pay for environmental improvements.

In conclusion, Mr. Chairman, let me say that our success in the 21st century's global economy requires that we continue working to open global markets to U.S. business. American businesses cannot compete and win unless we have an opportunity. If we have the opportunity, we always compete and we usually win.

Let me make one final point. Absence of a free trade agreement or trade promotion authority is not a significant problem for the biggest of our companies. If you make tractors in Peoria and you cannot sell them into someplace in the world because of high tariffs, you simply make tractors someplace else, like Brazil or Mexico and then sell them into the country you want to go to. Who is most hurt by this problem are the small and medium-sized companies who now, helped by technology, can trade around the world. They will pay a price for our neglect.

It is time to put aside any rivalry that exists between different branches of the government and different parties, and it is important that you understand that the Chamber sees this vote as one of the critical votes this year, and it is important to us because the companies we represent are being disadvantaged in their trade around the world.

I thank you, Mr. Chairman, for holding this hearing. I look forward to the discussions. I have a hunch they will be pretty interesting, and we appreciate being here.

[The prepared statement of Mr. Donohue follows:]

Chairman CRANE. Thank you, Mr. Donohue. Mr. McGraw?

STATEMENT OF HAROLD MCGRAW III, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, MCGRAW-HILL COMPANIES, NEW YORK, NEW YORK, AND CHAIRMAN, EMERGENCY COMMITTEE FOR AMERICAN TRADE

Mr. MCGRAW. Thank you, Mr. Chairman, members of the Subcommittee. Thank you for the opportunity to be here. I am Terry McGraw, Chairman and Chief Executive Officer of the McGraw-Hill Companies. I am here today as Chairman of the Emergency Committee for American Trade, ECAT.

Mr. Chairman, the United States’ trade policy is at a crossroads. The United States faces crucial choices in 2001 determining whether our trade and investment policies will continue to support our economic growth and high standard of living. Over the past decades, America has enjoyed enormous prosperity, in large part because of the open trade policies adopted following the Great Depression. But the post-World War II consensus supporting expansionary trade policies has faltered.

Last year, Mr. Chairman, you, Ranking Member Levin, Congressman Rangel, and others in the House and the Senate achieved some crucial victories on trade. We at ECAT very much appreciate all of your work and your leadership, but Mr. Chairman, much more remains to be done.

The United States is losing ground. Since the NAFTA and Uruguay Round agreements, America has entered into few significant new trade liberalizing agreements. Meanwhile, our trading partners have aggressively negotiated new agreements throughout the world that exclude the United States and disadvantage U.S. companies, and Mr. Chairman, in my written testimony, I refer to numerous examples of some of those disadvantages.

But even more significant, if America does not play a leadership role in new negotiations, then much of the impetus for negotiations in the Western Hemisphere and in the WTO will be gone. Without those negotiations, we will be unable to open new markets, we will be unable to reduce barriers, and unable to support the economic growth and standard of living that we have enjoyed in this country.

In the Western Hemisphere alone, the loss of these opportunities is enormous. Many of these countries maintain some of the highest tariff and non-tariff barriers in the world. In the high-tech sector, for example, only three Latin American countries have signed the Information Technology Agreement. Brazil, with tariffs of nearly 35 percent on information technology products, cites the lack of trade promotion authority in the United States. The same story can be told in manufacturing, agriculture, and other service areas.

An issue of great concern to content providers, such as the McGraw-Hill Companies, is piracy of our intellectual property. Sticking with Brazil, piracy, including motion pictures, music, software, books, totaled almost $920 million in 1999 and a huge $8.7 billion worldwide.

Mr. Chairman, members of the Subcommittee, America must resume its leadership on trade issues. To do that, we must first rebuild the national consensus on trade and lay the foundation for passage of trade promotion authority this year. This is not only essential to rally support in this country, it is essential to progress with our trading partners.

One-and-a-half weeks ago, I visited Brazil and Mexico and met with both countries' government and many business leaders. I left convinced that they are committed to substantially broadening trade and engagement with the United States, but they had concerns about the depth of our nation's commitment to far-reaching regional agreements.

To build that national consensus, we at ECAT believe it is imperative to identify and translate to the public concrete trade and investment liberalization objectives to promote U.S. prosperity. We must make the case, just as we did with China, how trade agreements reduce barriers and result in concrete benefits for U.S. companies, their workers, and their families. This effort requires visible leadership from the President, Congress, and the private sector.

Mr. Chairman, we must also proactively address concerns about the trade agenda, including the issues of labor and the environment. We must take a pragmatic approach to the international labor and environment arenas. After defining and then prioritizing our labor and environmental objectives, we need to identify the right solutions for each. We think these issues primarily are best addressed through their own agendas in organizations with the appropriate technical expertise and not as add-ons to the trade agenda. Much is being done at the International Labor Organization, the NAFTA Commission for Environmental Cooperation, and so forth. These efforts can and should be intensified.

Now, there will be cases where our labor and/or environment and our trade goals complement one another. In such cases of complementarity, we should support both sets of goals in a cooperative and trade liberalizing way. Consider the issue of agriculture subsidies in China, which have a devastating impact on water and land resources in that country. It is important for both trade and environmental reasons to help China end the use of these subsidies and to open its market to agricultural imports. This is an area of complementarity.

Three final points on these linkages. First, any linkages with labor and/or the environment should be positive and not the result in trade sanctions agreements.

Second, trade promotion authority should not be used to mandate the inclusion of labor and environment issues in all trade agreements. The world is simply too complex for a single shot approach.

And third, we must address many of our U.S. workers' anxieties about trade directly through the reauthorization and transformation of the Trade Adjustment Assistance programs.

Trade and investment expansion are critical to America's prosperity. The U.S. occupies a unique position of influence in the world, as we all know. It is so important to provide the President with trade negotiating authority.

My last point. After an incredible period of sustained economic growth, business is facing economic pressure not felt in some time. Consequently, it is more important and more timely than ever that we rededicate ourselves to expansionary trade practices and open markets so that the promise of the global economy can be made fully available to U.S. businesses, their workers, and their families, as well as our counterparts elsewhere.

Thank you, Mr. Chairman, for the opportunity.

[The prepared statement of Mr. McGraw follows:]

Chairman CRANE. Thank you, Mr. McGraw. Mr. Maury?

STATEMENT OF SAMUEL L. MAURY, PRESIDENT, BUSINESS ROUNDTABLE

Mr. MAURY. Thank you, Mr. Chairman, for holding this hearing this morning. My name is Sam Maury and I am President of the Business Roundtable, an association of chief executive officers of leading U.S. corporations. I want to thank you for providing us with the opportunity to share our views on the recent proliferation of free trade agreements, FTAs, that grant parties preferences at the expense of the United States.

The world has entered a new era in international trade, an era in which our trading partners no longer consider the United States indispensable. One defining feature of this new era is the proliferation of FTAs. The United States is a party to only two of the more than 130 FTAs in force today. The European Union has FTAs with 27 countries. About one-third of total world exports in 1999 were covered by EU free trade and customs agreements, compared with only 11 percent for U.S. free trade accords.

The EU is hardly alone. Mexico has FTAs with at least 28 countries, and nine Southeast Asian nations are beginning to consider an FTA with China. The United States is not keeping pace and the implications are serious and they take a variety of forms.

First, we face discriminatory tariffs. For example, the Canada-Chile FTA eliminated Chile's across-the-board tariff for Canada, but not for the United States. Most trade between Brazil and Argentina, two members of MERCOSUR, is now duty-free, while U.S. companies face an average tariff of more than 14 percent.

The case of the Holland Binkley company illustrates the harm that many U.S. companies face every day. Holland Binkley, an Ohio company, recently bid to supply axle products to a customer in Chile. They lost that bid to a Canadian supplier because the Canada-Chile FTA exempted Canadian suppliers from all tariffs. Holland simply could not compete because of the discriminatory tariff regime. Now Holland Binkley exports transportation products to Chile from Canada, not from the United States, in order to take advantage of the Canada-Chile FTA.

Second, because these FTAs increasingly cover trade and services, they often place our service industries at a competitive disadvantage against their foreign rivals.

Third, these FTAs establish product standards that favor our foreign competitors. Their product becomes the standard while the U.S. product becomes non-standard.

Fourth, these FTAs grant our foreign competitors investment opportunities that U.S. investors lack.

Finally, they set dangerous precedents and allow our trading partners to present a united front in future negotiations with the United States. With respect to precedents, for example, the EU-Mexico FTA contains little coverage of agriculture, which supports the dangerous proposition that agriculture is too sensitive for international rules. As a result, the United States will find it increasingly difficult to open foreign markets to U.S. farmers.

With respect to alliances, the four South America members of MERCOSUR hope to conclude FTAs with Chile, the Andean community, and Mexico before MERCOSUR enters the final and most difficult stage of negotiations with the United States on an FTA of the Americas.

Mr. Chairman, U.S. trade policy makers need to reengage immediately and aggressively in trade negotiations. We must proceed on multiple fronts. We must deepen our commitment to a new round of WTO negotiations, complete negotiations with Singapore and Chile, reinvigorate the FTAA negotiations, and begin formulating entirely new trade and investment initiatives. Granting the President trade promotion authority is an important first step towards reengagement on all of these fronts.

The Business Roundtable is determined to reach out to the public and help them understand the many benefits of international trade and the need for trade promotion authority. In 1998, we established the Business Round Table (BRT) Go Trade, a national grassroots program designed to help Americans better understand the benefits of international trade. The initiative continues to expand and build support for trade at the local level. From 11 Congressional districts in eight States in 1998 to more than 160 key Congressional districts covering 25 States today, the program has increased its reach across the country to ensure that the pro-trade message is heard.

Mr. Chairman, in this era, standing still means falling behind. I urge the Congress to give the President trade promotion authority so that the United States can move forward and resume its position of leadership on trade. Thank you.

[The prepared statement of Mr. Maury follows:]

Chairman CRANE. Thank you, Mr. Maury. Mr. Weiller?

STATEMENT OF WILLIAM WEILLER, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, PURAFIL, INC., ATLANTA, GEORGIA

Mr. WEILLER. Good morning, Mr. Chairman. My name is Bill Weiller and I am the CEO of Purafil, the leading manufacturer of air purification systems, based in Atlanta, Georgia. I prepared some testimony that I ask be submitted in the written record and have some brief remarks.

