Advisory of April 25, 2001, announcing the hearing

Office of the United States Trade Representative, Hon. Robert B. Zoellick, United States Trade Representative

U.S. General Accounting Office, Loren Yager, Director, International Affairs and Trade

OUTCOME OF SUMMIT OF THE AMERICAS AND
PROSPECTS FOR FREE TRADE IN THE HEMISPHERE

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

The Subcommittee met, pursuant to notice, at 2:08 p.m., in room 1100 Longworth House Office Building, Hon. Philip M. Crane (Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

Chairman CRANE. Good afternoon. This is a hearing of the Ways and Means Trade Subcommittee to consider the status of negotiations to establish a Free Trade Area of the Americas and also to receive testimony on the expansion of the Andean Trade Preference Act which expires on December 4th. Ambassador Zoellick is here to report on the outcome of the Quebec Summit meeting where President Bush communicated his deep commitment to the creation of a free trade area in this hemisphere encompassing 800 million people, $11 trillion in economic production, and $3.4 trillion in regional trade.

Ambassador Zoellick reached a strong agreement on detailed deadlines that give the talks new structure and momentum. The heads of State indicated their decision to make the draft negotiating text public, which is an unprecedented step forward in fostering open discussion regarding the impact of expanding trade in the region. I welcome the President's pledge to achieve trade promotion authority and conclude the United States-Chile Free Trade Agreement by the end of the year.

I am convinced that free trade success in the Americas will help spur the World Trade Organization (WTO) to launch a new round of multilateral negotiations. In recent years, the United States has lapsed in its responsibility to lead the world and the hemisphere on these issues, and I am anxious to build on the strong successes coming out of the Free Trade Area of the Americas (FTAA) Summit in Quebec.

With respect to extension of the Andean Trade Preference Act, I want to welcome the Colombian Minister of Foreign Trade, Marta Lucia Ramirez, and Bolivia Vice Minister of Trade, Ana Maria Solares, who will speak later this afternoon. I would also like to recognize the other two Andean Ministers who are with us today.

Today, the United States serves as both the leading source of the Andean region's imports and the largest market for its exports, a relationship that yields more than $18 billion worth of commerce. The four Andean nations are taking courageous steps to eliminate drug production among their farmers, and it is my intention to craft an Andean Trade Preferences Act (ATPA) bill that will offer real economic alternatives to the Andean citizens as they move out of the drug trade.

Through expanded trade, we intend to undermine high unemployment and poverty as the factors and motivations for otherwise good, productive citizens to become involved in illicit crop cultivation that is eventually sold n our streets.

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

[The opening statement of Chairman Crane follows:]

Mr. LEVIN. Thank you. Thank you, Mr. Chairman.

It is time to move ahead on the trade agenda for 2001. I would like to offer a few brief observations and action items to consider. It will not help to misdescribe or misunderstand the record of the last administration. In the last session, there was forward motion. The Clinton administration and the Congress, working on a truly bipartisan basis, acted on China PNTR and Africa Caribbean Basin Initiative, CBI, breaking the 5-year deadlock on trade legislation. The administration also negotiated new trade agreements with Jordan and Vietnam.

It also will not help to frame the issues of 2001 in terms of old labels or old battles. There was movement during the last few years in good measure because there was a recognition that the nature of trade has been changing, both in its size and its contents. As developing nations with different economic structures from our own and other industrialized nations have become an increasing part of global trade, new issues have arisen. The effort to address these new issues is not a new kind of protectionism. Such labeling is mistaken and counterproductive, setting up a polarization that could help derail the trade agenda.

No one can turn back the clock on globalization. On the other hand, it is a mistake to believe that one cannot or should not shape its course. Shaping globalization requires a forthright effort, among other things, to address the issues of labor and environmental standards because of their very relevance to international economic competition.

The nexus between trade and labor is reflected in the recent New York Times article, "Labor standards clash with global reality," where an executive of an American company stated, regarding its practices on labor standards, "We cannot be the whole solution. The solution has to be labor laws that are adequate, respected, and enforced." And in the same article, the statement by the President of El Salvador, describing the variation of government enforcement of core labor standards, "The difficulty in this region is that there is labor that is more competitively priced than El Salvador."

It is also reflected, whether one agrees with the decision or not, in the rationale stated by the Bush administration when it withdrew from the Kyoto treaty of global warming, and I quote, "It exempts the developing nations around the world, and it is not in the U.S. economic best interest."

It will not be helpful to try to finesse these issues. They are not entirely new. We have had some previous experience. For example, labor standards have long been part of the General System of Preferences (GSP) where there has been a full array of enforcement mechanisms available to us, and they have been used by us responsibly. The same is true of the labor provisions in the Cambodia Textile and Apparel Agreement.

It is time to build on these experiences and move ahead, not be stuck in past polarizations. I have urged we should move on Jordan as negotiated, we should move on Vietnam, doing so in a way that recognizes the need to further address labor standard issues as we negotiate a textile and apparel agreement with Vietnam. The steel crisis also needs to be addressed resolutely. Doing so in a collaborate and bipartisan fashion will help to build the experience and confidence necessary to work effectively on FTAA and the Andean Trade Preference Act and on the significant transfer of power from Congress to the executive branch embodied in fast-track negotiating authority.

Congress has taken this step only twice before in our history. On both of those occasions, in 1974 and 1988, extended in 1991, the laws contained three critical components: one, negotiating objectives and related legal mandates to the Executive; two, mechanisms for congressional involvement in and public input into the negotiating process; and, three, commitment to an up or down vote on the final package. It ignores history to say that Congress can recapture this grant simply through the implementation legislation.

So how do we move forward to design the three components? I believe we need to start getting into this in detail. On the first component, negotiating objectives, we need to get beyond general concepts. For example, one issue is whether we are going to establish separate negotiating priorities for multilateral, regional, and bilateral agreements. I believe that that makes sense.

Another issue, going beyond the general concepts of one-size-does-not-fit-all, is to develop language that ensures that dispute settlement remedies are designed to be demonstrably effective in a variety of contexts, and that dispute settlement procedures are more open and inclusive in all contexts.

Turning to the second component, updating the partnership between Congress and the Executive, we are going to have to decide what procedural mechanisms are needed to ensure effective congressional oversight of and public input into each step of the process. For example, how many and what kinds of congressional checkpoints should we build into the process? For instance, should there be a congressional Committee vote at the beginning and a midpoint in each negotiation? What additional mechanisms should we create? And how exactly should they work? For example, providing for meaningful labor standard and environmental reviews, updating the advisory Committee for business, labor, environmental, and other groups?

There is a close relationship between negotiating objectives and procedural mechanisms. A right fast-track approach requires that we move beyond slogans and sound bites, embrace all of the issues of trade, old and new, and strive to shape globalization with rules of competition that promote U.S. economic interests and raising living standards around the world. And I look forward to the testimony here as we talk about our relationships with the rest of the Americas.

Thank you, Mr. Chairman.

[The opening statement of Mr. Levin follows:]

Chairman CRANE. And now I welcome my colleagues, Mr. Moran, Ms. Tauscher, and Ms. Christensen, to hear their testimony, and I would like to ask you to try and keep the oral testimony to roughly 5 minutes. And any written testimony will be made a part of the permanent record.

We will proceed in the order I introduced you.

STATEMENT OF THE HON. JAMES P. MORAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

Mr. MORAN. Thank you very much, Mr. Chairman. I appreciate the fact that on this Committee seniority trumps beauty and brains, so it is nice to be able to go first as a result.

Chairman Crane and Ranking Member Levin and Mr. Becerra, Mr. Houghton, Mr. Camp, Ms. Dunn, Mr. English, Mr. Brady, I thank all of you for this opportunity to testify on two important hemispheric trade priorities: negotiation of a Free Trade of the Americas Agreement and reauthorization of the Andean Trade Preferences Act.

I would first like to cite my firm support for granting trade promotion authority to the President. Trade Promotion Authority (TPA) is crucial to the President's ability to negotiate an FTAA, and its approval by Congress would demonstrate the United States' commitment to expanding hemispheric trade. I encourage members of this Committee to act in a bipartisan manner to advance legislation implementing TPA that also appropriately addresses concerned over labor and the environment.

The expansion of trade in the Western Hemisphere represents one of our greatest economic and societal opportunities in the coming decade. The creation of an FTAA will create a $10 trillion trading bloc of 34 countries and 800 million people stretching from the Bering Strait to Tierra del Fuego. The stars are aligned in terms of Latin America's leadership, enabling us to have a historic opportunity to lead in this endeavor, to ensure that an FTAA reflects U.S. interests and values that can sustain the path of democracy and economic reform by our Latin American partners. Expanding trade relations with our neighbors in this hemisphere not only makes sense from a trade perspective, but also from a foreign policy and an economic security standpoint.

As co-chair of the New Democrat Coalition, we believe our future economic growth and prosperity depend on trade, but that we should be able to balance our economic interests with democratic values. Trade is and should be a non-partisan issue, the result of collective efforts by bipartisan members to advance our overall economic interests. But in order for this to be a successful bipartisan effort, we must address labor and environmental concerns in a genuine and purposeful manner.

I commend the administration's emphasis on expanding our trade relations in the Western Hemisphere. U.S. Trade Representative Bob Zoellick has already shown leadership in this endeavor. He has provided the guidance and expertise that is essential to crafting an agreement that represents U.S. interests in the region, but also secures the backing of our Latin American partners.

Despite this bright start, I would like to sound the caution expressed by Peter Hakim, President of the Inter-American Dialogue, in his article entitled "The Uneasy Americas," that appeared in a recent issue of Foreign Affairs. He cites that, and I am quoting, "If Latin America loses confidence in Washington...the opportunities for American leadership in the hemisphere will diminish, along with hopes for an effective U.S.-Latin American partnership." Mr. Chairman, this administration and Congress cannot overstate the importance of TPA renewal to securing the support of our Latin American neighbors for wider economic and political cooperation.

We must also recognize the difficult economic and political situations faced by many of these countries, which are increasingly skeptical of the U.S. commitment to the region. The United States leadership in negotiating an FTAA, along with congressional approval of TPA, will send the right signal to our Latin American allies. Such steps as renewing the Andean Trade Preference Act and expanding consultation with our Latin American neighbors on trade and development matters will go a long way toward repairing ties with many countries in the hemisphere.

Reauthorization of the ATPA, although of marginal consequence to the United States, is critical to the Andean region's economy. Renewal of ATPA should expand upon the existing program and allow similar preferences for apparel items that the Congress offered to the Caribbean countries last year. The formula that worked for the Caribbean countries fit the economic realities of the Caribbean's apparel industry while being sensitive to U.S. textiles. We need to find a similar approach for addressing the economic realities of the apparel industry in the Andean region.

