Statement of Harold J. Wiens, Executive Vice President,
Industrial Markets, 3M, St. Paul, Minnesota,
and Member, Board of Directors, and
Chair, International Economic Policy Committee, National Association of Manufacturers

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on Free Trade Deals:  Is the United States Losing Ground
as its Trading Partners Move Ahead?

March 29, 2001

Thank you for giving me the opportunity to testify today. My name is Harold Wiens. I am the Executive Vice President, Industrial Markets, 3M. I am also a member of the Board of Directors of the National Association of Manufacturers and chair of NAM's International Economic Policy Committee.

The message that I want to leave with you is that America is losing ground on trade access, and this hurts American businesses, workers and consumers. It also hurts countries around the world that depend on U.S. innovation to raise living standards and develop their economies.

I am testifying today on behalf of both the NAM and 3M but will draw on actual 3M experiences to support my point. International trade agreements affect, either directly or indirectly, the majority of NAM members. For 3M, international trade agreements are of vital importance for enhancing penetration in current markets and opening new markets.

3M is a large multinational corporation with worldwide annual sales of nearly $17 billion. We produce more than 50,000 products that are sold in six market groups: Industrial; Health Care; Transportation, Graphics and Safety; Consumer and Office; Electro and Communications; and Specialty Material. International sales account for 53 percent of total sales. Our products are sold in nearly every country in the world. We have operations in 65 foreign countries. Our 72,000 employees are split almost evenly between facilities in the United States and abroad.

Importance of Trade

I want to stress how important trade is for U.S. manufacturers and their stakeholders. Long gone are the days when manufacturers could focus solely on the large U.S. market. Companies that can't compete with the best companies in the world lose market share.

3M has known this for a long time. We seek to compete in the global marketplace with the most advanced, highest-quality products that we can develop. Every year, we introduce, on average, 450 new products to stay ahead of the competition.

U.S. manufacturers now depend on exports for sales more than ever before.

· Almost 1 in every 6 manufactured products coming off the assembly line goes to a foreign customer.

· America's manufacturers exported $650 billion last year - almost 90 percent of U.S. merchandise exports.

· Exports support 1 in every 5 manufacturing jobs and about 1 in 10 private sector jobs.

3M exports a wide range of consumer and industrial products. Exports directly support 8,000 jobs, over 20 percent of our total U.S. employment. For example, at our Menomonie, WI, plant where we make electrical tapes, reflective sheeting and brightness enhancement film, 60 percent of output goes to foreign customers. At the Brookings, SD, plant, where we produce surgical drapes, facemasks and surgical tapes, 50 percent of production is exported.

But it's not just large corporations like 3M that benefit from exports. Smaller companies do as well. For example, the benefits of 3M's exports flow to some 36,000 supplier companies -- most of them small and medium-size companies -- that receive nearly $8 billion in orders from 3M. Many small companies export on their own, too. My NAM colleague Bill Weiller, the president of Purafil, will tell you how important exports are for his company of 70 employees.

Leveling the Playing Field

Looking out across the globe today, 3M and other U.S. manufacturers do not see a level playing field for trade. Unlike many foreign markets, the U.S. market is already open to trade and investment. Approximately two-thirds of U.S. imports enter duty-free. The weighted average U.S. tariff on imported goods is only about 2 percent.

While tariffs in other industrial countries have fallen sharply, they are still high in emerging markets and newly-industrialized countries. In these markets, U.S. exporters face tariffs 10-15 times higher than the U.S. average. They face other non-tariff barriers as well.

For example, 3M's exports to Latin America typically encounter tariffs as high as 20 percent to 30 percent on major product lines. In Columbia, the duty on 3M electrical tapes is 20 percent. In Ecuador, our filter products face a 30-percent tariff. And in Venezuela, 3M's popular Post-It brand products can enter only after importers pay a 30-percent duty.

In addition to tariffs, other charges, such as excessive clearance and handling fees, add to the cost of our products. Some countries also require mandatory import licenses and/or pre-shipment inspections on every product, which can cause significant delays in customs clearance and add to handling expenses.

Without these trade barriers, 3M would have much greater market penetration in Latin America. That would have been good for 3M, good for its workers in Menomonie and other U.S. plants, and good for Latin American consumers who could have bought more of our products at lower prices.

This is why we are so concerned about the United States losing ground on new trade agreements. We need these agreements to level the playing field and get our trading partners to offer the same kind of open market access that we do.

Trade liberalization agreements in the GATT and later the World Trade Organization have helped to lower tariffs and remove some other persistent barriers to trade. But in too many promising markets, like Brazil, Venezuela and Columbia, trade barriers are still too high.

Trade with South America is particularly important for 3M as it is for many other U.S. manufacturers. Last year, 3M exported more than $2 billion worth of U.S.-manufactured merchandise. Of this, only $220 million was exported to Latin America.

The NAM has focused on the Free Trade Area of the Americas (FTAA) for this reason. South America is already four times as large an export market for the United States as is China. Recognizing the trade potential in the region, the NAM has identified progress on the FTAA as its top trade priority this year.

The current situation is bad enough. But if other countries were to negotiate free trade agreements with our most promising markets while we stood on the sidelines, that would be worse. Exports from our U.S.-based plants would be further disadvantaged. And in today's highly competitive global markets, even relatively small preferences to our competitors can make big differences in our ability to win sales contracts.