I would like to thank you for the opportunity to testify before the House Ways and Means Trade Subcommittee on whether U.S. business is disadvantaged by the increasing number of trade agreements to which the U.S. is not a party. I am testifying on behalf of Purafil. I also serve on an International Economic Policy Steering Committee of the National Association of Manufacturers.

Why is Purafil, a small American business with about 70 employees, even remotely interested in 130 free trade accords currently in force to which the United States is not a party? Sixty percent of our sales, of Purafil sales, are made outside of the United States. Exporting is a cornerstone of our corporate strategy and I am here to let you know that the effect of these agreements is very real for Purafil. Staying on the sidelines while other companies move forward with their own trade agreements is having negative consequences that will only get worse. Frankly, Congressional inaction in the past six years has been my competitors' best friend, and I urge you to take immediate action on trade promotion authority.

I will give you four examples. The EU-Egypt association agreement, Canada and Chile, MERCOSUR, and the EU-South African agreement illustrate the bottom line impact of not moving forward on trade.

The EU-Egypt association agreement: Purafil's exports to Egypt face a ten percent duty and a three percent surcharge, not to mention a range of difficult non-tariff barriers. As a result of the recently initialed EU-Egypt association agreement, my competitors in the EU will have its tariff in Egypt phased out over a transition period and the 13 percent difference in duties that remains will be enough to turn over our sales in Egypt to our European competitor.

Canada-Chile FTA: In Chile, our products are subject to a duty of nine percent. Purafil's Canadian-based competitors face zero duty, since Chile and Canada have an FTA. I can assure you that for any business, small or large, a nine percent price difference is enough to swing a sale. To level the playing field for my company in Chile, a U.S.-Chile FTA is essential.

MERCOSUR: In Brazil, our products face a duty of 14 percent. My Brazil-based competitor faces no such duty in the Brazilian market or in Argentina, Paraguay, or Uruguay, the other members of the South American MERCOSUR agreement. An FTA would allow Purafil to overcome this 14 percent cost disadvantage.

EU and South Africa: As a result of the EU-South Africa Trade Agreement, my company faces two times the duties in the European markets as my South Africa-based competitor.

Purafil will do everything in its power to remain competitive. I am here today to ask you to do your part. Level the playing field so our people, our technology, and our products can compete in a global market. Level the playing field by providing the President with trade promotion authority to put the U.S. in a leadership role and allow it to move quickly on the FTAA and the WTO. Do not force us to compete with the trade barriers and tariffs currently in place. Thank you.

[The prepared statement of Mr. Weiller follows:]

Chairman CRANE. Thank you, Mr. Weiller. Mr. Tarullo?

STATEMENT OF DANIEL K. TARULLO, PROFESSOR, GEORGETOWN UNIVERSITY LAW CENTER

Mr. TARULLO. Thank you, Mr. Chairman. Let me say at the outset, Mr. Chairman, that I endorse fully the emphasis of the rest of the panel on the importance of U.S. leadership in trade policy. In general terms, I also agree with the proposition that a proliferation of bilateral and regional agreements to which the United States is not party can adversely affect U.S. commercial interests. But my point today is that the consensus on the desirability of U.S. leadership and justifiable concerns about trade agreements that exclude the United States do not take us very far in determining an appropriate policy response. I say this for three reasons.

First, the fact that we can assume some damage to U.S. interests from these agreements does not tell us how much damage is being caused. Without more careful, systematic study, we will not have the answer to this question. Aggregations of numbers of agreements and a compiling of anecdotes are a helpful starting point for analysis, but they can be misleading. When one talks about the number of bilateral investment treaties, for example, one has to recognize that there are 15 different countries in the European Union, each individually negotiating the Bilateral Investment Treaty (BIT). Moreover, it is very difficult to tell from the existence of these treaties how much advantage, in fact, is accruing to the countries negotiating them.

As to anecdotes, there are always anecdotes about lost sales because of trade agreements and I am sure that most, if not all, of them are accurate. But anecdotes alone do not tell us the overall effects of a free trade area upon non-member States. We cannot tell if the free trade area has promoted growth in the countries that are members to it, so that there are more exports from the United States and other non-member countries than would otherwise have taken place. We cannot tell if patterns of world exports have shifted in response to the preferential tariff agreements but have not resulted in much of a net change in world market share.

My second point is that even where preferential trade agreements are of concern and are clearly harming U.S. commercial interests, we cannot assume that a more activist U.S. trade policy will necessarily blunt their effects. Some of these agreements exclude the United States not because of inaction on the part of the United States, but because of an affirmative desire on the part of some of the negotiating countries to exclude the United States. These agreements are intended precisely to reduce U.S. influence, an outgrowth of fears in some other countries of having international systems dominated by the world's remaining superpower.

Now, these first two points do not, of course, mean that there is no sensible trade negotiating agenda which the United States can realistically pursue. Ultimately, the most important question before the Congress and the public is not whether the United States should undertake trade negotiations, but how and with what aim. The day has long passed when trade agreements could be approached as a simple balancing of the interests of import-sensitive industries with those of export-oriented industries and of consumers. The scope of trade agreements has so broadened in recent years that important domestic policies, as well as commercial interests, are regularly implicated in trade policy decisions. For example, recent events underscore the inadequacy of international arrangements to protect food safety and animal health, even as trade in food has been liberalized.

The Business Roundtable's report, which I assume was in part the prompt for this hearing, quite rightly identifies the need to build the national consensus that can form the basis of an agreed mandate from the Congress. Whether one agrees or disagrees with the Roundtable's specific ideas, one should applaud the desire to engage on these issues. Indeed, those who most fear the costs of trade agreements that exclude the United States should have the greatest incentive to address the concerns of citizens who do not stand to benefit directly from new trade agreements involving the United States.

Let me close by trying to place trade negotiations in perspective. As important as they are, they cannot on their own sustain U.S. economic leadership or protect U.S. interests. I would like to suggest just two, rather different additional policies for the consideration of Congress and the administration to complement trade negotiations.

First, we do not need to be passive. I would like to echo Mr. Levin in suggesting that the United States reconsider its position of acquiescing in trade agreements concluded by the European Union that may well violate WTO rules. Historically, there were good foreign policy reasons for acquiescing in those agreements on the European continent. But as Europe seeks preferential trade agreements in other parts of the world, there seems to me no geopolitical or foreign policy reason to give the EU a free ride.

Second, and in conclusion, successful international leadership by the United States requires more sustained attention at home and abroad to those who have difficulty benefitting from increased international trade. I think the members of the Committee are well aware of the range of possibilities and I hope that you and the administration will continue to pay attention to them as you move forward. Thank you, Mr. Chairman.

Chairman CRANE. Thank you, Mr. Tarullo.

[The prepared statement of Mr. Tarullo follows:]

Chairman CRANE. We are going to be interrupted here shortly by a couple of votes on the floor and we will recess, but we will wait until the second bells go off. In the interim, I have a question for the entire panel.

Some have said that the U.S.-Jordan Free Trade Agreement is a political document closely related to the Middle East peace process. What do you see as the benefits and pitfalls of this agreement from a trade perspective? Yes, Mr. Donohue?

Mr. DONOHUE. Mr. Chairman, the total trade between the U.S. and Jordan is less than $300 million. A great portion of that is money that we give them to buy weapons from us. They are a very important strategic country to us. We have hosted the King at the Chamber on a number of occasions. But this agreement, which he sought for strategic reasons, was then loaded up with the labor and environmental provisions as a cost of getting the agreement and was then sold to the labor unions and others as the template that they would use for future trade agreements. And to retract -- there is very little trade going on here.

If we decide that this is something strategically we should do, then Congress is very able to take care of it. It was not done under a fast track provision, so Congress can remove the defined template of labor and environmental issues, which can and should be dealt with in other ways, and pass the strategic agreement without any delusion that it is a free trade agreement. There is no trade going on.

And the Chamber and other members of the business community will oppose this agreement if it contains those provisions, not because we have any problem with Jordan or with a free trade agreement with Jordan. But to set this template in such a visible and artificial way is not acceptable.

Chairman CRANE. Mr. McGraw?

Mr. MCGRAW. Mr. Chairman, the member CEOs of ECAT look pretty much at the Jordanian bill as a foreign policy issue. And if it is one whose objective is to support the peace process in the Middle East, then I think most of the ECAT members are supportive of that kind of an agreement.

However, there is the feeling that as a trade agreement it fails in terms of the language on labor and environment because of the fact that the United States does not have any real significant labor or environmental issues with Jordan. Therefore, I come back to my earlier comments that in terms of both labor and environment, it is very important that we set up in each individual case what are the specific objectives that we are trying to solve and then identify how we are going to go about achieving those objectives.

I would also say that there is concern about the overall punitive nature of the possible inclusion of trade sanctions, and that when we start talking about developing agreements where developing countries are trying to be encouraged to undertake trade liberalization, that these provisions could be counterproductive in terms of their participation.

One positive point that I would say is very much welcome in the language of the Jordanian agreement has to do with the intellectual property rights area. I think there is also very good language in terms of electronic commerce and in the information technology area. So I think that is a benefit to this agreement.

But as a trade agreement, I think that the flaws in the overall package, you know, spelled out with the labor and the environment and the trade sanctions, are negative. But the peace element and the objective for promoting that process is one that I believe we all support.

Chairman CRANE. Thank you. Mr. Maury?

Mr. MAURY. Mr. Chairman, the Roundtable has not yet taken a position on the agreement, so my comments would have to be personal. I appreciate the way you asked the question, because what the question implied was that we need to have a balancing of interest tests and we need to look at each of these agreements on a case-by-case basis.

What is the plus? Well, you know, the problem, and the testimony has demonstrated it here this morning, is that we are facing a logjam. I mean, the chairman's opening statement was, here we sit debating with ourselves while the world passes us by, and when the world passes us by, we lose. So I think there is a big plus from the standpoint of breaking the logjam and moving forward.

The downside, as Mr. McGraw pointed out, I think there is a great deal of skepticism with respect to the use of sanctions.

Chairman CRANE. Is anyone else wishing--Mr. Tarullo?

Mr. TARULLO. Two quick points, Mr. Chairman. First, on the foreign policy issue, I would just like to underscore that the situation in Jordan is potentially an unstable one. The United States does not have a lot of foreign policy instruments at this time to help stabilize countries in the region and I think it is essential that before King Abdullah arrives in Washington, we move forward with one of the instruments we do have at our disposal.