At a minimum, the Caribbean Basin Trade Partnership Act weakens the Andean countries' apparel industries and leads to revenue and job losses as apparel producers begin moving their operations to Caribbean locations. I encourage the Committee not only to reauthorize the Andean Trade Preference Act, but to expand the agreement to include items such as apparel, tuna fish, and petroleum products that are crucial to sustaining economic growth outside the drug industry.

Under Plan Colombia, the United States has invested more than $1.3 billion in military aid in Colombia to fight the drug war. This aid, while important, does not go far enough in offering alternative economic development that can deter the cultivation and exportation of cocaine in Colombia. Expansion of ATPA benefits that includes apparel items is one critical for the United States to fight the drug war while also improving economic opportunity and stability in the region. Basically, poor farmers need alternative ways to feed their families. For Colombia to be truly successful in stemming the drug trade, it will need more economic opportunities that will provide jobs and wages that can sustain Colombian workers and farmers.

We also need to encourage countries like Bolivia, which has successfully and courageously nearly eradicated the drug industry, but whose struggling economy depends upon textiles and apparel made of specialty wool from llamas and alpaca sheep. The relatively small investment of providing greater trade incentives under ATPA renewal would reap tremendous long-term gains for these countries and for U.S. consumers. Our Andean trading partners are also poised to be strong allies in our mutual efforts to secure a larger hemispheric trading bloc. I urge the Committee to expedite consideration of an expanded ATPA before the expiration of this agreement later this year.

Mr. Chairman, I would simply close by reiterating the importance of congressional approval of trade promotion authority legislation. I am confident we can successfully tackle the difficult issues of labor and the environment in this process. Hopefully, the Jordanian agreement will prove to be a helpful precedent in this regard. TPA is integral to demonstrating United States' resolve in the region and will offer the opportunity to negotiate other trade agreements that benefit American consumers and businesses.

As expressed in the Declaration of Quebec City approved by President Bush and the 33 other heads of State from the Americas, "we do not fear globalization, nor are we blinded by its allure. We are united in our determination to leave to future generations a Hemisphere that is democratic and prosperous, more just and generous, a Hemisphere where no one is left behind." The President's words best express the importance of an FTAA to our future.

Mr. Chairman, I thank you for this opportunity to appear before the Committee and would be happy to respond to any questions you and other members may wish to ask, and I urge your positive and timely passage of this crucially important trade legislation.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Moran follows:]

Chairman CRANE. Thank you, Mr. Moran.  And now, Ms. Tauscher?

STATEMENT OF THE HON. ELLEN O. TAUSCHER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

Ms. TAUSCHER. Thank you, Mr. Chairman and the ranking member and other members of the Subcommittee. Thank you for inviting me to express my views on U.S. trade with our southern neighbors. We are at a critical point in the ongoing relationship with our good friends in Central and South America. We have already established free trade agreements with Canada and Mexico. Now we must look to widen our horizons, expand business and cultural opportunities, share the good fortunes of free trade with our Andean neighbors, and then proceed with trade agreements for the rest of the democratic countries in South America.

Through my role on the House Armed Services Committee, I have been deeply involved in U.S. operations in Central and South America, especially in terms of U.S. development and support of Plan Colombia. I recently traveled to this region and met with the fine young men and women of the U.S. armed forces who are working diligently to achieve the goals that Congress set when this body passed legislation to provide assistance in this most difficult of battles: the war on drugs.

I met with the commanding generals in Southern Command, the troops in the field, the special operations community, and the Colombian military. Their morale is high, their missions are clear, and their work to achieve these goals is working well as we speak. We have every right to be proud of our military and must strive to provide them the best support possible.

I have also met the Colombian leadership, President Pastrana, Minister Ramirez, the Colombian Trade Minister, Mr. Urrutia, the head of the Colombian Central Bank, and other cabinet-level leaders in Colombia. One constant through all of the discussion on how to win this war on drugs is this central thesis: to move a population from an industry of drug cultivation, production, transportation, and dissemination, there must be gainful employment somewhere else. The only true and proven method of increasing opportunities in an emerging economy is to open trade. There are no alternatives in a democratic society.

The existing ATPA arrangement has been positive towards this end, but it needs substantial expansion of trade benefits. Colombian President Pastrana clearly stated his desire for expanded trade opportunities when he visited with President Bush here in February. Two weeks ago in Quebec City, he again declared his country's need for enhanced trade with the United States. While less than 1 percent of total U.S. imports of apparel come from ATPA beneficiaries, the U.S. exports approximately $10 billion in goods to these nations. Between 1992 and 1999, the industries in Colombia favored by ATPA generated $1.2 billion in output and approximately 140,000 jobs. It is also important to note that a 1999 Department of Labor report shows that preferential tariff treatment under ATPA does not appear to have had an adverse impact on or have constituted a significant threat to U.S. employment.

As you know, last year the United States formalized our commitment to the Colombian Government in the form of $1.3 billion in assistance. Plan Colombia includes assistance in the peace process, counter-drug efforts, reform of the justice system with attention to human rights, enhanced efforts toward democratization and social development, and support of the Colombian economy. The Colombian Government has committed $4 billion to this program, which is expected to cost $7.5 billion over a 6-year period. Of the $1.3 billion U.S. dollars sent to the region, approximately $147 million is programmed for alternative economic development; this is far below what we need to do in this area. All the pillars of the program are critical, but the concept of "weaning" the Andean economies off drugs as an industry is intrinsically linked to the development of industries that engage in conventional trade.

The most un-asked question in the war on drugs is: "What if the plan succeeds?" A couple of numbers clearly illustrate how unprepared we, as a hemispheric community, are for the best-case scenario: The World Bank estimates that the combined gross domestic product, GDP, of the four Andean nations involved in ATPA is approximately $200 billion. The Office of the National Drug Control Policy estimates that annual exports of cocaine from the Andean region are approximately $12 billion. A very cursory, macro examination quickly reveals that if tomorrow all the drug industries were crushed and drug money disappeared from this region, the Andean nations would experience a 6 percent drop in gross domestic product. For comparison's sake, you will most likely remember one of our worst economic crises in the United States, the Arab oil embargo in the early 1970s. That difficult time caused only a 3.5 percent drop in our own GDP, and it was catastrophic for us. Whether instantaneous or over the next 5 years, this region is clearly not prepared to replace drug money with wages and other sources of revenue that are derived from standard business practices. We must open up the doors of trade to speed the transition of these economies away from drug money.

This is a multi-dimensional problem that we are deeply involved in: We are part of the problem and need to be part of the solution. To date, we in the United States have made a "bet" that $1.3 billion of American assistance can help solve this problem. I believe that if we truly want to shape the environment to ensure our success, we must "protect our bet" with a trade package that sets the conditions to change their earnings source from drug money to industries that are part of the 21st century economy.

Thank you, Mr. Chairman, for inviting me to speak to you today on the issues of Andean trade. It is my hope that we can develop an effective Andean Trade Preference bill with strong bipartisan support that expands the trade preferences and extends the timeline well into the future.

Thank you.

[The prepared statement of Ms. Tauscher follows:]

Chairman CRANE. Thank you. Ms. Christensen?

STATEMENT OF THE HON. DONNA M. CHRISTIAN-CHRISTENSEN, A DELEGATE IN CONGRESS FROM THE UNITED STATES VIRGIN ISLANDS

Ms. CHRISTIAN-CHRISTENSEN. Thank you, Mr. Chairman, ranking member, distinguished colleagues, for the opportunity to testify this afternoon on the important hearing on the Andean Trade Preferences Act and a future Free Trade Area of the Americas. In particular, though, I am grateful for the chance to explain to the Subcommittee on Trade the critical importance of retaining current treatment for rum in any renewed ATPA and of opposing future tariff reductions for rum in the context of the FTAA.

I am accompanied today by Mr. Andrew Wechsler, sitting behind me, of the Law & Economics Consulting Group, who is currently conducting an updated economic analysis of the rum tariff issues for the Governments of the Virgin Islands and Puerto Rico. Both Mr. Wechsler and I would be pleased to answer any specific questions after my testimony, and I would like to submit a statement from the Governor of the Virgin Islands, Charles Turnbull, for the record with your permission.

Chairman CRANE. Without objection, so ordered.

[The following was subsequently received:]

Statement of the Hon. Charles W. Turnbull, Governor of the United States Virgin Islands

Introduction
    Mr. Chairman and distinguished members of the Subcommittee on Trade, I am pleased to provide this statement on behalf of the Government of the United States Virgin Islands ("GVI") in conjunction with the Subcommittee's hearing on the future of trade in the Western Hemisphere. In particular, I appreciate the opportunity to outline for the Subcommittee the crucial role which rum plays in the economy and financial stability of Government of the Virgin Islands and for other island jurisdictions in the Caribbean. For the reasons set forth below, Congress must assure that any legislation extending the Andean Trade Preferences Act ("ATPA") includes the current exclusion of low-value Andean rum. For the same reasons, I also respectfully urge that Congress oppose additional tariff reductions for rum in the negotiation of any future Free Trade Agreement of the Americas ("FTAA").
    In 1991, after careful consideration, Congress affirmatively acted to exclude rum from the list of products eligible for duty free treatment under the ATPA. The powerful reasons of this exclusion -- including the critical importance of rum to Caribbean Basin economies and the resource, cost and capacity advantages of Andean producers -- still exist today. Indeed, as explained below, U.S. duties on low-value bulk and bottled rum were recently affirmed after delicate and complex discussions among the United States, the European Union, Caribbean governments and non-governmental stakeholders in the 1997 "zero-for-zero" agreement on distilled spirits.
    The result of these 1997 negotiations reflects longstanding United States policy to preserve tariffs on imported rum. This consistent U.S. policy is based on the fundamental fact that the rum industry and existing U.S. tariff preferences play a critical role in the economies of the Virgin Islands and other Caribbean jurisdictions. Under, a congressionally mandated program to foster the development of the Virgin Islands, federal excise taxes on Virgin Islands rum shipped to the United States are returned to the GVI treasury. This revenue source — which accounts for approximately 15 percent of the GVI’s total budget — secures hundreds of millions of dollars of government - issued bonds to finance the capital infrastructure of the Islands.
    Any reduction or elimination of existing tariffs on low-value rum would disrupt these carefully considered trade and finance programs. Any such steps would have particularly devastating consequences for the fiscal stability of the GVI, which is currently struggling with a financial crisis exacerbated by the massive destruction wrought by successive 100-year hurricanes and other natural disasters over the last dozen years. Moreover, the elimination or reduction of duties on rum would have dire consequences for U.S. producers in the Virgin Islands and Puerto Rico — who comprise virtually all of the domestic rum industry — and for Caribbean beneficiaries of the U.S. Caribbean Basin Initiative ("CBI").
    Congress must, therefore, continue to oppose any efforts to facilitate reductions in rum tariffs in the context of the ATPA or the FTAA.