But we shouldn't restrict our trade negotiations to the Western Hemisphere. In Asia, U.S. exporters also face relatively high average tariffs. NAM members, including 3M, would like to see the U.S.-Singapore Free Trade Agreement (FTA) negotiations brought to a successful conclusion. Trade agreements with our Asian trading partners would also help to offset recent moves by some Asian nations to consider an exclusive Asian regional trade community.

Japan, which, up until recently, has supported trade liberalization mainly through global negotiations in the WTO, appears to be changing its trade philosophy in favor of more regional approaches. Some in Japan are fostering the idea of a regional free-trade area that would include ASEAN, Korea and China, but not the United States.

Finally, we should not ignore the opportunities to improve market access through the WTO. We need to continue to clarify and strengthen WTO rules and compliance, and encourage further sectoral liberalization where possible. When there is a prospect for consensus on a new round of comprehensive negotiations, we should be prepared to move forward.

We Can't Afford To Be Shut Out

What happens if the United States doesn't pursue regional and bilateral trade initiatives? We are already beginning to see the results.

In the past, the United States was the trade-liberalization leader, but for several years now, the United States has been sitting on the sidelines. In the meantime, our trading partners are moving ahead and cutting their own trade deals. We are losing ground, and we worry that the worst may lie ahead of us.

The European Union has been the most aggressive in negotiating regional agreements. Last year, the EU concluded free-trade agreements with Mexico and South Africa. It is currently negotiating 15 new agreements with other trading partners, including Chile, the MERCOSUR countries (Argentina, Brazil, Paraguay and Uruguay), and countries in North Africa and the Middle East.

Recently, the pace of EU negotiations with MERCOSUR has accelerated, and the EU has reportedly promised to offer a market-access package in July. Moreover, a senior EU trade official was quoted in the press as advising Brazil that negotiating with the United States without Trade Promotion Authority in place would be a waste of time because Congress would alter the agreement after it was signed.

In addition to negotiating free-trade agreements with these countries, the EU is preparing more than 17 Central and Southern European countries for future membership in its own trade community, including several for as early as 2004. The EU continues to pursue preferential trading arrangements with its former colonies in Africa, Asia and the Pacific region.

At the same time, we have a range of disputes between the EU and the United States, including beef, bananas and FSC, and an equitable resolution of these disputes is a priority for the NAM and 3M.

The tariff preferences that the EU receives in these agreements will put U.S. companies at a disadvantage or, in the case of Mexico, will eliminate advantages that have helped to boost U.S. exports.

The EU is not the only competitor cutting separate trade deals:

· Mexico has concluded trade agreements with at least 28 countries, and is negotiating agreements with other important markets, such as South Korea, Japan, and MERCOSUR.

· MERCOSUR, with the strong support of Brazil, wants to establish a trade bloc with the Andean Community (Peru, Venezuela, Colombia, Ecuador, and Bolivia).

· South Africa is leading a trade initiative with 12 African countries called the Southern Africa Development Community, or SADC, which has started negotiating a trade agreement with MERCOSUR.

· ASEAN, which includes important Southeast Asian trading partners, is considering a trade agreement with China.

The bilateral and regional agreements being negotiated by our trading partners involve not only free trade and tariff preferences; they cover other important trade-related areas as well.

Bilateral investment treaties, for example, have proliferated. These treaties provide important protections to investors and remove investment barriers. They can encourage investment that helps to facilitate exports, but they can also serve to discriminate against investors from countries that have not negotiated these safeguards.

U.S. companies are only beginning to feel the impact of these bilateral and regional trade initiatives. The agreements with many important markets are still being negotiated, such as the EU's free-trade agreement with Chile and MERCOSUR, or, in the case of Mexico, are only now in the initial implementation phase. That is why it is so important that the United States get started now to launch its own trade initiatives.

Recommendations

To maintain America's trade leadership, the NAM and 3M recommend the following:

· First, Congress needs to give the President Trade Promotion Authority. Without it, no country or group of countries will seriously negotiate a broad reduction in trade barriers.

· Second, the Administration should establish as its highest new trade-negotiating goal the creation of the Free Trade Area of the Americas because Latin America has such a large export potential.

· Third, the Administration should conclude the agreements with Chile and Singapore and should offer other interested trading partners, particularly those in Asia, opportunities to pursue free-trade agreements with the United States. We should also seek further multilateral trade liberalization at the WTO.

Losing Ground on Trade Has Many Costs

Companies, like 3M and its stakeholders-- including customers, employees and retirees-- strongly support free trade. We benefit from improved market access in countries around the world. But free and open trade is more than just business transactions, it is a form of positive engagement -- a way for countries to interact peacefully, as they do through tourism and educational exchanges.

Moreover, the benefits flow in both directions. Free and open trade doesn't just benefit the United States. It promotes economic development in our trading partners. Economic development is the first step in building a higher standard of living, including better health and education. Economic development creates meaningful jobs that serve to enhance human dignity and build the environment for more democratic forms of government. And as countries become engaged, they also develop a better understanding of each other's values and culture, and that helps to promote peace and security.

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 higher living standards.

The United States still has time to resume its traditional leadership role in international trade and, indeed, many countries around the world would like to see the United States play that role. We need to act now. If we don't, we can be assured that others will continue to pursue their own bilateral and regional trade agendas, leaving the United States behind and ultimately hurting American businesses, workers and consumers.