Secondly, I think it is notable that Jordan, as an emerging market country, was willing to include the labor and environment provisions in the agreement. Moreover, I know from firsthand knowledge that some of the other countries which were beginning to line up for bilateral negotiations with the United States were not closed-minded about the proposition that they, too, would negotiate such terms.

So again, I think it comes back to an issue of what does the United States, what does the Congress, what do the American people want to have in their trade agreements and then we can confront the issue of trade-offs of negotiating aims. But I do not think anything should be off the table from the outset. Thank you.

Chairman CRANE. Thank you. Mr. Weiller, a specific question along this same vein. Does an agreement with Jordan, does that adversely affect U.S.-Egyptian trade relations?

Mr. WEILLER. My company does no business with Jordan. We do business with Egypt. Egypt is a larger country. Obviously, its potential is great. I am actually concerned because this is a political matter that is being--to me, is almost disguised as a trade issue. I am concerned that our market in Egypt, small as it may be, has a lot of potential because it is a large population base and we feel that as they grow and as its importance grows, we will be able to establish help in determining some standards.

Currently, we are ignoring Egypt and focusing on Jordan as if it was a trade issue, where I do not hear much trade going on, and we are ignoring this while the EU is in a process of initialing and carrying out agreements with Egypt. So I am concerned that, in real terms, we are losing market potential and future market potential.

Chairman CRANE. Well, I appreciate the input. I have met with some of the Egyptians and will continue to do so.

Folks, because we are running out of time here, we will recess subject to call of the chair, until after that second vote. After everyone casts his second vote over there, if you could all hurry back here, we would appreciate it.

[Recess.]

Chairman CRANE. Folks, if you would please take your seats, our groups should be coming back from the floor. In the interim, let me put another question to the entire panel. It is about mentioning the importance of expanding our market access in Latin America. What concrete steps can President Bush take to reinvigorate the FTAA negotiations and has lack of trade promotion authority raised concerns in the FTAA negotiations about a lack of will on the part of the United States to lead in these talks? Has this perception spurred others in Latin America to go ahead without us? Any comments from any of you?

Mr. DONOHUE. Well, Mr. Chairman, as you know, MERCOSUR has been developing while we sit and watch and some people think that is bad. Other people think it is a good forerunner to bringing everyone together in a free trade agreement.

The Chamber has said along the way to do a free trade agreement of the Americas is to allow everyone else to cut every bilateral or group deals throughout the region. When I went to Mexico ten days ago, when I arrived, they had 30 free trade agreements. I stayed for two days, met with the president and others, and when I left, they had 32 free trade agreements. So I think what is clear is that to get the ball rolling, we need to instruct the trade negotiators to put -- and, by the way, I believe the President has done this -- trade agreements high on the list and to continue these negotiations in an aggressive way to protect our interest, because the longer we wait, the more other agreements are being made that are going to complicate our ability to build the type of free trade agreement of the Americas that this part of the world needs to compete with what are the development of three or four very aggressive cartels around the world.

Chairman CRANE. Yes, Mr. Weiller?

Mr. WEILLER. Thank you. If I may just add to that, I would like to add a sense of urgency that is missing. While we are talking, the Europeans are working and concluding an agreement with the MERCOSUR countries. We are not even a player at this point. Companies such as mine--and I can only speak for myself, so I assume others like me, smaller companies--we are facing a very direct challenge to our ability to remain in those markets because the duties are so severe in terms of differentials that you will severely impair our ability to continue in that market.

As far as I am concerned, potentially, the market in Latin America is, what, I think three or four times greater than in China. So this is something that is close by, it is important to us, and I am not seeing any sense of urgency in terms of concluding something of this sort.

Chairman CRANE. Mr. Maury?

Mr. MAURY. Mr. Chairman, I think that we need to have a consensus in this country on trade, and I know that you and Mr. Levin have been working very hard to develop that. So I would say that the first and best thing the President could do would be to step out and start to help develop that national consensus.

I would say, secondly, he should be given trade negotiating authority. It should be as flexible as it can possibly be. And then the Congress should judge what he brings back. And third, I think we probably should start to focus on Chile.

Chairman CRANE. Anyone else with any comments? Mr. McGraw?

Mr. MCGRAW. Mr. Chairman, I would just echo on some of those things, but I think the President needs to take a leadership position in speaking out to the American people, perhaps from Quebec City, in terms of the importance of this agreement, not only to his agenda but why, given the push for all the bilateral agreements, why we need a regional and a broader conclusion to that.

To Sam's point about a lot of the agreements throughout Latin America, as described in my written testimony, it is mind boggling the number of bilateral agreements that are going on with Mexico, Canada, Chile, and it goes on and on and on. And, by the way, everybody wants to have a bilateral agreement with the United States, but positioning it becomes somewhat difficult. And where this is important, to be able to be included into those kinds of discussions, bilateral arrangements are second best to the development of those broader global and regional kinds of agreements.

So, one, the President is going to have to take leadership, I believe, in developing that consensus with the American people on FTAA and the importance of trade. Number two, he is going to have to have trade promotion authority to be able to have the teeth to be able to pull that off. So I would put it in those priorities.

Chairman CRANE. Thank you. Mr. Levin?

Mr. LEVIN. Thank you. First, let me apologize in a way for those who are not here. We are just starting the debate on another tax bill and it is not a very fortuitous coincidence. Mr. Rangel and others would otherwise be here, and I am sure the same is true on the Republican side. This is the Committee of jurisdiction on the tax bill.

We were going to, I thought, focus mainly on the issue of proliferation of free trade agreements and others, but since other subjects have been raised, let me, if I might, take some time to just say a few words.

I very much appreciate, Mr. McGraw, your statements about the progress that was made last year. I think progress was made. I think we regained momentum. I think we did so partly because we tried to work together across party lines. I think also because we tried to tackle some of the troublesome issues taking each agreement on its own, some of the issues that have been controversial, and I think they are important issues.

In the Caribbean Basin Initiative (CBI) agreement, for example, in terms of labor provisions, we enhanced them as we gave greater access to countries to our textile and apparel market and other markets. Cambodia also tackled the issue of labor provisions. In China, which was a different proposition, I think we did take the lead, this country, in trying to work out an understanding with the Chinese, and there it was not a bilateral or regional. It was, as we know, accession to the WTO. We tried to tackle how we both engaged and kept pressure on China. We set up, as you know, the commission that includes human rights and worker rights. We have a major anti-surge provision in there, the strongest one ever written into American law. And we provided effective mechanisms for oversight.

And this brings me, Mr. Maury, I think to your comment, and that is the logjam. I think the danger is that we are going to fall back into a logjam, which was broken last year, and that the forward momentum is now going to be imperiled. I think the only way to avoid that is for people to have some open minds on these issues, including labor and the environment, and understand what it is all about. I want to say just a couple of things in that regard, because Mr. Donohue and I have talked about these issues over a substantial period of time.

There is a reference to special interest efforts. I would urge, as we have open minds, that we not readily use that term. When we were debating China, we did not talk about the business community interests as special interests. When we debate the Ex-Im Bank, I try to urge people to look at the merits and not just talk about special interests.

There is a reference to extraterritorial application of policy objectives. When it comes to environmental and labor standards, these are often international standards like the International Labor Organization (ILO) core labor standards. In a sense, everything is extraterritorial in their application. A trade agreement is by definition.

And in terms of relevance to international commerce, we have been dealing, for example, with labor provisions in GSP for years. I think the problem is not the lack of relevance but the fact that these are labor market and environmental issues that are relevant to international commerce. That was one of the bases for the President's position, whether you agree with it or not, on the Kyoto Accord, that it would be harmful to American interests in terms of trade and commerce internationally.

So if we are not going to fall back into a logjam, there is going to have to be willingness to have open minds and to engage. Otherwise, we are going to go nowhere and it is going to be essential to do that in terms of rebuilding a national consensus.

So let me just say a word about Jordan. There has been reference to intellectual property provisions. I think they are important. It is a small country in terms of our trade, but we have trade agreements with a lot of countries where there is relatively small trade. Cambodia is an example.

I think that we also talk about trusting when the government negotiates, and our government negotiated an agreement with Jordan. I was there when the King said they wanted to discuss and negotiate on labor and environmental issues. We did not drag them across the line. I just hope that we will not draw hard lines in the sand, because if we cement ourselves in, we are going to be back to three or four years ago instead of the momentum we gathered last year. We need to build on that, not pull the rug out from under it.

And so while that was not the purpose of the hearing today, and, therefore, I think it may be better just that I make my views clear, I just wanted to be very clear that we are headed for a return, Mr. Maury, to the logjam if there is not a willingness to engage on these issues with some openness of minds. If we fall back into the pitfalls of polarization, we are going nowhere.

Mr. DONOHUE. Congressman, I think those were very useful comments. I would just like to make two comments that might add to your thinking.

Number one, what really is the challenge for America in trading around the world is our compulsion to impose unilateral sanctions. We have unilateral sanctions in more places than you can count. We have missed the Vatican and Bermuda and other places, but we have got unilateral sanctions just about everyplace else. And every time we have a unilateral sanction, our trading partners, our best friends, have a cocktail party and celebrate because we are staying out of markets.

And the challenge about labor and environment is not whether, as you and I have discussed, not whether we should find ways to establish our views, to encourage objectives, to have side agreements, to support the ILO, or to do any of those matters. The challenge is that what we are talking about here is including in trade agreements like Jordan mandatory sanctions, where it would not only be sanctions against Jordan but could be sanctions against the United States if some third party there took a complaint against us.

And if we are going to continue to put sanctions in everything we do, you are going to find that as we become a smaller and smaller part of the world trading system that folks are just not going to play that game. And until this country recognizes that if every trading agreement, every time we have a disagreement with somebody around the world, we are going to establish a trade-based sanction, if we do not deal with that, it is going to be a lot worse than having logjams here in the United States.

Mr. LEVIN. Before you make your second point, let me just respond. There is nothing mandatory about any enforcement provision in the Jordan agreement, as there is nothing mandatory about the provisions in GSP, which have been used in terms of mandatoriness without sanctions but effectively. There is nothing--for example, I forget who it was who referred to the intellectual property provision.

Mr. DONOHUE. Mr. McGraw did.