As an unincorporated territory of the United States, the Virgin Islands is uniquely dependent upon the continuing health and vigor of its rum industry.
    Rum is a product of special significance to the Virgin Islands and other Caribbean jurisdictions. Rum has been produced in the Caribbean for centuries, providing important contributions to local economies, as well to the history and lore of the region. Today, the rum industry plays even greater role in the prosperity and stability of the Virgin Islands economy. Indeed, rum production is the second most important industry in the Virgin Islands, surpassed only by tourism.
    Most Virgin Islands rum occupies the low-price end of the market and is sold as unaged bulk rum to regional distributors in the United States. The distributors, in turn, bottle and sell the rum under private labels or sell to national beverage companies which market under various product labels. Virgin Islands-produced rum is also sold as prepared cocktail mixes. Because Virgin Islands bulk rum is generally sold as a commodity and does not have name brand recognition, it cannot command premium prices. Rather, bulk rum is extremely price sensitive and is sold in a highly competitive environment where pennies can literally make or break a sale. As a result of this position in the market, Virgin Islands-produced rum is vulnerable to imports from low-cost countries, like Brazil and Colombia, with large indigenous sugar cane industries.
    In recognition of the special importance of rum to the Virgin Islands economy, successive Administrations have acted affirmatively to maintain tariffs on imports of low-value rum from non-CBI countries. Current U.S. tariffs on low-priced rum are 25.9 cents per proof liter for bottled rum valued at $3 per proof liter or less and 25.9 cents per proof liter for bulk rum valued at $0.69 per proof liter or less. These duties are critical to the continued viability of the Virgin Islands rum industry. (As noted below, the importance of these tariffs was affirmed as recently as 1997 in a U.S.-EU accord on rum.) Removal of the current duty on low-value rum, on the other hand, would confer an enormous advantage upon Andean and other non-CBI producers, who already enjoy substantial cost and production advantages and would likely expose Virgin Islands producers to immediate and destructive import competition. In short, the current duty is necessary to prevent serious injury to the Virgin Islands rum industry and, by extension, to the entire Virgin Islands economy.
    Corollary to its interest in ensuring the competitive health of an historic industry, the GVI and the United States Government also have a common interest in protecting one of the GVI’s principal sources of governmental revenue. Congress has, by statute, mandated that federal excise taxes imposed on Virgin Islands rum be returned to the treasury of the Islands to finance needed capital projects and public services. Under the Virgin Islands Revised Organic Act of 1954 ("ROA"), Pub. L. No. 517, 68 Stat. 12, which established a comprehensive scheme of local self-government in the Territory, Congress provided that federal excise taxes collected on rum manufactured in the Virgin Islands and shipped to the United States shall be returned to the treasury of the Virgin Islands. ROA, §28(b) (codified at 26 U.S.C. §7652(b), (e)). Prior to the enactment of the Revised Organic Act, the Virgin Islands was dependent upon ad hoc congressional appropriations for the support of its local government. As part of its statutory scheme for the political and economic development of the Virgin Islands, Congress intended that these tax cover-over provisions generate a permanent source of funds for the Virgin Islands Government and thus contribute to the financial self-sufficiency of the Territory. See S. Rep. No. 1271, 83d Cong., 2d Sess. 4 (1954), reprinted in 1954 U.S. Code Cong. & Ad. News 2585. See also Commonwealth of Puerto Rico v. Blumenthal, 642 F.2d 622 (D.C. Cir. 1980), cert. denied, 451 U.S. 983 (1981) (purpose of cover-over provisions is "to ease financial plight" of the Virgin Islands and Puerto Rico).
    The rum industry and the cover-over provisions of the Revised Organic Act presently contribute approximately 15 percent of the Territory’s total budget. For 2000, the GVI received approximately $75 million in rum excise taxes. These cover-over revenues are used to secure bonds issued by the GVI and sold to mainland institutions and investors. These bonds, in turn, finance needed capital improvements and infrastructure development in the Territory including, inter alia, the construction of schools, health care facilities, airports and other vital projects throughout the Virgin Islands — projects made all the more necessary by the billions of dollars of damage caused by major hurricanes and other natural disasters over the last decade. In addition, the number of direct jobs generated by these capital expenditures run into the thousands — far outpacing the number of jobs in the rum industry, which is itself one of the largest manufacturing industries in the Territory.
    The rum industry thus provides one of the principal sources of employment and government revenue in the Virgin Islands. Even a modest increase in imports from Andean and other non-CBI producers triggered by extending duty-free treatment to low-cost rum would invariably result in depressed prices and correspondingly reduced profits for U.S. rum producers in the Virgin Islands. Because of the linkage established by Congress between the industry and excise tax revenues, even minimal displacement of Virgin Islands rum shipments to the United States by foreign competition will threaten the fiscal stability of the Territorial Government, raise the cost of the government borrowings, and, derivatively, put the entire economy of the Islands at risk. Accordingly, Congress must retain current restrictions on rum in the ATPA and oppose the inclusion of rum in any tariff negotiations under the FTAA.

B. Any Reduction or Elimination of Current U.S. Duties on Low-Value Rum Would Run Counter to Long-Standing Federal-Territorial Policy

    Both the Congress and the Executive Branch of the United States have repeatedly recognized the unique role that the rum industry plays in the legal, economic and political relationship between the United States and its island territories in the Caribbean. The United States has taken affirmative action on many occasions to protect the Virgin Islands and Puerto Rico rum industries from potential competitive harm that would result from changes in trade preferences for rum.
    Historically, all foreign-produced rum imported into the Untied States was subject to U.S. customs duty. In 1983, in response to the President’s foreign policy objectives for the Caribbean, Congress enacted the Caribbean Basin Economic Recovery Act ("CERA") — popularly known as the "Caribbean Basin Initiative" — which created a special system of tariff preferences for products (including rum) originating from eligible Caribbean countries. Pub. L. No. 98-67, 19 U.S.C. §§2701 et seq. The legislation was carefully developed to balance domestic economic interests against U.S. foreign policy goals for the Caribbean. After careful Congressional deliberation, a legislative compromise was worked out to protect the Virgin Islands and its rum industry from any increase in Caribbean rum imports. Among other things, Congress enacted several compensatory measures in recognition of the heightened vulnerability of the Virgin Islands rum industry to CBI imports, including a partial rebate to the GVI of a percentage of excise taxes imposed on foreign-produced rum. See Pub. L. No. 98-67 § 214, 19 U.S.C. §§ 1202, 2251 (note), 2703 (note), 33 U.S.C. § 1311 (note).
    The Federal Government has also demonstrated its continued recognition of the special role of rum in the Virgin Islands economy in its disposition of various petitions under the Generalized System of Preferences. In 1981, 1982, 1987 and 1990, the U.S. government rejected various GSP petitions seeking duty-free entry of rum produced by non-Caribbean producers. The rejection of these GSP petitions reaffirmed the import-sensitivity of the rum industry and reflects a considered judgment that the potential harm to the Virgin Islands and Puerto Rican rum industries outweighed any policy benefit to the petitioning countries.
    For all these reasons, efforts to eliminate or reduce current tariff preferences for rum -- whether in the context of ATPA renewal or future FTAA negotiations -- would be contrary to long-standing Federal policy against the extension of tariff preferences for low-value rum produced outside of the Caribbean.

C. Changes in Current Tariff Treatment for Rum Would Be Inconsistent With the Considered Judgments Which Underlie the APTA and the 1997 Agreement on Rum

    Of particular importance in the context of the Subcommittee's consideration of a renewed ATPA is that fact that Congress expressly excluded rum from the list of products eligible for duty-free treatment when the ATPA was enacted in 1991. This action was taken by Congress and the Administration after very careful consideration of the impact that duty-free treatment for rum would have on the Virgin Islands, and Puerto Rico and CBI jurisdictions generally. In explaining this action, the House Ways & Means Committee stated:

The Committee added rum to the list of articles that would be ineligible for duty-free treatment under the Act in order to preserve the benefits that Congress has provided to Puerto Rico, the Virgin Islands, and the Caribbean Basin countries. Rum is a product which the ITC has identified as benefiting most from duty-free treatment under the CBI. . . . Andean Rum Producers have significant natural resource and cost advantages over their Caribbean and U.S. Territorial counterparts as well as large excess production capacity.

    H.R. Rep. No. 102-337 at 15 (1991). As explained below, the powerful reasons then for excluding rum from duty-free treatment under the ATPA still exist today.
    Developments over the last decade also make the retention of current rum tariffs even more imperative for the Virgin Islands and other CBI beneficiaries. As part of a tariff agreement initialed at the December 1996 WTO Ministerial in Singapore, the United States and the European Union ("EU") committed to phase out their tariffs on "white spirits" (including rum) by no later than 2000. In response to this unexpected announcement, U.S. and Caribbean governments and producers, Administration officials and Members of Congress strongly emphasized to U.S. and EU negotiators that, unless exempted, such a drastic change in the duty structure for rum would deal a severe blow to the Virgin Islands, Puerto Rico and the island nations of the Caribbean, whose economies and governments depend heavily on revenues generated by trade in rum.
    In response to these demonstrable concerns, the United States and the EU returned to the negotiating table in 1997 and — with substantial input from the GVI and other Caribbean governments and producers — subsequently fashioned a compromise tariff mechanism for rum. This mechanism sought to balance trade liberalization with the particular concerns of the Caribbean region. It did so by retaining existing MFN duties (and the duty preferences of Caribbean producers) on low-priced bottled and bulk rum while substantially liberalizing duties on more expensive rum. Pursuant to this agreement, current higher U.S. duties on low-priced rum are cut off above $3.00/proof liter for bottled rum and $0.69/proof liter for bulk rum.
    The willingness of U.S. and EU negotiators to reopen their initial tariff commitments to address the import sensitivity of low-value rum affirms the special and the significant role which rum generally plays for the economies and governments throughout the Caribbean. The 1997 rum agreement was a reasoned compromise agreed to by the concerned governments with substantial participation by key non-governmental stakeholders. In renewing the ATPA and advising on a negotiating strategy for the FTAA, Congress must recognize and continue this careful approach to the unique issues raised by rum.
    The exclusion of rum from duty-free treatment under the ATPA and the careful compromise reached in the 1997 rum accord demonstrate that rum is not a product which can or should be included in any across-the-board grant of duty-free treatment or formula-based tariff reduction schemes. Rather, any renewal of the ATPA and any tariff discussions in the context of the FTAA must address the special economic and political significance of the rum trade to the Caribbean region. The considered compromise reached in the 1997 agreement on rum provides a proper balance between the needs of the Virgin Islands and other Caribbean producers of low-value rum and liberalized trade for higher-priced rum.