Mr. LEVIN. Okay. Those are important provisions. True, Jordan is small, but you said they were important. You have to make sure they are enforceable, and that does not mean the minute that they do not--in fact, the language of Jordan is written to undermine the notion that at the drop of a hat, there would be a mandatory sanction. The language is carefully written so that will not happen. And we have all kinds of consultation processes within and mediation processes short of there being any utilization of sanctions on either side.

Mr. DONOHUE. Well, I would--

Mr. LEVIN. I would just urge, before we raise that flag and get everybody into a polarized position, that we think twice, because we are going to go back to where we were three, four years ago if we are not careful. Now the second point.

Mr. DONOHUE. Well, let me just say that I agree with you that there is a significant consultation and process before sanctions are implemented. So yes, and I was getting to the point. If all of those matters fall aside, sanctions are there.

Let me just make the second point. I think, as I said in the Senate the other day--Mr. Sweeney was on the panel, as well--that the arguments and the debate about labor and environmental issues are not ones the business community shrinks from. We have an extraordinary record of what happens abroad when we trade. What we are saying is there are appropriate institutions for that. There are extraordinary numbers of environmental treaties for that. There is the willingness to even enter into sidebar objectives and working groups.

But when you put sanction-involved programs in trade agreements, you are setting up a--I talked at great length with Pascal Lamy about it just Monday. You are setting up a situation that is just not going to work, and we know, and let me just end--when Jordan came here and wanted a free trade agreement, the only way they got it was with labor and environmental issues in it. Now, you can say that the King came here and asked for that--

Mr. LEVIN. No, let me be clear, because I was there when he was there. Let me be very clear. He was very categorical about their willingness to negotiate on those subjects and he never for a minute said anybody was twisting his arm. And I have talked to Mr. Lamy, too, and I talked to the people from Singapore in terms of the willingness to negotiate. With CBI, we had extensive discussions with Central America and with Caribbean nations. There is now a growing recognition that you cannot escape the environmental and labor market aspects of the competition between nations. And if we try to put it under the rug, it is going to pull the rug out from under any real chance to move ahead. A lot of us want to move ahead. We did last year. I do not think we have to talk about our credentials on that subject.

Mr. DONOHUE. No, you do not.

Mr. LEVIN. And if we do not get some open-mindedness and some willingness to sit down and talk about, back to deadlock or back to logjam, as Mr. Maury said.

Mr. DONOHUE. Well, nobody wants logjams, Congressman, but trade agreements at any price are something that we are not prepared to do.

Mr. LEVIN. I do not suggest at any price. I suggest with an open mind and realization as to what is really going on.

Chairman CRANE. The time of the gentleman has expired. Mr. Houghton?

Mr. HOUGHTON. Thank you, Mr. Chairman. As you know, it is fascinating going over the script again. So many of us have been over this territory so many, many, many times, and it seems to me there are three issues. One is the labor issue. One is the ag issue. And the other is abiding by the rules.

But let us get to the labor issue for a minute, and I would like to ask Sandy, if you could wave a wand and have any labor, critical, not detailed, critical labor standard, what would it be?

Mr. LEVIN. If the chairman would allow, I will be very brief.

Chairman CRANE. Please.

Mr. LEVIN. He asked the question, though.

Chairman CRANE. You volunteered to be brief.

[Laughter.]

Mr. LEVIN. What we are basically talking about are the core labor standards of the ILO, which virtually every nation has agreed to embrace. The question is whether they will apply them, and there is no enforcement mechanism in the ILO. There is clearly, like labor market issues relevant to economics domestically, they are internationally. The question is how we handle them.

And my main point is that it will differ also from agreement to agreement. Cambodia was not the same as CBI. And everybody, both Mr. Donohue and those who have somewhat different views, agree Jordan is not a template. It is not going to be utilized automatically every time this issue is raised. And the WTO is different than a bilateral agreement, and the regional Free Trade Area of the Americas (FTAA) is different.

I will close with this, going back to intellectual property. We are not going to negotiate an intellectual property agreement with Brazil in an FTAA without enforcement within the agreement. At least, I assume that will be totally unacceptable, including perhaps the possibility of sanctions.

Mr. HOUGHTON. Sandy, you are going to take all my time. Look, my understanding originally, when we were talking about the labor and environmental agreement, particularly the labor agreement, that if labor agreements had two concepts, one, that the labor agreement would apply only to trade issues--it would not just be for everything around the country, and secondly, that all we asked was that people abide by their own labor agreements. To me, that was never a problem. I did not see that. It is not an ILO standard. It is not an AFL-CIO standard. It is their own labor agreements.

I do not know how you gentlemen feel about that, but if you could do something like this, it would get us over that terrible hurdle, more than the agriculture, more than the intellectual property rights, more than anything we are talking about as far as MERCOSUR or any of these other issues. How do you feel about that?

Mr. MAURY. I will attempt a brief beginning answer to that question, Mr. Houghton. I do not think it is a question anymore of whether labor or environment is included in trade negotiations because it is going to be, and I will take a second seat to none with respect to advocating the passage of NAFTA, and, of course, NAFTA has in it side agreements on labor, and actually in the main agreement, a provision on the environment. What is unacceptable is standing still and letting the world pass us by. It is not unacceptable just because it is nice to delay a decision, but these periods of time that we take having these debates are not for free. I mean, they cost people money.

Mr. HOUGHTON. Let me just interrupt, because my time is running out.

Mr. MAURY. I do not have any idea--

Mr. HOUGHTON. And I appreciate that. The only thing is that we can pose the problem and we can talk about sort of the generalities and the philosophies here, but that labor issue is the critical thing to get over, and it would seem to me that if you go back into the original understanding, that if people abided by a reasonable labor standard set up in their own country--not on our standards, not somebody else's standards, their own standards--that that would really solve that problem. Am I wrong? I have just got a few seconds left.

Mr. MCGRAW. Congressman, I certainly do not think you are wrong. Again, I come back to the whole issue of making sure that in each individual agreement that we take the time to define what the objectives for labor and environment are that we want to achieve.

Mr. HOUGHTON. No, it is not what we want to achieve, it is they have already set those labor objectives.

Mr. MCGRAW. No question.

Mr. HOUGHTON. Okay.

Chairman CRANE. The time of the gentleman has expired.

Mr. HOUGHTON. My time is up. Thank you very much.

Chairman CRANE. Mr. Ramstad.

Mr. RAMSTAD. Thank you, Mr. Chairman. I, too, appreciate the input of this distinguished panel and I agree with one thing my colleague and friend from Michigan said, that it is too bad that everyone on this panel, on the Subcommittee, is not here to get your input. In fact, every member of Congress needs to hear from you, particularly those of you involved, engaged in the global marketplace who deal in your businesses or those you represent with real trade barriers in trying to grow the economy, create jobs, and we need your input on this.

I just think it is economic suicide to not pass trade promotion authority, and it is alarming to hear your testimony, to hear the fact, Mr. Donohue, that the United States is a party to only two of the 130-plus free trade agreements currently in force around the world. This means, obviously, that U.S. companies are disadvantaged in their efforts to sell products overseas, to export products and services overseas. And on the issue of free trade rules, they are obviously being written, for the most part, without U.S. input. How are we going to influence labor and environmental standards if we are not engaged in these places, in these countries and with these countries, with these economies? And, of course, the 130, I am sure, most of the 130-plus trade agreements that you have referred to have been concluded since fast track, or as we now call it--the vernacular now is trade promotion authority, expired.

Let me ask you this, any of you on the panel. Can any of you quantify the damage? Is there any empirical data that quantifies the damage that U.S. non-participation has cost our economy in terms of jobs lost, gross domestic product? Do any of you know of any such studies?

Mr. DONOHUE. We can use experience. The NAFTA agreement, which Mr. Maury referred to, has created in the United States since its inception about a net 1.3 million jobs. It has significantly improved circumstances, by the way, in labor and environment, in Mexico at the same time. So one could suggest that in the absence of an agreement, others are reporting to their legislatures about the jobs that they are creating.

Now, I will make one point. A large number of these agreements have recently been negotiated. As I said, when I was in Mexico, they were doing it while I was sitting there. So we are only going to begin to see the competitive disadvantages in the weeks and months ahead, and the longer we wait, the more egregious that is going to be.

Now, we have some advantages here in the United States. Our economy is so big, we could go out and make the right six free trade agreements and we will be ahead of all the aforementioned. But we need to understand that agreements come because there are advantages to both parties, and while we are here discussing, appropriately, labor and environment, many people who will take up objectives and those kinds of issues are not going to do an agreement with us if it has sanction-based labor and environmental standards.

So the number--just use NAFTA as an example. Multiply that out for all the agreements that are going down the road and it is pretty clear that others will benefit and we will not. Now, we are going to still succeed--many of our companies are going to succeed because they are going to find a way around the obstructions that are in their way. They will move somewhere where they can build their product and then sell it in one of those free trade agreements without paying the penalties that are now paid by American companies all over the world.

Mr. RAMSTAD. Thank you, Mr. Donohue. I certainly appreciate that response and I think it is the accurate one. I also appreciate the input, I think it was you, Mr. McGraw, who referenced the tripartite effort that is necessary to get this passed, and we do need strong Presidential leadership. Those of us who support these agreements and the trade promotion authority have pledged our best effort here in the Congress, and we also need the continued involvement and leadership from the business community, from you and those businesses that you represent.

I know as a good friend of your predecessor, Ernie Micek from Cargill, who was a good friend of everybody on this dais, I know you will provide that leadership, and at least most of the rest of you on this panel, as well. So thank you again for working in a collaborative way with us. I do not think anything is more important that this Congress will do.

Chairman CRANE. Thank you. Ms. Dunn?

Ms. DUNN. Thank you very much, Mr. Chairman.

Mr. MCGRAW. Could I respond very quickly? Excuse me, Congresswoman.

Chairman CRANE. Yes, Mr. McGraw?

Mr. MCGRAW. Thank you for your comments, and I will make sure I relay those to Ernie. He will feel very good about that.

I agree with your comments. Again, you can look at a lot of facts and figures. Over the last decade, about a quarter of our growth, economic growth in this country, is a function of U.S. exports. When we start talking about the real benefit of economic growth and that kind of development in those foreign markets, now we are really starting to talk about how countries are starting to develop that middle class, how they are starting to develop all those labor practices, and it is going to influence labor and environmental issues in that way. So the economic growth through trade is certainly going to be a big part of that level of improvement in other countries. I just thought I would throw that out.

Mr. RAMSTAD. Put another way, it is a win-win, a win for both. Thank you again, Mr. Chairman.