D. The Reduction or Elimination of Current U.S. Duties on Rum Would Result In Serious Injury To U.S. Producers In the Virgin Islands And The Overall Economy of the Virgin Islands

    Duty reductions for rum pursuant to a renewed ATPA or as part of any FTAA negotiations would impose unacceptable hardships on the Virgin Islands and its rum producers. Because it lacks strong name brand identification and a well-developed national distribution network, Virgin Islands rum generally cannot command premium prices. Rather, as explained above, most Virgin Islands rum is sold at the low end of the market and is generally purchased in bulk as an unaged commodity by U.S. bottlers. In this sales environment, Virgin Islands producers must compete almost exclusively on the basis of price and, accordingly, are particularly vulnerable to competition from low-cost producers of bulk rum.
    Removal or reduction of current duties on low-value rum would provide producers from outside the Caribbean region with an irresistible incentive to target the low end of the U.S. rum market currently occupied by Virgin Islands producers. For example, Andean and Brazilian producers and producers from other large South American countries currently enjoy numerous economic advantages relevant to the production of rum. These include below-world-market prices for molasses, more highly developed transportation and distribution networks, inexpensive fuel, low manufacturing-sector wages and freedom from U.S. regulatory requirements. The extension of ATPA to rum would open the doors especially to Colombia, but also Peru. Colombia presently consumes more rum than France, 2.5 million cases per year. This does not include aguardiente, an extremely popular Colombian beverage that, like rum, is derived from sugar cane. Colombia has four major rum distillers and a mature industry. Colombia has a significant existing capacity in rum and an ability to augment it rapidly by diverting from aguardiente. Duty-free access to the United States, coupled with its clear cost advantages, would allow Colombia rapidly to enter the low-valued rum market, displacing the Virgin Islands producer.
    The extension of duty-free rum treatment to all of South America via the FTAA would create an even more grim picture for the future of this traditional Virgin Islands industry. Brazil is the global industry's 800 pound gorilla -- it is the world's largest producer of caned spirits, accounting for 73 percent of global consumption in 1999. Cachaca, a product very similar to rum, is the national drink of Brazil. Brazil clearly has the capacity to single-handedly suffocate the Virgin Islands rum industry in its low-valued market. The role of the existing duties is crucial to the competitiveness of the Virgin Island's rum industry because Brazil's wage structure in the beverage industry is far below that of the Virgin Islands. Brazil is also a major producer of sugar and molasses, the key cost component in rum production. With more sugar than it can use, and low energy costs (due to both subsidies and the burning of cane stalk), Brazil would, overnight, become the lowest-cost large source for low-valued bulk rum if duties were removed.
    The GVI and other interested parties have commissioned Mr. Andrew Wecshler, Managing Director of LECG, LLP, a leading trade and economic consulting firm, to conduct an analysis of the probable economic effects of the elimination of current duties on rum. Attached to this statement is a Power Point presentation which summarizes Mr. Wechsler's preliminary conclusions. This analysis makes clear that, without the benefit of the current tariff protection affirmed in the 1997 rum agreement, Virgin Islands producers would quickly be overwhelmed by non-CBI producers in the price-based segment of the U.S. market in which Virgin Islands rum competes.
    The elimination of U.S. tariff protection for the price-sensitive, low-value segment of the U.S. rum market would also seriously threaten the future of the Congressionally mandated program to finance the development needs of the Virgin Islands through the return of excise taxes on rum to the GVI treasury. As explained above, this cover-over program finances some 15 percent of the GVI’s annual budget and secures government bonds issued for crucial development and infrastructure projects. This vital economic program depends, however, on the continued existence of a viable rum production industry in the Virgin Islands.
    Without current tariff protections, non-CBI producers would likely use their tremendous competitive advantages to displace Virgin Islands rum from the U.S. market, thereby drying up GVI treasury revenues from the return of excise taxes on Virgin Islands-produced rum. This lost revenue could not be made up by the partial rebate of excise taxes on foreign rum granted by the CBI. The CBI provides only a limited guarantee of Virgin Islands rum revenues and simply does not make the Virgin Islands whole where foreign imports are increasing disproportionately at the bottom end of the bulk rum market — precisely the segment where the Virgin Islands industry competes. Moreover, from a practical political standpoint, even this limited rebate program would be unlikely to continue if Virgin Islands rum production were no longer viable.
    Finally, and perhaps most significantly, the very prospect of serious reductions in rum cover-over revenues would likely imperil the GVI’s bond rating and overall economy even before any non-CBI rum producers could avail themselves of reduced U.S. tariffs. Bond markets and investors are justifiably wary of risk and would hesitate to provide needed bond financing at acceptable costs to the GVI based on a threatened and declining stream of cover-over revenues.
    Thus, the elimination of current tariff preferences for Virgin Islands rum would have a devastating domino effect on the Virgin Islands and its economy. Without these preferences, rum cover-over revenues would seriously decline and the GVI could lose access to financial markets. Because of the dependence of the Virgin Islands on rum-related revenues, these developments would ultimately put at risk the fiscal autonomy, if not solvency, of the GVI.

E. The Elimination of Current Tariff Preferences on Rum Would Be Contrary To Sound Public Policy In Light of the Precarious Fiscal State of the Virgin Islands

    As noted above, current tariff protections for Virgin Islands rum are founded on a longstanding Federal-Territorial policy which links the Islands’ development with revenues from rum. This policy provides compelling reasons to resist any elimination of tariff preferences for Virgin Islands rum. Moreover, in view of the current precarious fiscal state of the GVI, any tariff reductions for rum pursuant to a renewed ATPA or FTAA tariff talks would be particularly ill-timed and inconsistent with sound public policy.
    Indeed, the new administration in the GVI has inherited a fiscal state of affairs of enormous and alarming proportions. The current recurring and non-recurring liabilities of the GVI exceed $1.2 billion, excluding the funding requirements for many capital projects such as schools, correctional facilities and solid waste management facilities. A sizeable portion of the Government’s current liabilities is the direct result of successive hurricanes which have battered the Virgin Islands over the past decade. As of December 31, 2000, these hurricane-related liabilities included nearly $200 million in outstanding FEMA loans. In addition, the GVI requires over $125 million in assistance for rebuilding/replacing a number of capital projects, such as schools, prisons and other facilities mostly destroyed during the hurricanes.
    The GVI is committed to extraordinary self-help measures to address this fiscal crisis. With the ongoing assistance of the U.S. Department of Interior, the GVI has developed a Five-Year Fiscal Recovery Plan and is implementing a number of specific measures to reduce or cut costs and enhance revenue collections. As part of this recovery effort, the GVI is seeking over $300 million in Federal relief relating to FEMA disaster loans and hurricane-related infrastructure reconstruction. Additionally, the GVI is seeking further Federal assistance through the extension of the increase in the rum tax cover-over rate to $13.25 per proof gallon, which Congress enacted in 1999 and which expires on December 31, 2001.
    In light of the Federal Government’s substantial involvement and interest in these recovery efforts, it makes no sense for the U.S. Government to simultaneously undermine one of the major sources of revenue of the GVI through the elimination of current rum preferences pursuant to a revised ATPA or FTAA tariff negotiations. Sound fiscal policy — as well as longstanding trade and development policies embodied in the ATPA and other legislation — thus supports the maintenance of the current tariff structure and the preservation of the U.S.-EU rum accord.

Conclusion
    For reasons discussed above, the reduction or elimination of tariffs on rum in the context of a revised ATPA or future FTAA negotiations would pose an inevitable and serious threat to the health of the Virgin Islands economy and its rum industry, as well as to the fiscal autonomy of its Government. Granting duty-free treatment to rum would have a devastating impact on one of the Virgin Islands’ most significant and historic industries and one of its largest and sources of governmental revenue. The United States has wisely refused to abandon the critical rum industry in the Virgin Islands. Because of the current weakened fiscal state of the Virgin Islands Government, the case against changing current U.S. tariff protections for rum is even more compelling today. For the reasons set forth above, the Congress must retain current ATPA restrictions against duty-free treatment for Andean rum and must preserve the careful compromise embodied in the 1997 U.S.-EU rum accord by excluding rum from future FTAA tariff reduction negotiations.

Ms. CHRISTIAN-CHRISTENSEN. Thank you. In 1991, after very careful consideration by Congress and the administration, rum was expressly excluded from duty-free treatment under the ATPA. The Ways and Means Committee then explained that this action was necessary to preserve the benefits that Congress had provided to Puerto Rico, the Virgin Islands, and the Caribbean Basin countries.

Developments over the last decade--particularly a landmark 1997 international trade understanding and agreement on rum tariffs--have made the retention of current tariff preferences on rum even more imperative for the Virgin Islands and the Caribbean region as a whole.

Today, rum is the second most important industry in the Virgin Islands, surpassed only by tourism. It provides an essential revenue source for the Virgin Islands Government because under a congressionally mandated program for the development of the Islands, Federal excise taxes on rum shipped to the United States are returned to the local treasury. These funds currently account for more than 15 percent of the Virgin Islands total budget and have played a critical role in the economic and budgetary health of the Islands.

Most rum produced in the USVI is sold as unaged bulk rum to regional distributors in the United States as a commodity without name brand recognition. Therefore, the rum cannot command the premium prices. It is also extremely price-sensitive and vulnerable to imports from low-cost countries. As Congress recognized in 1991, Andean and other non-CBI producers have significant natural resource advantages in the production of rum. These advantages include: large, indigenous sugar cane industries, inexpensive fuel, low wages, and substantial rum and alcohol production capacity. Without current U.S. tariff preferences, these low-cost regional producers can be expected to overwhelm Virgin Islands and CBI producers of low-value rum in the U.S. market.