Chairman CRANE. All right. Ms. Dunn?

Ms. DUNN. Thank you. Welcome, gentlemen. I am sorry we had to miss a little of this important time because of votes on the floor, but I am glad to have a chance to question you.

I had a recent meeting with Dr. Supachai, who is going to become the Director General of the WTO in about 18 months, and we talked about labor and environmental provisions in trade agreements. He represented mostly developing nations when he ran for that post, so I wanted to know his opinion of whether something could be worked out in those two areas. He said in the environment, probably. But, he said, when it comes to labor, that is a big problem for developing nations. We all were aware of the enormous result of the President's speech during the WTO meeting in Seattle, where he said that there was a possibility the United States would use sanctions on nations that did not accept our standards of labor.

I have a lot of concern about this and I am wondering, one of you mentioned that the ILO is involved and others are involved in a roundtable to try to solve some of these problems and I would like to hear more about that, because it is a political problem for us on the Hill, even though most of you make a very rational and strong and realistic, I believe, case for why we should not connect those two. Would anybody care to comment?

Mr. TARULLO. Ms. Dunn, the ILO has obviously existed for almost 100 years precisely to promote labor standards. I think the perceived problem that many labor advocates have with the ILO is that it seems not to have been particularly effective in doing so. Indeed, a recent case in which, for the first time in memory, the ILO approved sanctions against Burma for violation of fundamental labor and human rights, has resulted in virtually no imposition of sanctions or change in Burmese practices, and I think that has reinforced the sense of a lot of people that the ILO is not an effective forum.

Indeed, a lot of people say about the ILO what a lot of business people used to say about the World Intellectual Property Organization. It is a good organization, it has got some good ideas, but it has not been effective. And just as a lot of business people who are concerned about protection of intellectual property wanted to take the intellectual property issue out of WIPO and put it into the WTO, I think a lot of people concerned about labor standards want the WTO also to have a role because of the inadequacies of the ILO.

Ms. DUNN. Okay, let me just stop you there. Does anybody else have any other comments on this? Tom?

Mr. DONOHUE. When I testified at the Senate the other day, John Sweeney pointed out the ILO funding and so on was being cut. I offered to support continuance of it. I think the ILO has not been as effective as it needs to be but can be, and I think that, as you know, Congresswoman, I offered John Sweeney and supported a working group in the WTO on labor which would handle a lot of this, and we were making some progress in Seattle when the President gave that speech. It is an uphill issue here in the Congress, as we have seen in our discussion, but it is an up-mountain issue around the world. I hope we can find a way to work it out. It is important and you have been very helpful and I thank you.

Ms. DUNN. Yes, Mr. McGraw?

Mr. MCGRAW. Congresswoman, I would also add, it takes commitment. I agree with some of the comments on the International Labor Organization that you were making. The problem has been, and it was the same thing with the predecessor to the WTO when we were talking about GATT, when we do not have clarity in terms of the objectives that we are seeking, in terms of our agreement, it is very hard to place commitment behind those organizations that we want to address those particular kinds of issues.

So yes, there has been a mixture of response to organizations like the ILO or the NAFTA Commission for Environmental Cooperation and the like, but if we are going to be serious about those issues and serious about going after the objectives that we are trying to establish and trying to achieve, then we are going to have to put our full commitment behind it.

It is one of the problems, Congressman Levin, that I believe comes back to the process nature of putting in blanket labor or blanket environmental clauses into our trade agreements. It does not address the specificity of what particular objective we are trying to go after, and secondly, it undermines those various organizations that you are talking about Congresswoman, that are trying to deal with those issues.

So when we do identify and have clarity about the objectives, then we have to decide and identify how we are going to go about achieving them and in what organizations we want to be able to achieve them.

Ms. DUNN. All right. Let me just leave it at that. I am sorry, Mr. Weiller, but I am almost out of time and I just need to put a question out there for you all to be thinking about. I hope the chairman will yield me a few more seconds.

I do not think we are very good about talking about free trade in the United States. Recently at an international meeting, I heard Brian Mulroney, for example, talk about the benefits of NAFTA to Canada and the United States and Mexico. I have heard Vincente Fox talk about the same thing. I just do not think we are good about doing that here. What do you suggest we do? It seems to me that we have got to start training our leaders to get out there and sell the benefits of free trade. We have not done it well and so we have not built a consensus behind it. We continue to have tough discussions every time this issue comes up when, from most of your testimony, it is obviously a very good place for us to be. Any thoughts?

Mr. MCGRAW. Congresswoman, one quick observation. On the whole education front, we all can share a great deal of blame, I believe. When we start talking about educational reform initiatives and we start talking about our math and our science skills and how we have to do so much that way, we also have to improve upon our basic understanding of the world that we are living in. There are a lot of organizations, there are a lot of programs that are working very effectively at dealing with some of those, like the National Council on Economic Education, and on and on, lots of different programs.

But I do believe that at the very top, the President is going to have to make trade a very, very important dialogue with the American people. I am very concerned about, as you are, about the lack of understanding that we talk about in terms of globalization and its ramifications on growth and on their own job security. When we talk about job security and when we talk about those kinds of issues, the anxiety that exists today with U.S. workers is abnormally high. They do not trust globalization. They are fearful. When they have lost their jobs, there are concerns about those dislocations and how they can reenter the workforce.

And, therefore, I come back to the overall initiative of trade adjustment assistance programs, and I know that is coming up by the end of September in terms of its reauthorization, but it is not just trade that is doing that, it is a lot of the technological development, as well, that is costing those jobs and we have to understand those implications. But we need to put more emphasis behind those trade adjustment assistance programs, as well. But a great deal of effort has got to be done, not only by government leaders but by the business world, as well, in terms of trade and global education.

Chairman CRANE. Thank you. The time of the gentlelady has expired. Mr. English?

Mr. ENGLISH. Thank you, Mr. Chairman, and I want to thank you, Mr. Chairman, for convening this panel. I think it is very timely.

Mr. McGraw, on your last point, in your testimony, you touch on trade adjustment assistance and, I think, establish very well the case for reauthorizing it and making the center--one of the components of our trade strategy. One thing that was not clear from your testimony is what changes you might recommend in trade adjustment assistance to make it more effective. For example, would you consider favorably the notion of changing the Trade Adjustment Assistance (TAA) eligibility overall to more resemble the eligibility built into the TAA NAFTA-Mexico program?

Mr. MCGRAW. Congressman, I am certainly not an expert in terms of being able to comment completely on your answer. I think that when we start talking about TAA modifications and modernization, we certainly are going to have to look at a far more inclusive set of programs that take into ramifications not just trade, but some of the technological changes that have resulted in a loss of those positions, as I was saying to Congresswoman Dunn on that one.

In terms of inclusion, in terms of any part of the NAFTA assistance program, there are probably wonderful examples like that that we could work on. I do believe that a larger overhaul of the adjustment assistance program is necessary.

Mr. ENGLISH. Thank you. Mr. Donohue, thank you for your testimony, and if I could, I would like to delve a little bit into your approach to normal or standard trade negotiating authority for the President. My understanding is that the Chamber would oppose a fast track proposal or an expedited negotiating procedure proposal that would mandate that labor and environmental provisions be included in any trade agreement, is that fair?

Mr. DONOHUE. Yes. If the legislation mandated labor and environmental provisions within the trade agreement that had ultimate sanctions involved, we would oppose it. Agreements to work together or agreements to set objectives, agreements to do those kinds of things are acceptable either in or out of the agreement. But the sanction-based ones, we would oppose it.

Mr. ENGLISH. And you would, then, oppose trade agreements that include in the body of the trade agreement non-trade-related items, such as labor and environment, with trade sanctions being the specified penalties?

Mr. DONOHUE. Yes.

Mr. ENGLISH. What would your position be on a fast track, or whatever you want to call it, proposal that would allow labor and environmental issues to be considered within the trade agreement but without trade sanctions being applied in cases of dispute?

Mr. DONOHUE. We have always said that the trade discussions that include reasonable objectives that would be coming from the trade arrangement that would, hopefully, improve labor and environment provisions, that those statements of working together and objectives and so on, the devil being in the details, we would certainly support those agreements.

Mr. ENGLISH. Currently, I believe, Canada has side agreements with Chile that allow for labor and environmental standards to be applied, but that in the event of a dispute, there would be monetary penalties as opposed to trade sanctions. Is that a model your organization would consider, depending on the details?

Mr. DONOHUE. Mr. English, that is a very good question, and you want to be very careful--we want to be very careful in answering it.

Mr. ENGLISH. Certainly.

Mr. DONOHUE. It certainly is far more preferable than sanctions, but we do not want to suggest from the business community that we will pay for the behavior we choose. But obviously we might have something to work with there.

Mr. ENGLISH. My final brief question will be, would you be supportive of a fast track proposal that would be silent on how labor and environmental provisions would be addressed in a treaty that might be brought back by an administration with labor and environmental issues potentially addressed?

Mr. DONOHUE. Yes.

Mr. ENGLISH. Thank you.

Mr. DONOHUE. Thank you, sir.

Mr. RAMSTAD. [Presiding.] The gentleman from Kentucky, Mr. Watkins.

Mr. WATKINS. Oklahoma.

Mr. RAMSTAD. Oklahoma.

Mr. WATKINS. Mr. Donohue, you are correct. Let me say, I was in Seattle and the President pulled the rug right out from under us at a time when I thought we were on the verge of doing some good things, but that is not the only time. On fast track, there is no reason why we could not have passed fast track if Bill Clinton had truly been sincere about dealing and working on it. But he catered to labor and catered to the environmentalists totally. That is why we do not have fast track, and I get tired of people painting it over. That is exactly what happened to us here in that particular time.

But I am interested in supporting a trade promotion authority. I want us to move it. I want us to get it. But I also want us to be on fast track. Fast track, or full court press, as I like to call it, is done--there was a question a while ago. We have not done the things necessary to build an image. We have got a Trade Subcommittee here in Congress. We have got a USTR that has hidden all of it. Why do we not make a Department of Commerce and Trade if we are sincere about trade and build that image. Let us make a United States Chamber of Commerce and Trade. It is image. I read this as just commerce. We do not talk about it.

In 1980, I started working building a global trade center in Oklahoma, in Stillwater, Oklahoma, because I knew that my small businesses and my people did not understand global trade, and we need to be able to provide the right, yes, image, right perception, and the right reality, and we have not done the job out there. Small business industries are suffering.