In addition to excluding rum from duty-free benefits under the ATPA in 1991, Congress also adopted and maintained a special compensatory program for Virgin Islands rum in the context of CBI. Through the 1980s and 1990s, successive administrations also repeatedly rejected various GSP petitions for duty-free entry of rum produced by non-Caribbean producers. All of these decisions reflect a recognition that rum is highly import-sensitive. They were also the result of a carefully considered judgment that the likely harm to the Virgin Islands and the island nations of the Caribbean far outweighs any potential policy trade benefits from tariff liberalization.

The unique and critical role of rum in the Caribbean region and the importance of maintaining preferences for low-value rum was most recently affirmed in a landmark 1997 understanding between the United States and the European Union. In WTO tariff negotiations in 1996, U.S. and EU negotiators had initially agreed to phase out all tariffs on rum and other "white spirits" by 2000. This unexpected development, which was the last occasion on which I testified before this Subcommittee, was met with alarm by Caribbean governments, administration officials, and Members of Congress, who emphasized to the trade negotiators that such a drastic change in the tariff structure for rum would deal a severe blow to the economics of the U.S. Virgin Islands, Puerto Rico, and the Caribbean.

In response, the U.S. and EU, as well as Caribbean governments and producers, revisited rum tariffs in complex and delicate discussions to address the special role of rum in the Caribbean region. These discussions resulted in a carefully constructed compromise for rum under which the United States agreed to substantially liberalize duties on expensive rum, while protecting the interests of the USVI and other Caribbean island producers, maintaining existing MFN duties on low-value bottled and bulk rum.

The 1997 agreement on rum forms the basis for current U.S. tariff preferences on rum.

In summary, in 1991, this Committee wisely decided to exclude rum from duty-free treatment under ATPA. This decision reflected a longstanding concern by the United States that trade preferences for rum are vitally important to the economies of the Virgin Islands, Puerto Rico, and the island nations of the Caribbean. The wisdom of this decision has been confirmed by developments since 1991. In particular, the 1997 agreement on rum between the United States and the EU reflects the understanding that tariff liberalization of rum must be tempered with an appreciation for the special role that rum, particularly low-value rum, plays in the Caribbean region. For these and other reasons, we ask Congress to assure that the current, carefully considered tariff preferences for rum are not disturbed by the ATPA or by other regional trade arrangements.

Thank you, Mr. Chairman, ranking member, other members of the Subcommittee. Mr. Wechsler and I would be pleased to answer any questions, and thank you again for the opportunity to testify.

[The prepared statement of Ms. Christian-Christensen follows:]

Chairman CRANE. Thank you, Ms. Christensen. Are there any questions of our witness?

[No response.]

Chairman CRANE. If not, let me express--oh, Mr. Levin?

Mr. LEVIN. I would like to thank them very much for their testimony, and this helps to kick off the discussion of these important issues. Thank you very, very much.

Chairman CRANE. Well, it does, and we look forward to working on a cooperative basis with you all, and we appreciate your testimony this afternoon. Thank you so much.

And now I welcome our distinguished U.S. Trade Representative, the Honorable Robert Zoellick. Proceed when ready.

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

Mr. ZOELLICK. Mr. Chairman, Representative Levin, members of the Committee, if I could request that my full statement will be entered into the record, and I would then summarize it.

Chairman CRANE. Without objection.

Mr. ZOELLICK. I want to begin by thanking you for giving me this opportunity to speak before the Subcommittee. I have certainly benefitted from discussions with the members of this Committee, and I look forward to working closely with all of you. I also wish to thank, in particular, Representatives Levin and English for joining the President at the Summit of Americas meeting in Quebec City.

I also appreciate Congressman Moran's fine statement. I am delighted to be one of his constituents, and recognizing where Congresswoman Tauscher and Christensen come from, I would be delighted to be their constituents, too, I think.

I am pleased to report that in the administration's first months, with your help, we have been able to take steps to advance free trade in this hemisphere and around the world. We have launched the negotiations on the free Trade Area of the Americas, made progress on bilateral free trade agreements with Chile and Singapore, and have resolved productively a number of disputes with our trading partners.

Yet we should not let this progress mask a more troubling reality: the United States is falling behind the rest of the world when it comes time to trade liberalization. Globally, there are 130 free trade agreements. The United States is a party to just two. The European Union has free trade or special customs agreements with 27 countries, 20 of which have completed in the last 10 years, and the EU is negotiating 15 more right now. Last year, the European Union and Mexico--the second-largest market for U.S. exports--entered into a free trade agreement. Japan is negotiating a free trade agreement with Singapore and is exploring free trade agreements with Mexico, Korea, and Chile.

We have no one to blame for falling behind but ourselves, and there is a price to pay for our delay. As Senator Graham of Florida has pointed out, during the last century, when it came time for countries to adopt standards for the great innovation of that era--electric power--Brazil turned to European models because the United States was not active in Brazil. So when you visit Brazil, be sure to bring an electric adapter. Today, as Senator Graham has explained, Brazil is making decisions about standards for autos and other products. So the United States needs to decide whether it wants to stand on the sidelines again.

To cite just one other example, while U.S. exports to Chile face an 8-percent tariff, the Canada-Chile trade agreement will free Canadian imports of this duty. This is the same agreement that President Clinton said that we would no negotiate in 1994. As a result, U.S. wheat and potato farmers are now losing market share in Chile to Canadian exports.

One of our colleagues, Congressman John Tanner, summed up the big-picture stakes as effectively to me as anyone that I have heard: "America's place in the world is going to be determined by trade alliances in the next 10 years in the way military alliances determined our place in the past."

In any discussion of future free trade agreements, we need to highlight the benefits of previous accords. Together, North American Free Trade Agreement (NAFTA) and the completion of the Uruguay Round have resulted in higher incomes and lower prices for goods, with benefits amounting to between $1,300 and $2,000 a year for the average American family of four. That is real money for farmers, nurses, teachers, police officers, and office workers, not bonuses for corporate executives.

Trade barriers hurt families. When trade is restricted, hardworking fathers and mothers pay the biggest portion of their paychecks for higher cost food, clothing, and appliances imposed through taxes on trade.

NAFTA has also produced a dramatic increase in trade. U.S. exports to our NAFTA partners increased 104 percent between 1993 and 2000; U.S. trade with the rest of the world grew only half as fast.

Increased trade supports good jobs. In the 5 years following the implementation of NAFTA, employment grew 22 percent in Mexico and generated 2.2 million jobs. In Canada, employment grew 10 percent and generated 1.3 million jobs. And in the United States, employment grew more than 7 percent and generated about 13 million jobs.

I recognize that these benefits of open trade can only be achieved if we build public support for trade at home. To do so, the administration will enforce, vigorously and with dispatch, our trade laws against unfair practices. In the world of global economics, justice delayed can become justice lost.

The administration will also be monitoring closely compliance with our trade agreements, as well as insisting on performance by our trading partners. Thanks to the help of the Congress and its support of the Trade Compliance Initiative advanced last year, USTR received additional staffing to strengthen its ability to ensure that the terms of agreements are fulfilled.

The Bush administration is promoting free trade globally, regionally, and bilaterally. By moving on multiple fronts, we can create a competition and liberalization that will increase U.S. leverage and promote open markets in the hemisphere and around the world.

The Free Trade Area of the Americas provides a framework for the administration's hemispheric strategy. This area, once completed, will be the largest free market in the world.

At the Summit of the Americas in Quebec City, all 34 heads of State signed a declaration pledging to conclude negotiations on the FTAA no later than January 2005. The United States is committed, working with others, to meet or beat that deadline.

Moreover, the draft text of the agreement will be released once it has been translated into the four official languages of the FTAA. This is an important, and perhaps unprecedented, step to build public awareness and support an open process. All 34 nations participating in the Quebec City Summit also committed to help the smaller economies of the hemisphere, especially the nations of the Caribbean and Central America, so they could address the unique challenges they face in moving forward with hemispheric integration.

Furthermore, summit leaders agreed that any unconstitutional alteration or interruption of the democratic order in a state of the hemisphere would disqualify that Government from further participation in the Summit of the Americas process.

While pursuing regional free trade through the FTAA, the Bush administration is also negotiating a free trade agreement with Chile. During a visit I made to Santiago last month, I met with President Lagos and other senior Government and legislative officials, as well as representatives of business, labor, and environmental groups. I had two objectives: One, I wanted Chile to know that the Bush administration is serious about the free trade agreement, a point that President Bush and President Lagos made clear following their recent White House meeting, when they announced their goal of completing the negotiations by the end of this year.

My second objective was to send a signal to the nations of Latin America and the rest of the world. The United States will reward good performers. Chile, for example, has been at the forefront of Latin American nations in liberalizing trade, while setting an example to the world of a free people reclaiming their democracy and making the transition to a mature, developed economy.

Leaders from many other nations in this hemisphere have now told me that they want to pursue free trade agreements with the United States. We will consider each of these offers seriously, while focusing on the FTAA.

We are also pleased to have made progress on a number of trade disputes. Last month, we settled the U.S.-EU banana conflict, an issue that interfered with our economic relations for nearly a decade. We have resolved a number of disputes by working through the World Trade Organization and the NAFTA Agreement. For example, Greece has moved to counter the piracy of U.S. films and television programs. Mexico has agreed to allow dry beans from the United States to be imported in a more timely and predictable manner, and India has lifted on U.S. agricultural, textile, and industrial products.

Frequent and substantive communication lies at the heart of the executive-congressional partnership on trade, and I intend to keep our lines of communication open as we move on our free trade agenda.

The Bush administration's top trade priority is for the Congress to enact U.S. Trade Promotion Authority by the end of this year. Under this authority, the Executive Branch would be bound by law to consult regularly, and in detail, with members of Congress as trade agreements are being negotiated. But once that long and exhaustive process of consultation is completed, and the painstaking negotiations have ended in an agreement, our trading partners have the right to know that Congress will vote on the agreement, up or down. Indeed, in the absence of Trade Promotion Authority, which expired in 1994, other countries have been reluctant to close out complex, politically sensitive trade agreements with the United States.

We would like to launch a new round of global trade negotiations in the WTO, emphasizing a key role for agriculture. Further reforms in the Middle East and Africa need our encouragement, and we are committed to working with the Congress to enact legislation for a free trade agreement with Jordan. I compliment the Committee for its important work with Africa and the Caribbean last year and look forward to working with the Congress to improve the implementation of the Africa Growth and Opportunity Act and the Caribbean enhancement provisions. We would also welcome your ideas about additional legislative authority to promote trade, economic growth, openness, the rule of law, and democracy in Africa.

We hope to see the Andean Trade Preferences Act, which expires in December, renewed and expanded. I am delighted that the Committee has invited ministers from the region to provide them direct testimony about the effects of this law, and I plan to meet with them tomorrow. The Central American countries have expressed an interest in a free trade agreement with the United States, and we will seek your ideas and preferences as we consider that possibility.