We have talked about the environment, labor, and ag. I have a strong background in ag. I wonder if your businesses had $7 billion of export trade subsidies locked in against you, how would you survive it? That is what the GATT talks happened, Mr. McGraw. The GATT talks locked in $7 billion of export subsidies for the European Union. They grandfathered in about $200 million in ag for the United States, but $7 billion. Twenty-seven trade agreements have been signed by the European Union and some of them have allowed a loss to take place in agriculture in order to grab other trade agreements with other commodities and products of our country. That is why we are talking about ag. We are being sold down the drain by our own United States Trade Representatives and people who have been taking care of other factors. I do not deny it.

But let us not talk like we have done a good job. We have not done a good job negotiating, and I want the United States to lead. I have asked Alan Greenspan before about--when I became, Mr. Donohue, really passionate about trade was in 1980 when I woke up and realized we were at about a $69 billion trade imbalance. Look where we are today. We are at, what, a $400 billion trade imbalance, and Alan Greenspan said he does not know exactly how that is going to all play out with the overall economy. But we need to do some things, I think, to build that image that we are sincere about it. There is a lot that we can do. But also, do you have any feeling about what the situation is that we are confronted with on the trade imbalances, how that is going to in the long run affect our economy?

Mr. DONOHUE. Well, Congressman, you certainly covered a number of issues and I wish I could respond to a number of them, and I will come and see you because we are doing a lot. We have 90 American Chambers of Commerce abroad. We have been running a grassroots trade operation in this country for a couple of years.

Mr. WATKINS. Could that be 90 commerce and trade--

Mr. DONOHUE. Ninety American Chambers of Commerce operating in countries around the world who are pushing trading issues.

Mr. WATKINS. Chamber of Commerce, that is great.

Mr. DONOHUE. But let me just respond very quickly to the question of the trade imbalance. You know, we started our trade deficits with George Washington, and we had some periods of time after the war when we did not have them, but very, very clearly we are a high-consuming nation, but we are also the largest exporting nation in the world. The more we push the exports and the better we are doing, the more jobs we create and the more increase in the standard of living here and there.

When the number gets very big, it has to be looked at in two ways. Number one, it is a much bigger number in relation to a much, much bigger economy.

Mr. WATKINS. Right.

Mr. DONOHUE. I mean, when you look at the trillions of dollars of commerce, the number is not as large as it looks. And second, that number could get painful, but it could get very much balanced if we would get the free trade agreements going, and when we see the China implementation of what everybody worked on last year in PNTR and when we expand into Asia and Latin and South America, you will see more balance. We need it. You are on the right track. There is a lot going on. Unfortunately, we do not have the time right now, but I will come by and see you.

Mr. WATKINS. I would welcome that and I ask that. In fact, I asked that about a year ago, but I hope you will come by.

Mr. DONOHUE. I promise.

Mr. WATKINS. All right. You are a good man.

Mr. MCGRAW. Mr. Chairman, can I make one comment?

Mr. RAMSTAD. Mr. McGraw?

Mr. MCGRAW. There is another danger here that we have to be very careful about. In many ways, we benefit from some of that trade deficit in terms of the prosperity that a lot of Americans have been able to enjoy in purchasing those goods and the like. The current economic slowdown in this country, if prolonged, could render a very different situation where a lot of foreign capital would be coming out. I would just add that the imperative in terms of making sure that our economic slowdown is a short one is also going to have some serious ramifications on our trade and our trade relations.

Mr. WATKINS. I understand. Thank you, Mr. Chairman.

Mr. RAMSTAD. Let me apologize to my good friend, and he is my good friend, the gentleman from Oklahoma. Believe me, nobody fights harder for the cattle ranchers in Oklahoma, nobody fights harder for the small operators in the oil patch of Oklahoma than my good friend from Oklahoma, Mr. Watkins. I will never make that mistake again, I can assure you, Wes.

Let me also thank the five distinguished members of this panel. We do appreciate your counsel, your input, your patience, as well. It is very important that we work together, all of us, in a collaborative way for the betterment of our economy and of our country. So thank you very much for being here today and sharing your wisdom with us. Thank you.

I will call the second panel, Mr. John McCarter, Mr. Harold Wiens, Mr. Jeffrey Schott, Mr. John Hardin, Jr., and Mr. Donald R. Burke. I want to welcome all of you gentlemen of the second panel and thank you very much for your patience, for your indulgence. This process is often very tedious and slow, and you have seen examples of that this morning.

I particularly am being a little bit parochial. I want to introduce a fellow Minnesotan member of this panel, Mr. Harold Wiens, who is Executive Vice President for Industrial Markets of 3M Corporation in St. Paul, Minnesota. Mr. Wiens is here today representing the National Association of Manufacturers, a longtime employee of 3M, a distinguished career, 34 years I guess it is now, Harold, and certainly your responsibilities with the company have been very, very important both domestically and abroad. I know you spent eight years in Europe and Asia gaining extensive experience in managing the many difficulties that companies like 3M face trading with countries there.

We are certainly glad to have you here today and would ask you to lead off, please.

Mr. WIENS. Thank you, Mr. Chairman, very much for that kind introduction. It is a warm Minnesota welcome.

Thank you again for giving me the opportunity to testify today. My name is Harold Wiens, as introduced by Mr. Ramstad, and I am testifying today on behalf of both the National Association of Manufacturers and 3M, but I am going to use actual 3M experience to support my points.

The message that I want to leave with you today is that America has lost ground on trade access, and more importantly, the biggest impact is yet to come. This is hurting American workers and consumers, as well as countries around the world that depend upon U.S. innovation to raise living standards and develop their economies. In addition, it is hurting American business at a time when we are seeing a significant softening of the American economy.

Let me begin by stressing how important trade already is for U.S. manufacturers and the 18 million employees who work in the manufacturing sector. U.S. manufactured exports last year totaled $650 billion, and one in five manufacturing jobs is supported by exports. For 3M, of our 37,000 U.S. employees, about 8,000 of those folks’ jobs depend upon our ability to export.

Last year, for example, $2 billion worth of our products manufactured in the U.S. were exported abroad. So I believe it is fair to say that 3M's success in no small measure lies in its commitment to compete everywhere in the global marketplace with the most advanced, highest-quality products that we can develop.

But, you know, it is not just large manufacturers like 3M that benefit from exports. Many smaller companies, including many of our vendors, also do benefit from that export.

Looking out across the globe today, 3M and other U.S. manufacturers do not see a level playing field for trade. The U.S. market is already open for trade and investment. While tariffs in other industrial countries have fallen sharply, they are still high in emerging markets and newly industrializing countries. In these markets, U.S. exporters face tariffs ten to 15 times the U.S. average.

3M's exports to Latin American typically encounter tariffs as high as 20 to 30 percent on major product lines. For example, in Venezuela, the duty on 3M's popular Post-It brand notes is 30 percent.

The United States cannot afford to be shut out of these emerging markets, but over the past several years, we have lost ground by being forced to stand on the sidelines while our competitors have moved ahead. The European Union is pressing hard for quick free trade agreements with Brazil and other MERCOSUR countries that, frankly, would put us at a considerable disadvantage.

An extremely important new element is that Japan has recently--that is, last year--changed its trade policy and is negotiating bilateral rather than multilateral trade deals. A Japanese free trade agreement with Korea or China would have huge long-term costs for U.S. exporters and all their stakeholders, including employees in small company suppliers. The United States needs to get started now to take the initiative on trade.

First, the Congress needs to give the President trade promotion authority. Without it, no country will seriously negotiate a broad reduction in trade barriers. Our trading partners understand the American legislative system very well. For example, we have recently seen a press report that the EU is advising Brazil not to negotiate a free trade agreement with the U.S. without Trade Promotion Authority (TPA) because Congress would change the deal.

Second, the administration should establish as its highest new trade negotiating goal the creation of the Free Trade Area of the Americas. South America is four times as large an export market for U.S. exporters as China.

Third, the administration should conclude the agreements with Chile and Singapore and should explore opportunities to pursue free trade agreements with other trading partners, particularly those in Asia.

We recognize the legitimate concerns about labor and the environment. Business wants to work positively to address those concerns in ways that do not harm trade.

Companies like 3M and its stakeholders strongly support free trade not only because of its economic benefits to the United States, but also it is a form of positive engagement, a way for countries to interact peacefully and to learn to respect and value each other's values and cultures. So as we lose ground on trade by standing on the sidelines, we incur many losses--lost export sales, lost jobs, lost consumer choices, and lost opportunities for positive engagement to promote economic development and improved living standards.

The United States still has time to resume its traditional leadership role in trade, but we need to act now. If we do not, we can be assured that others will continue to pursue their own trade agendas, leaving the United States behind and ultimately hurting American businesses, workers, and consumers. Thank you very much.

[The prepared statement of Mr. Wiens follows:]

Mr. RAMSTAD. Thank you, Mr. Wiens, for your very compelling testimony, and I would remind all the witnesses that your complete statements will be entered into the record. Mr. McCarter, please.

Mr. MCCARTER. Thank you very much, Mr. Chairman, for inviting the Council of the Americas to appear today. The Council is the premier business organization dedicated to promoting regional economic integration, open markets, and the rule of law throughout the Western Hemisphere. The Council was the leading proponent of the NAFTA and strongly supports the earliest possible creation of the Free Trade Area of the Americas.

I would like to give you an American businessman's perspective on the FTAA. Accordingly, I would like to make three broad points. First, there are real costs to the United States when our hemispheric trading partners conclude trade agreements without our participation. Second, the agreement will extend core values for which our country stands. And third, the FTAA will help create a stable, predictable, and transparent environment in which business can grow.

Today, the United States has active free trade agreements only with Canada, Mexico, and Israel, but other countries in the hemisphere have entered into a multitude of free trade agreements. Virtually every country in the region has entered into new preferential trade agreements in the last three years.

Mr. Chairman, here is a chart on this easel illustrating the many trade agreements that we have been talking about this morning that currently involve countries in this hemisphere. These agreements have benefits for the region, for sure, but this web of agreements is a suboptimal solution. It lowers barriers for some countries at the expense of creating a confused hemispheric trading landscape. More importantly, where these bilateral and sub-regional agreements do not involve the United States, they inevitably steer business away from U.S. companies.

Mr. Chairman, in the last ten years, democratically-elected governments throughout the Americas have adopted market-oriented economic policies and begun to sweep away the dead weight generated by closed markets, excessive government intervention, State-run enterprises. But the battle is hardly won and the specter of retrenchment looms.

The FTAA is key to addressing the risk of backsliding on economic, social, and political reforms. Economically, the FTAA locks in and expands the economic policy progress underway. Socially, the agreement expand the application of free trade principles and increases the presence around the hemisphere of U.S. companies which carry the core American values of democracy and individual freedom with them. Politically, as the FTAA builds strong integrated economies and shared standards and institutions, it will build new bonds of friendship and common purpose between neighbors.

GE's experience in Chile illustrates these points well. Several years ago, GE won the competition to build a gas-fired power plant near Santiago. That is a poster child for market-oriented economic policies and free trade and investment in the Americas. The plant was owned by a private Chilean electric utility, a Canadian energy company, and a U.S. electric utility from the Carolinas. GE was the prime contractor and we chose a global engineer constructor from the United States to be our partner.

The steam turbine and generators came from Schenectady, New York, the controls from Salem, Virginia, and the gas turbines from Greenville, South Carolina. The plant uses state-of-the-art high-efficiency technology and advanced environmental controls. Local Chilean suppliers, including a large local construction company, participated in the project. And the plant is fueled, finally, by natural gas piped in from Argentina.

We are very proud of this project, but despite the success and in spite of the fact that we are the leading supplier of combustion turbine power generating equipment in the world, we lost the next two similar plants to our principal global competitors from Europe and Japan. I point these losses out only to underscore the competitiveness of the market. In these competitions, all suppliers were equally treated from a tariff standpoint. So if the European Union or Japan gains preferential treatment in Latin America, it will make it much harder, if not impossible, for us to win with equipment sourced from the United States.

Mr. Chairman, I am optimistic about the outlook for the FTAA. Already, the agreement is taking shape with draft text, though heavily bracketed, in all of the negotiating groups. Business facilitation measures, primarily in the form of streamlined customs procedures, were adopted last year, a process that the Council of the Americas was proud to facilitate. Hence, the process of creating the FTAA is already yielding benefits that will help businesses in the near term.

In conclusion, I want to thank the Committee for its leadership on this important issue. I will also add my voice to supporting comments from the other speakers, who emphasized the importance of trade promotion authority for the ability of the United States to effectively conclude the Free Trade Area of the Americas. Thank you, and I will conclude my remarks with that.

[The prepared statement of Mr. McCarter follows:]

Mr. ENGLISH. [Presiding.] Thank you, Mr. McCarter. Mr. Schott, it is a pleasure to have you back. Your testimony, sir.

STATEMENT OF JEFFREY J. SCHOTT, SENIOR FELLOW, INSTITUTE FOR INTERNATIONAL ECONOMICS

Mr. SCHOTT. Thank you, Mr. Chairman. I greatly appreciate the opportunity to testify before the Subcommittee on the implications for U.S. trading interests of free trade agreements to which the United States is not a signatory.

Four years ago, I alerted this Subcommittee to the growth of free trade areas and warned that U.S. trading interests could be adversely affected if this trend continues. The trend has continued. We have been affected. And bluntly put, we have paid a price for the seven-year-long impasse over fast track and the erosion of the bipartisan coalition in support of an open trade policy.

As Chairman Crane noted in his introduction, free trade areas are proliferating. We need to be concerned about existing arrangements that we are not a party to. Though most of the 130 agreements are not very important, some of them are very important. But we should be even more concerned, as Mr. Wiens noted just a moment ago, about prospective accords, both in Latin America and in East Asia. In particular, I would like to draw the Committee's attention to both the ongoing, though very slow-paced, negotiations between the European Union and the MERCOSUR countries and the prospective launch of new negotiations, possibly by the end of the this year, of a Northeast Asia free trade agreement involving China, Japan, and Korea.

My colleague, Fred Bergsten, just came back from China last night where he had meetings with senior Chinese leaders over the past week on this subject among others. He was informed that there has been progress in working on a study of a possible Northeast Asia arrangement. A vision group has been commissioned to report to leaders of those three countries by the end of this year and they have already decided to recommend the initiation of a free trade agreement. So that just underscores the point that Mr. Wiens made a moment ago and underscores why we need to reinvigorate U.S. leadership in trade talks in both the Western Hemisphere and in the APEC region.

Now, what are the costs of non-participation? Let me make three quick points, and they cover a lot of the points that other panelists have made this morning. First, U.S. exporters face discriminatory treatment in foreign markets compared to that accorded producers from the participating countries. Export contracts are either lost or they are sourced from overseas production plants. Either way, it hurts U.S.-based production and it hurts U.S. workers. And remember that exporting firms in the United States, on average, pay much higher wages and provide much steadier employment for U.S. workers than those that do not export. So we are undercutting some of our most competitive firms in this country.

Second point, when the United States is not a party to a negotiation, we cannot influence the outcome. Trade rules developed in such pacts may both increase transaction costs for U.S. businesses and establish precedents that differ from those that we may want to pursue in our own trade negotiations.

For example, the Canada-Chile Free Trade Agreement contains a provision that excludes the ability to use anti-dumping duties on bilateral trade once bilateral tariffs are fully removed. I know there are members of this Committee that would find that type of precedent difficult to swallow in a free trade agreement. Mention has also been made of the side agreement on labor in the Canada-Chile Free Trade Agreement, and that perhaps provides more interesting precedents, as other panelists have noted.

The third point and perhaps the highest price we pay for not participating in free trade agreements -- is the lost opportunity to expand economic ties with our trading partners and promote economic growth and development. If one projects the future growth under a free trade agreement comparable to the growth that we have seen under NAFTA, the potential expansion of trade is notable. In that regard, I have run some numbers looking at what our bilateral trade with Brazil could be with a free trade pact. Bilateral trade is now very small, $29 billion. But if we had free trade with Brazil like we do with Mexico, that bilateral two-way trade could double or triple up to $87 billion in a short period of time.

In conclusion, the best way to neutralize the adverse effects on U.S. trading interests of free trade agreements in which the United States is not a signatory is to engage more effectively in bilateral, regional, and multilateral negotiations. The FTAA is particularly important to level the playing field. We also need to work intensively with other WTO countries to develop an agenda for a new round of multilateral negotiations.

And, of course, none of these trade initiatives are likely to be concluded unless the Congress and the administration develop a bipartisan agreement on trade policy objectives and trade negotiating authority. Our trade officials must have a strong domestic base of support, clear and consistent objectives, and sufficient flexibility to get the job done. Approving new trade promotion authority, hopefully later this year, is the best way Congress can respond to the problems facing U.S. companies in world markets and the best way to reassert U.S. leadership in the world trading system. Thank you very much, Mr. Chairman.

[The prepared statement of Mr. Schott follows:]

Chairman CRANE. [Presiding.] Thank you, Mr. Schott. Mr. Hardin?

STATEMENT OF JOHN HARDIN, JR., PORK PRODUCER, DANVILLE, INDIANA, AND PAST PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL

Mr. HARDIN. Thank you, Mr. Chairman. I am John Hardin, Jr., a pork producer from Danville, Indiana. I am Past President of the National Pork Producers Council and I currently serve as the Vice Chair of the Agricultural Policy Advisory Committee to USTR and the Secretary of Agriculture. I very much appreciate the opportunity to appear here today on behalf of U.S. pork producers to express our views on the importance of continued trade liberalization. My comments today will focus on the pork industry, but similar issues are holding back all of the export-competitive sectors of U.S. agriculture.

U.S. pork producers are major beneficiaries of the Uruguay Round Agreement and NAFTA. Our industry needs prompt renewal of trade promotion authority so that further trade agreements may be consummated. These trade agreements permit U.S. pork producers to exploit their comparative advantage in international markets. The future of the pork industry rests in large part on our ability to expand exports.

In the last decade, U.S. exports have increased 263 percent in value. Pork exports from the U.S. to Mexico exploded in 1994 when NAFTA went into effect. Even with the devaluation of the peso, U.S. pork increased its market share in Mexico. This never would have happened without NAFTA. Mexico is now the pork industry's second most important market behind Japan.

The United States is uniquely positioned to reap the benefits of liberalized world pork trade. Our pork producers are the lowest cost large-scale commercial suppliers of the safest, high quality pork in the world. But without renewal of trade promotion authority for the executive branch by Congress, U.S. pork producers and the rest of U.S. agriculture will be forced to remain on the sidelines while other countries continue to negotiate new trade agreements at a staggering pace.

In order to expedite the WTO negotiations, U.S. trade officials need trade promotion authority. The longer the U.S. goes without renewing trade promotion authority, the longer the WTO negotiations will drag on. Trade promotion authority is also needed so that the U.S. can pursue liberalization regionally in the Free Trade of the Americas initiative, as well as with the countries of the Asia Pacific Economic Cooperation Forum.

Finally, trade promotion authority is needed so that the U.S. can pursue bilateral free trade agreements with countries such as Chile and Singapore.

The U.S. industry is disadvantaged by the failure of the United States to keep up with these pace of trade agreements. The rapidly expanding Brazilian pork industry, a key competitor to the U.S. industry, now has preferential access into many of our markets, including that of Argentina. We recently gained access to Argentina, but our pork is charged a 34.5 percent duty while Brazilian pork enters Argentina duty-free as part of the MERCOSUR customs union. We are currently trying to gain access to the Chilean pork market. Both Brazil and Canada already have preferential access to that market through trade agreements. Mexico, which has some world class pork operations, counts Japan amongst its pork export markets. It has negotiated close to 30 free trade agreements.

While the U.S. has been on the sidelines, our higher cost competitors in Mexico and Chile, along with Canadian producers, are benefitting from their governments' active pursuit of free trade agreements. Unless the U.S. acts quickly to engage in similar FTAs, we will be shut out of many of the pork import markets in the Western Hemisphere.

In Europe, the European Union continues to cut trade deals with countries of Central and Eastern Europe. These so-called double-zero agreements have the EU and the Central and Eastern Europe (CEE) country typically agree to offer duty-free quotas for a specific quantity of a given agricultural product, such as pork, while anything above the quota is subject to duty. Further, the EU and the CEE country agree not to use any export subsidies for the given agricultural product.

The U.S. pork industry is disadvantaged in two ways by these double-zero agreements. First, the EU gets better market access to the CEE countries, and second, the EU is able to conserve its pork export subsidies for other markets outside Europe where we compete with them.