There are opportunities in the Asia Pacific Economic Cooperation and, I hope, with APEC. We will start with a free trade agreement with Singapore, and we will work with you to pass the basic trade agreement with Vietnam negotiated by the Clinton administration. We are encouraged by the renewed emphasis on structural and regulatory reform by the Koizumi administration, and we look forward to working with Japan as it pursues this agenda, which is long overdue.

To help developing nations appreciate that globalization and open markets can assist their own efforts to reform and grow, we will need to extend the legislation authorizing the Generalized System of Preferences program.

And now that there is a fragile peace in the Balkins, we must secure it by pointing people towards economic hope and regional integration. Therefore, we would like to work with the Congress to follow through on the prior administration's proposal to offer trade preferences to countries in Southeast Europe.

As we pursue this agenda, we would like to work with you to consider a range of ideas for improving labor and environmental conditions of our trading partners, as long as these proposals are not protectionist. We might use incentives, not just disincentives, to encourage better environmental protection and labor standards. For example, incentives can be related to aid programs, financing through multilateral development banks, and preferential trade. We can also strengthen the role of complementary specialized institutions, such as the International Labor Organization (ILO).

USTR has announced recently that we will conduct written environmental reviews of major trade agreements, including the FTAA and the negotiations on agriculture and services underway in the World Trade Organization. In addition to the current environmental advisors, the Bush administration agreed to add an environmental representative to the Chemical Advisory Committee, in response to requests by environmental groups for participation on that committee. I have already benefited from both individual and group meetings with representatives of many environmental groups from the United States and other countries.

At the Summit of the Americas, President Bush stated, "Our commitment to open trade must be matched by a strong commitment to protecting our environment and improving labor standards." As the Congress and the Executive Branch explore how to demonstrate that trade supports labor and environmental standards, we should look first to economic growth. As the President has said, "When there is more trade, there is more commerce, and there is more prosperity. And a prosperous society is one more likely to have good environmental standards and to be able to enforce those standards."

The EPA and others can provide the kind of technical assistance that will improve the ability of our trading partners to improve both the adequacy of their environmental protection regimes and their ability to enforce their laws and regulations.

We should enable advocacy groups to plant local roots. If labor standards and environmental protection come to be seen by developing nations as a price of trade imposed by wealthy countries, these causes will not gain widespread local support.

When we think about the connection among trade, economic growth, labor, and the environment, we should see them as being mutually supportive, not in conflict with one other. So I look forward to working with the Congress, and interested parties in the private sector, to discuss these issues further and to seek to find common ground.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Zoellick follows:]

Chairman CRANE. Thank you, Mr. Ambassador.

Let me take advantage of this opportunity to congratulate you on the outstanding work you did with the EU in resolving the banana dispute with them

Mr. ZOELLICK. Thank you.

Chairman CRANE. And we want to see you continue down that outstanding path.

Mr. ZOELLICK. Thank you.

Chairman CRANE. Since U.S. trade with non-NAFTA, Western hemispheric nations is relatively small compared to levels of trade with NAFTA countries, why should the United States be interested in an FTAA, and in what sectors is the United States most likely to benefit from a completed FTAA?

Mr. ZOELLICK. Well, Mr. Chairman, there is a combination of reasons. First, as a number of you mentioned, this would create the largest free trade agreement in the world, covering some 800 million people. And some of the numbers that I cited about the boom in trade, including U.S. exports with Canada and Mexico, give a sense of some of the potential that we would have with the rest of the countries of Latin America. And, indeed, even without that agreement, we have had increased growth of our exports to Latin America in excess of the growth that we have had in the rest of the world.

But, in addition to that direct trade purpose, I think there is a broader economic purpose. The countries of this region are still undergoing serious economic reforms. They are doing so with relatively fragile democracies, many of them created over the past 10 or 15 years. And, frankly, that reform process is under stress and some of the democracies are under strain. So one of the best ways that we can help support lasting economic reform by democratic partners is to create a framework for cooperation and economic growth.

Indeed, if you look back at this hemisphere, Mr. Chairman, it wasn't so long ago that some of the major countries, including Brazil and Argentina, were trying to develop nuclear programs. Indeed, Argentina was developing a missile being funded by Iraq. But in the process of opening those economies and moving to democracies, both Brazil and Argentina created full-scope nuclear safeguards, and Argentina not only gave up its missile program, but it destroyed that missile that had been funded by Iraq.

So the stakes of this run to trade, they run to economic growth and stability, and they also run to democracy and security, including, as a number of speakers have pointed out here, in the Andean region. So, frankly, the stakes are high, and one way that the President has spoken about this is that we spent much of the last 50 years trying to overcome an East-West divide. We still face a North-South divide. And our own work in this hemisphere, with freedom, with economic openness, with democracy, with a peaceful set of security relations, could give us the opportunity to create a bridge between North and South that will be a model for the rest of the world.

And so the stakes, in my view, Mr. Chairman, are strategic, as well as economic.

Chairman CRANE. I think it is important that the Subcommittee work closely with you to craft an Andean bill which offers concrete economic opportunities to the Andean countries and which is, if at all possible, simpler to administer than the recently passed CBI legislation.

Have the countries given you an idea of what they think will work to help them create additional employment opportunities?

Mr. ZOELLICK. Well, I should obviously let some of the officials from those countries emphasize their key points. I think the starting point, Mr. Chairman, is that, as Congressman Moran and Congresswoman Tauscher emphasized, they are looking for ways to not only promote growth, but to promote export diversification. So, while many of the topics focus on a sensitive sector like textile and apparel, I think we should be open and look for possibilities beyond that area.

So I think the task, Mr. Chairman, is to look at ways we could both extend the ATPA and to broaden it. On extending it, at least it is our proposal, that this be targeted to December 2005 so that it is a bridge to the FTAA, since that is our date for trying to complete it and bring it into force.

In terms of broadening it, at a minimum, I think we would want to try to create parity with the Caribbean and the African bills that the Congress passed last year, and i think, where possible, we should look to go beyond that. I have talked with some of you in the apparel area about how some regional arrangements might help both U.S. firms, as well as firms in the region, as we look towards the end of the Multi-Fiber Agreement in a couple of years and create a more integrated market.

But having said this, Mr. Chairman, I think the thing we have to keep in mind is we have to get this done by December 4, and we all know that there are some very sensitive issues here, and that it is not going to be an easy process to work through. So I think my suggestion for a starting point would be to achieve parity and see where we can go beyond, but not let the perfect be the enemy of the good.

Chairman CRANE. Thank you, Mr. Ambassador.  Mr. Levin?

Mr. LEVIN. Thank you, and welcome.

Let me focus in on the two specific subject matters before us. I have already, in my opening statement, as you know, Mr. Ambassador, expressed my views on the larger issues, and I have tried to do so clearly in that opening statement regarding Jordan, and Vietnam, and other issues and fast-track the Trade Promotion Authority.

As I understand it, the administration may be issuing a Statement of Principles later this week or sometime hereafter, and I will welcome the opportunity for further discussion, and I think you can expect that I will speak as clearly as I can on them, as I did this morning or this afternoon on these issues, these broader issues, and will continue to talk, both privately and publicly, about these issues. I think it is the only way to move forward.

I think it is interesting, in your statement, that you talk about a matter that was brought at Quebec, and that is what happens when a country interrupts its democratic path and essentially the disqualification from further participation in the summit. I think that helps to illustrate what I think is a basic notion, and that is that we should be careful not to equate free trade as automatically leading to democracy, that, to some extent, we should be working towards democratic processes as part of the trade equation. I mention that just because I think that that discussion in Quebec illustrated and underlined the need for us to look upon trade not as an end, in and of itself, but as a tool.

So let me just say one other thing and then ask you a few specific questions. On Page 6, there is a reference in relationship to labor standards and environmental standards, a reference to the danger of it appearing that we are imposing on other countries. It says here, "imposed by wealthy countries as a price." Just a couple of comments on that.

You know, to some extent, this whole struggle for free markets, for free trade and what goes into it, could be characterized as an imposition of free market principles on other countries. I think we need to be careful when we describe it in terms of imposition. We have a model in mind, and it is based--it is what the WTO is based on, and it is really what the FTAA is based on, I think, and that is the notion that free markets, and I mean that in a broad sense, that free markets will be beneficial. And we have particular ingredients as to what we mean by it. When intellectual property was proposed, as you know, 10/15 years ago, it was argued by some that we were trying to impose industrialized nation standards on those of other countries.

And so I just want to kind of send up a warning flag that we are not really doing that here. In terms of labor standards, for example, the vast majority of these countries have agreed, in various ways, to abide by core labor standards of the ILO, and the question is not our imposition of them, but their abiding by them and the implementation of those within the trade ambit.

But let me then just ask you, specifically, because I think that might be most helpful in this hearing, to tackle one or two of the issues. The textile issue and Andean has been raised. Also, let me raise an issue in the FTAA, one of the most thorny issues, to help us begin to sink our teeth into this, and that is agriculture, where there is a clear interplay between what we might discuss within the FTAA and what we might be discussing in the WTO.

Could you just give us, perhaps preliminarily, your thoughts about how we are going to handle one of the most thorny of issues within the FTAA and how that interacts with what we might be doing in discussions in Geneva, and Brussels, and elsewhere.

Mr. ZOELLICK. Certainly. Let me just make three points here:

First, as you noted, Congressman Levin, the President said yesterday that he would be sending up some principles later this week. And the reason I want to highlight that, particularly for this Committee, given its jurisdiction, is that we have consciously taken an approach of stressing consultation first, without things on paper, and the next step is to come up with an outline of ideas, but still short of a bill. And I know that from my earliest meetings here there was some concern the administration might move very quickly, present bills, and create a more difficult environment, and this was a conscious effort by us to now, after 3 months, put words on paper, but to still create an opportunity for a full exchange about transforming that into a bill.

The second point, since you mentioned the environment and labor local roots. Let me emphasize the point I was seeking to make because I do think it is also critical in the dialogue that we have started here.

As you know, I have dealt with international issues for some 20 years, and I have seen them pursued in different ways around the world. And my key point is that, as someone who has actually promoted environmental movements, in particular, in many parts around the world, including developing countries, what I have seen is that those NGOs and those countries that build on local constituencies and help create an environment for free exchange, freedom of assembly, democracy, and the prosperity that allows those groups to build their own case within those countries, are much more successful in planting local roots for those causes, and I believe the same is true for labor organizations and labor unions.