In sum, the EU, Mexico, Chile, Canada, and others are gaining the benefits of trade for their citizens while the U.S. engages in a negotiation with itself about the benefits of trade. Our comparative advantage in pork is increasingly being offset by the failure of the U.S. to get in the free trade game. Thank you, Mr. Chairman.

[The prepared statement of Mr. Hardin follows:]

Chairman CRANE. Thank you. Mr. Burke?

STATEMENT OF DONALD R. BURKE, VICE PRESIDENT, MARKETING AND INTERNATIONAL, COATED BOARD DIVISION, MEAD CORPORATION, PHENIX CITY, ALABAMA, ON BEHALF OF THE AMERICAN FOREST & PAPER ASSOCIATION

Mr. BURKE. Mr. Chairman, my name is Don Burke. I am Vice President of Marketing and International of the Mead Coated Board Division, a division of the Mead Corporation. We manufacture coated paperboard for use in beverage packaging and in the folding carton industry. I am appearing today on behalf of Mead, as well as the American Forest & Paper Association, of which we are a member. Mead is also affiliated with the Business Roundtable and its Go Trade network.

The American Forest & Paper Association is the national trade association of the forest and paper products industry. This industry has annual sales in excess of $250 billion and accounts for nearly seven percent of total U.S. manufacturing output. The Mead Corporation is a forest products company with $4.4 billion in sales, 12 percent of which are derived from international activities.

I am pleased to have this opportunity to appear today because, for my company and others in our industry, the premise of this hearing, that the U.S. has fallen behind in gaining market access for its manufacturers and that U.S. exporters and their workers are facing discriminatory customs tariffs as a result, is a painful fact of everyday life.

Going into the Uruguay Round of trade negotiations, our industry was the first to propose zero-for-zero tariff concept, but we were largely unsuccessful. The result is that the competitive landscape for our industry has actually gotten worse over time. Let me offer a personal experience of what this has meant to American business.

During the early 1990s, Mead began market development activities on two fronts in Brazil, one involving the supply of finished packages, primarily to the beverage industry, and two, the sale of our paperboard to independent customers for use in the manufacture of folding cartons. In 1997, our exports of paperboard in support of these initiatives exceeded 30,000 tons, or $20 million worth of business. I should point out that we were able to capture this business against domestic competition even in the presence of tariffs, initially set at ten percent, but which reached 14 percent in 1997.

In 1999, the MERCOSUR agreement required Brazil to raise its tariffs to bring them into line with its partners. Brazil raised its tariff on my product to 16.5 percent, just about the time the real was devalued. As a result, we were no longer able to compete with the Brazilian domestic suppliers. Today, that 30,000 tons I referenced earlier is zero. Mead remains committed to the Brazilian market in its beverage packaging business, but today we purchase our paperboard from a local supplier and sales of our own paperboard are nonexistent.

This experience is not unique to Mead. The MERCOSUR agreement required Brazil to increase its tariff on a wide range of paper and wood products. As a result, U.S. sales of pulp and paper declined by nearly 40 percent, from $348 million in 1997 to just $216 million last year. In wood products, they declined by over 50 percent.

To take another example, in 1997 when Canada concluded its free trade agreement with Chile, virtually all Canadian wood and paper products received duty-free treatment immediately upon implementation. The effect on U.S. wood and paper sales was immediate and devastating. The U.S. share of the Chilean paper market dropped from 30 percent in 1997 to 13 percent last year. That cost U.S. suppliers an estimated $100 million last year. At the same time, U.S. exports of wood products declined by 25 percent.

What needs to be done? First, we urge the administration to move rapidly to conclude the FTA with Chile, and in particular to ensure that all tariffs on U.S. wood and paper products will be reduced to zero immediately.

Second, the administration must work with hemispheric trading partners to accelerate the timetable for a Free Trade Area of the Americas and achieve some early deliverables in selected sectors, such as forest products.

Third, the administration must revitalize the effort in APEC to achieve zero tariffs in selected sectors, again, including forest products.

Fourth, the U.S. should critically review the FTAs concluded by our major competitors and move quickly to restore the balance of competitive opportunity.

Finally, the U.S. must, of course, continue to press for further industrial tariff negotiations in the WTO, including early sectoral tariff elimination. In doing so, however, we must make sure that these multilateral efforts do not undermine our bilateral and regional negotiations. And, of course, we must provide the administration with the authority to conclude negotiations in a way that is credible to potential partners.

Mr. Chairman, over the decade of the 1990s, companies like Mead and others in the U.S. forest products industry have made the difficult decisions necessary to ensure we can compete in the global marketplace. We urge the U.S. to move quickly to catch up with our competitors, to achieve equitable tariff treatment in world markets. Thank you, Mr. Chairman.

[The prepared statement of Mr. Burke follows:]

Chairman CRANE. Thank you, Mr. Burke.

Mr. McCarter, sometimes a picture is worth 1,000 words and the diagram you attached to your testimony is that kind of picture. I am sure everyone has had a look at it already. Will successful conclusion of the FTAA negotiations help us untangle this tangled web of trade rules that have proliferated in Latin America since the United States signed the NAFTA agreement in 1993?

Mr. MCCARTER. In many cases, these agreements that are sub-regional are being done along the same free trade area lines that the FTAA is intended to take on comprehensively. So it should position itself, if these specific agreements are not in conflict with the FTAA, to supplant them. So it is the intention, certainly from the standpoint of business, to see that this web is simplified and that the FTAA replaces many of these separate agreements.

Chairman CRANE. It is clear that your companies and employees need expanded trade, and I would appreciate it if you could tell me what steps your companies are taking to inform your employees about the benefits of trade.

Mr. WIENS. Mr. Chairman, at 3M Company, as I mentioned earlier, we have about 8,000 jobs in the U.S. that depend upon trade out of the 37,000 employees we have in the U.S. We are educating our people every day in plant crew meetings, in our laboratory research and development sessions, so that they understand clearly the benefits of trade for them personally and also what their contributions can be.

Chairman CRANE. I applaud you for that. Something that I have mentioned in the past is about five years ago, I had a hearing out in my district on trade and Illinois was then the fifth largest export State in the union, and in my district, I have the corporate headquarters of Motorola, Sears, United, Baxter and Abbott right on the border, and so I knew my district was a big export district. What was revealing about the hearing, though, was that better than 90 percent of our Illinois exports came from companies employing 500 or fewer.

When you bring up trade at a town meeting back home, people start falling asleep. We are failing big time in communicating the importance to the employees of trade, and that is for the survival of the business but the survival of their jobs. So I commend you for what you are doing, but if you could get that word out to some of the smaller businesses.

I had a fellow who came in, doing business in the Persian Gulf, and he said, "Congressman, have you any idea how many businesses in your district are doing business in the Persian Gulf?" I had not the vaguest idea. He handed me a portfolio filled with the names of over 150 businesses in my district, employers of 150 or fewer, doing business in the Persian Gulf, and I looked at the list. I never recognized the name of a single one of those. I mean, I went back and examined them to make sure he was not pulling a trick on me, but they were businesses in my district doing business in the Persian Gulf. So that is one of the major jobs I think we all have on our hands, is to get it out so that the employees understand fully the importance of trade.

I would like to ask you a second question, Mr. Schott. Can you give us a better sense of how United States workers are being hurt by the proliferation of trade agreements to which the United States is not a party?

Mr. SCHOTT. Mr. Chairman, many of the panelists today have noted that when there is an export opportunity, U.S. firms often can find a way to supply that export contract; if they are affected by higher tariffs if they try to ship from the United States, they sometimes can ship the product from a foreign plant. It comes at a cost to the firm in additional transaction costs, but it comes at a much greater cost to the U.S. worker, because the U.S. worker is not flexible enough to move to a production plant in Brazil or Argentina. As a result, he or she may lose the ability to help produce the exports that are so important for our economy.

The fact that there is less production in that plant in the United States means there will be fewer high-paying jobs. As I noted in my opening comments, the firms that are shipping from the United States are the ones that are paying, on average, much higher wages and providing much more stable employment for U.S. workers. So the U.S. worker is taking a big hit when we cannot take advantage of these export opportunities.

Chairman CRANE. And finally, I was interested in the analysis you cited regarding how much trade would increase with Brazil if we had negotiated a NAFTA-like agreement with this important trading partner. Could you go through those results very quickly again?

Mr. SCHOTT. Well, basically, anyone who looks at our bilateral trade with Brazil should wonder why it is so small. We are doing $29 billion of two-way trade with Brazil, a country of 160 million people with a GDP of almost $800 billion. By contrast, our trade with Mexico is almost $250 billion a year. Some of the difference has to do with the fact that we have relatively free access to the Mexican market and have a number of barriers to two-way trade between the United States and Brazil.

If you factor in the differences in size of the countries, the geographic distance between markets, and the differences in per capita income, gravity model simulations indicate that the conclusion that free trade with Brazil would result in a doubling or tripling of our bilateral trade. Now, we will not achieve all those gains because free trade agreements do not eliminate every obstacle to trade, but we would have a tremendous increase in our exports and our imports from Brazil. We are talking about $50 or $60 billion in increased trade with Brazil alone.

Chairman CRANE. I was about to yield, but I guess everyone has left for lunch. This has been a chaotic day, and I am particularly appreciative of your willingness to participate in this hearing.

We have, as you know, debate going on on the floor chaired by the Ways and Means Committee on the elimination of the marriage penalty tax and we are going to then meet in Committee here in this room after that bill is finished on the floor to report out the elimination of the death tax, so this has been a kind of chaotic day for our Committee and I hope you will accept my apology on behalf of all the rest of our colleagues here.

I also want to conclude this hearing by saying that we received powerful testimony from all of you folks and we are grateful for that. We need to reinvigorate the U.S. leadership and move forward on negotiations in WTO, regional negotiations in the FTAA, and bilateral negotiations with countries such as Chile, Singapore, New Zealand, Australia, Egypt, to name just a few. That will be an unending proposition.

But we are grateful and I express my appreciation to all of you, and with that, the Subcommittee stands in adjournment. Thank you.

[Whereupon, at 12:35 p.m., the hearing was adjourned.]
[Submissions for the record follow:]

National Center for Asia-Pacific Economic Cooperation, Seattle, WA, Rudolph A. Schlais, Jr., statement and attachment

Rubber and Plastic Footwear Manufacturers Association, statement

U.S. Integrated Carbon Steel Producers, statement