What I have certainly seen before, and I have certainly seen in the 3 months I have been on this job, is there is a very strong fear out there in the developing world that we cannot ignore, that the developed countries, including the United States, want to use some of these labor and environmental standards as a new form or protectionism. Now you may not like the term, but it is something they feel very strongly. And as you and I have discussed, I think some members do want to use it for protectionism.

And so I think it is critical, as we go forward with this debate, that we do so in a way that creates the win-win environment that I think both of us would like to develop in these countries. And that is why I think a richer set of tools and a set of incentives can help these countries develop their own interest in the environment and labor, and I, frankly, agree with you, one best way to do this is to build on their own commitments and their own laws; for example, core labor standards. But I think this is a key point worth emphasizing.

On agriculture, the approach that we have taken in the FTAA is that the larger issues of dealing with subsidies, particularly domestic subsidies, have to be dealt with globally. We, as a country, cannot agree to concessions in a hemispheric context that would, frankly, put us in a more difficult position, in terms of dealing with those in a global round. That has been our position.

Now there are other things that we can try to do. For example, we can open access to markets. We can actually try to gain cooperation with a number of the countries of Latin America, and others in the CAIRNES [ph] group, to try to cut export subsidies, which has continued to be a plague that the rest of the world has encountered from the European Union. And an increasingly important area is the question of sanitary and phytosanitary standards. In fact, if there is one issue that I have seen the increased seance of, in the time between when I last was in Government and now, it is the danger that these standards, for either health or safety reasons, can be misused or used for protectionist purposes, which emphasizes the need for, on the one hand, science and reasoned analysis, as people put them in place, some common set of standards, which we have been working, for example, in something called the CODEX on recently and had some very successful meetings, but also to help these countries be able to have the capability to develop the appropriate systems. Part of this is trade capacity building.

We have talked, in this context, a little bit about the Africa bill, and this is another critical area that we need to do work with the African countries, in terms of their ability to take part in the agriculture market of the United States and vice versa.

So that at least gives you, I think, a general sense.

Mr. LEVIN. Thank you. I just want to emphasize that the impetus on labor and environmental standards, the impetus is not a new kind of protectionism. This is an issue that we need to address and work on, and for most of us it is an essential ingredient of expanded trade, not diminished trade. Thank you, Mr. Chairman.

Chairman CRANE. Mr. Jefferson?

Mr. JEFFERSON. Thank you, Mr. Chairman.

Mr. Ambassador, it is a pleasure to have a chance to meet with you on the global wide range of issues with you.

I want to narrow, if I can, just to the question of African Growth and Opportunity Act, AGOA-II, which we optimistically speak of around here, at least some of us do. I want to talk about the specific provisions that such a piece of legislation might have and to see how you feel about that, whether that is your vision as well.

First, last year we ran into last-minute issues about caps, as you know, on the use of regional fabric. It was not an issue when it left the House, but it became an issue late in the process and came out with caps that are somewhat restrictive in reaching the goals that we had for the bill starting out. So I would like you, first, to comment on that if you could, about how you feel about the prospect of that being in AGOA-II and how important it is as a provision.

The second is some technical issues that we talked about that will allow textiles from the region to be imported into the country and additional funds finally for technical assistance for subsidized African countries and U.S. companies to take advantage of the bill. A lot of these countries don't have enough money and enough technical expertise to figure out how to make this thing as fully as it should, and we talked about this whole question of providing some opportunities for them to have more of a chance there.

And, lastly, we talked about allowing for duty-free imports of other special fabric categories of apparel and textile products that we don't produce in the U.S., that is the idea, ones we don't produce, so they aren't in competition with our products, but to permit them to come in from African countries.

Could you tell me whether or not you think those four items will be, in your mind, ones to be included in AGOA-II.

Mr. ZOELLICK. Certainly, and let me just start with a more general point, if I could, Congressman.

I have had a chance to meet the AGOA coalition that helped enact this bill, and it was one of the best meetings that I had because it covered everything from civil rights groups to business groups. And the degree of enthusiasm and interest that this had generated for the continent, as well as for trade, was really an amazing thing, and it is something that I followed up on by inviting the African ambassadorial community to come in and brief me on their sense on how we are doing with the implementation.

So, in general, when I think about this area, I am thinking, first, about the implementation of what we have got and what Congress passed. And, second, I would very much welcome a dialogue about what we could do to add on to it because I think the potential is quite tremendous here, and I would like it to be a key of what we do, and I know Secretary Powell is also very interested in this.

Second, I want to look closely at some of the non-apparel issues, as well. Because as I talk to some of the ambassadors, I know many of the political fights are on the apparel topics, but as we are going to help some of these countries move to other stages of value added, including some basic manufacturing, this is an area that I think we need to highlight.

Third, on some of the particular issues that you mentioned, we are trying to work with Customs on the knit-to-shape issue, and I hope that is moving closer to resolution; similar on the accumulation of inputs issue. My own view on that is that we should interpret those as broadly as possible to promote trade. And if we can't get that done in the regulatory process, for whatever reason, then I would certainly be pleased to come back and work with you in the legislative process.

As you also know, and as you suggested, part of this we can accomplish in the accumulation area with the visa systems, and we are trying to move quickly to approve the countries. We have now approved, I think, five countries, we have got two more on the way, to be able to take full advantage of this. But as you also mentioned, in terms of the Sanitary/Phytosanitary, SPS, system with agriculture, this is an area where we are working to get some technical assistance funding to be able to try to help countries take part and also to be able to impart our goods.

We recently received some additional support from AID on this, in terms of putting together some of the briefings in regional areas and centers in Africa. We just had one for the African countries in Geneva, for their WTO delegations. And I am meeting the AID-designate director, Mr. Nascio [ph], from Massachusetts, in part, to emphasize this interest, and I understand he has a very strong interest in it as well.

So I think, in terms of working with AID, but also I have mentioned this to President Wolfensohn of the World Bank, in terms of developing the trade capacity, so I think the full set that you mentioned, the one cautionary point that I will make, and you know very well, is that, as we move this forward, you mentioned the caps issue, the Committee encountered what happened with caps last year around, and I would like to try to get more done in this area, and I would be pleased to try to work with you to carry through as much as we can.

We know there are some obstacles and points in our own political system, and I think we also need to be open, in terms of trying to figure out other ways we can help these countries. And I would add to that, frankly, the whole HIV/AIDS issue, which we also talked about because this is a clear issue that is critical to their economies. I mean, it is a health issue, but it is pretty hard to have a healthy economy if your people are suffering like that.

So I tend to see this in a comprehensive fashion and would be pleased to work on both the implementation and follow-up legislation.

Mr. JEFFERSON. Thank you, Mr. Chairman.

Mr. HOUGHTON. Mr. Zoellick, good to see you here. Thanks very much for what you are doing for all of us. As you know, I am a big free trader. I agree in this. And yet, I do not think there is any inconsistency between doing what is right for the people who are working in this country and also opening up markets overseas. And I just--I have always found it difficult to find that we cannot break this thing open, make it possible, whether it is trade promotion authority or the Free Trade of the Americas or what it is, we just seem to come upon little roadblocks, and we just don't seem to get over them.

Let me ask you a few question. I do not think this will take long to answer. You talked about there are certain countries that have been reluctant to close trade agreements with us. What are those countries?

Mr. ZOELLICK. I am sorry. The countries reluctant to close trade agreements?

Mr. HOUGHTON. Yes. You said in your testimony there are certain countries that have been reluctant to close on trade agreements with us absent a fast-track authority.

Mr. ZOELLICK. Oh. Well, the best example would be when we were having the discussions on the Free Trade Area of the Americas in Buenos Aires. There were many countries--Brazil has been one of the most publicly outspoken about this--that feel that if we do not have the overall negotiating authority, then there is no need for them to move forward.

Mr. HOUGHTON. Can I ask you a question? In your heart of heart do you really feel that is the reason Brazil said what it did? I have a feeling that Brazil wants to keep us out of Mercosur, and is basically an enemy in this area, and they will use any excuse to justify their position.

Mr. ZOELLICK. I honestly think it is more complicated than that. Brazil is certainly a country that has had a very insular economic policy, in many ways like the United States did, because it was a continental-sized economy. And there are, no doubt, very strong industrial interests that are quite happy with the way it is, but I do think that President Cardoso and the current trade and foreign minister, Minister Lafer, deserve a lot of credit for trying to move Brazil into a global economic system, and they are taking on some of these interests, and they face their political constraints as well, including the presidential election in 2002.

I think in the case of Mercosur, there are some that look upon Mercosur as a separate area from the rest of the world, but I think that is going to be increasingly hard to sustain. Mercosur has had its own strains. I mean, as Brazil had a devaluation of its currency, and Argentina's currency was linked to the dollar, you could see the strains within the Mercosur system. This led Uruguay to say that it would like to have a free trade agreement with the United States. Some in Argentina have explored additional arrangements with the United States, and indeed, part of the Argentine economic solution was to pose tariffs on other parties that were different from the customs union. So I think Mercosur itself is under some degree of strain.

But I think that the current Brazilian leadership does indeed want to bring the country into the international economic system. It is 170, 180 million people. We trade more with Brazil than we do with China. They have got great possibilities for that country. But they do face some sensitive sectors, and frankly, so do we, and some of the questions that they are raising are legitimate questions about our points of sensitivity. And so they do want to know if they are going to face their difficult political challenges, and cross those bridges and make agreements that their elected leaders can be criticized for, they do not want the rug pulled out from them at the end of the day on our side, and that is a reasonable point.

Mr. HOUGHTON. I understand that. Are there any other countries similar to them?

Mr. ZOELLICK. Well, I think as we approach the overall global round, some of the other major developing countries, for example, India, are concerned about our ability to follow through. Now, as you know, the United States launched the Uruguay Round in 1986 and we did not have the overall authority until 1988. So I am not saying that it is impossible to launch a round. I do believe that, for better or for worse, the world is watching the United States Congress on this issue right now because circumstances have changed since the 1980s. There was not such a question about this in the 1980s, but now there is a question because Congress has failed to pass it since 1994. So East Asia is another region where countries believe that the United States, frankly, is moving to a greater protectionist course.

So I have mentioned some of the big players, but it is true for some of the smaller countries as well, and again, the truth is in some of the facts. President Clinton stood with Prime Minister of Canada, Prime Minister Chretien, and President Zedillo, in 1994, and said to the Chileans, "We are going to go ahead and do a free trade agreement." The Canadians did. The Mexicans did. And we all of a sudden announced in December of last year that we would start. And that was simply based on the fact of political paralysis up here. So I take Mr. Levin's point, that there has been progress made, including by this Committee, but I can point to a lot of examples around the world where we have been frozen, and you can talk to other people around the world and get a sense of the things we have not engaged in, whether they be bilateral agreements, regional or global, so it is costing us.

Mr. HOUGHTON. My time is up. Thanks very much.

Chairman CRANE. Ms. Dunn.

Ms. DUNN. Thank you very much, Mr. Chairman, and welcome, Ambassador. It is good to have you back, and congratulations on the great job you did up north on our behalf.

I wanted to ask you a question about the protection of intellectual property. We both share that goal of protecting intellectual property. Can you give us some of your insights on some of your discussions that occurred in Quebec City on protecting and enforcing intellectual property rights among the countries involved in the FTAA?

Mr. ZOELLICK. Well, it is a critical issue that covers everything from pharmaceuticals, where you know the sensitive discussion that was prompted by the HIV/AIDS issue, to a question of enforcement of copyrights issues, to a question of its connection to the high-tech world, which we have discussed in other contexts. It is a great area of comparative advantage for the United States, and so economically, it is important to us, but I also find that in discussing this with other countries, that most recognize that it serves their interest as well, because intellectual property is often going to be a key to investment and developing new businesses.

And to give you an example from another part of the world, I had this discussion with President Kim of Korea, where he understood the problems that Korea was having in terms of enforcement, and he in part supported our efforts because he believed that it would hurt Korea's economy and its own development to fail to move forward.

So I think increasingly, Congresswoman, the issue is not just one of rules, it is one of enforcement. And as we look at the optical disks area, for example, we recently initiated some action against Ukraine, which has a terrible problem in terms of basically pirating intellectual property through disks. So I believe that increasingly this will be an issue of how this relates to high-tech, e-commerce and how we deal with the enforcement topics.

Ms. DUNN. Thank you. Let's move then to the Japanese market. Many sectors of the United States' economy are very worried about the barriers in the Japanese market, especially from my neck of the woods, in the medical technology sector. In the next few months you are going to have an opportunity to meet with the Japanese negotiators. What actions have you thought about proposing on behalf of this administration to encourage greater market access in Japan?

Mr. ZOELLICK. Well, I will speak both specifically to medical technology and a little more generally. As you know, and in part you have been very deeply involved with, the United States is the world leader in terms of advanced medical technology. And my predecessors had worked on this issue in Japan through the broader framework of deregulation that they created. Japan is about a $24 billion market. It is the largest export market for the United States. And some of the deregulation at issue that provided advances in areas like accepting foreign clinical data for the approval of materials, and frankly, moving to a pricing system that would accelerate the reimbursement pattern. Because of that the United States now has about 25 percent of that market, if my recollection is correct, but it is one that, in working with the industry, we think we can also enhance.

So what we would like to do in the medical services area is very similar to what we would like to do more broadly, which is to try to promote deregulation, structure reform, more competition in Japan, which we believe will open the market for the United States and foreign competitors, but also will be vital for Japan's own revival, which is going to be important for buying all sorts of goods from the United States and around the world. Japan has poured countless billions, trillions of yen into various fiscal expansion programs, and they have gotten to the point where they have put cement on almost every stream in Japan. But it is not working, and I think one possibility for the Koizumi Government is to move towards this greater form of competition through deregulation. We are proposing some ideas to the Japanese on this. I met one of the new cabinet ministers last week, who just flew in for 24 hours, a gentleman I had known before, an economics professor. And so I think this is an area where it has the best chance of success because it is a win-win proposition. It is good for Japan and it is good for us. And the medical technology is a good example of where I think this can be a win-win sub-sector.

Ms. DUNN. Good. I am very happy to hear about that. So will some of my constituents be happy.

Touching on a third area in my last minutes, I am interested in the United States and Vietnam Bilateral, because it will be of very direct benefit to some of the companies that I represent in Washington State, companies, for example, that produce aircraft, agricultural products and software. Can you give us an update on where that agreement stands? What is the timing, for example, that is in the back of your mind for the administration to send this agreement to Congress?

Mr. ZOELLICK. Well, we are very interested in moving this agreement forward. We also believe it is an important agreement. As you know, it has a slightly more complicated procedure because it has got a privileged motion. So one it is submitted, it moves on a clock through the Congress. And so we have been, frankly, looking to work with the Congress to see how we can move Jordan, which some of you talked about, the Andean trade preferences, the Vietnam agreement, the Balkans agreement, the GSP and the Trade Promotion Authority.

I know that the communist government in Vietnam would like us to do this overnight. I know that Mr. Crane had a chance to talk to them. A communist government does not have to worry about floor time. We do.

A second problem is, that we ought to at least recognize, is having spoken to the officials in the Clinton administration that handled this, that communist government in Vietnam sat on this agreement for about a year, when they were urged, time and time and time again, to move it forward. So basically from 1999 to 2000 there was nothing done on the Vietnamese side.

So I think it is important to move forward. I think it could support those in the government in Vietnam that are moving forward with economic reforms. But even here, I would emphasize that we are not standing in the way of economic reforms. There is lots of countries in the world that figure out how to reform their economy without necessarily having us be looking over their shoulder. So, frankly, that excuse does not cut much with me.

And I will also point out that in the consultations that I have done with some of your colleagues about this, there are some items that I will be asking the US Embassy to follow up on. For example, the US Commission on International Religious Freedom had a recent hearing where they had some troubling incidents in terms of the Christians and the Buddhist community. There has also been some real repression about some of the ethnic people in the highlands. We had some issues raised by some of your colleagues about textiles and about catfish, and so I do not want these to get in the way, but I think if we are going to move quickly, then we are also going to need to be able to get some response from the Vietnamese Government on things that some of your colleagues would like to see.

So I would be pleased with you to work with it quickly, bit I think, frankly, it is going to depend a little bit on the congressional reaction to the other items that we are sending up this week.

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

Chairman CRANE. Mr. Becerra.

Mr. BECERRA. Thank you, Mr. Chairman.

Ambassador, thank you for being with us, and thank you for your comments on the Free Trade with the Americas Agreement.

Let me ask a couple of questions with regard to your statement, and I do not know if you mentioned it in your summary, your verbal statement, but in your written statement, on page 6, where you talk about labor and the environment, you mention that we might want to consider using incentives, not just disincentives, to encourage better environmental protection on labor standards, and you mention also that we might want to strengthen the role of complementary specialized institutions, such as the International Labor Organization. I am wondering if you could give us a little bit more detail about what you mean about strengthening the role of the ILO and if you might comment on your position, or the administration's position, with regard to providing some kind of enforcement mechanism within the ILO for purposes of labor standards.

Mr. ZOELLICK. Yes. And I just interrupt your time for a minute because of one thing I forgot to answer with Congresswoman Dunn's question is, I discovered we also had an agreement with Laos that we have not acted on since 1997, and frankly, we ought to try to deal with that at the same time. It is a similar sort of agreement without privileged purpose,

I am glad you highlighted that point, Congressman, because part of the larger message that I have been trying to make is that, as Congressman Levin has mentioned, I do think we need to integrate environment and labor into this broader agenda, but I think that there is a wide spectrum of possibilities between what can develop through growth on its own and rushing to some negative form of sanctions. And some of these I have talked about with the heads of some of the development banks about how they can try to create some financial support for programs that would support correlator standards or support the integration of environmental objectives with larger lending.

Now, in the case of the ILO in particular, I met with the head of the ILO actually before I assumed office, and I think it is an organization that offers some interesting possibilities in terms of some basic standards that all of us can stand by, the recognition that many countries have agreed to those standards, going back to Mr. Levin's point about building on other areas that people have agreed on, and then trying to work with them to support either their local legislation and the enforcer of that legislation.

I mean, just to give you an example, I spoke to a Guatemalan official about a week or two about labor legislation they were passing, because I thought it was important that we try to support the effort for a society that has known much violence, to be able to implement laws that followed their own obligations. We can do this with their AID funding.

But particularly in the ILO area, in the past year or two, you know, the ILO, which has been seen as not really having an effective enforcement arm, has started to explore whether it might suggest enforcement actions for its member States. And the key first test to this relates to Burma, and I have taken a particular interest in this because I think it is important for Burma as well as the principle of where we would like the ILO to go. Now, the issue with Burma related to forced labor, and as you may know, we have had various sanctions on Burma related to investment and other provisions dating back to the last time that I was in government. I was willing, frankly, to explore the use of additional trade sanctions and discussed this with my EU colleague, because I do not think it is wise for us to do this just on our own. The problem in this case is that I learned that Aung San Suu Kyi, the Nobel prize winner, has engaged in a dialog now with the military government, and does not believe that sanctions at this time would be constructive. So I can do a lot of things. I cannot jump in the shoes of a Nobel Peace prize winner on that issue. And so I am trying to follow that one, because I think, frankly, if things do not improve, I would like to look at that as another time to see whether we might move forward.

Mr. BECERRA. I am not sure if you are telling me though whether or not you would be in favor of providing the ILO with teeth, some enforcement teeth, in order to help bring about some higher standards on labor and environment.

Mr. ZOELLICK. Well, what I am saying is, is the way the ILO would do that, is it would make a recommendation for its member States, and I am saying this is a real-life example as opposed to a concept, and I am certainly willing to look at it.

Mr. BECERRA. Sounds like some kind of reporting mechanism, where we can use the reports by the ILO on the activities of a country to guide us on whether or not there could be any enforcement or attempts to try to get the country to better enforce its own labor standards or perhaps improve their labor standards.

Mr. ZOELLICK. Exactly. And let me give you one other example, and that is, you know, Congressman Levin has been involved with this in the case of Cambodia and the textiles arrangement, and there has been sort of a mixed record about that, but one of the things that I think will improve it, is the ILO is now sending a team to try to help with the implementation of that agreement, and I think that is a very constructive step. So it is a good example of how the ILO can set standards, it can help us in terms of the technical assistance, and we can direct some of our funding and multi-development banks with funding, but, frankly, I am also open to the idea of enforcement efforts done by national governments related to those core standards.

Mr. BECERRA. Thank you very much.

Mr. HOUGHTON. [Presiding.] Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman.

Ambassador Zoellick, I also want to congratulate you on your inspired advocacy of America's economic interests in Quebec City, for what I think was your active role in making sure that that summit was perhaps the most transparent we have ever had in response to some of the criticisms from the street. Clearly this was a much more open process than has happened in the past. And also I want to congratulate you and the administration on grappling with some very difficult issues about the scope of the negotiation.

Now, having been out in Seattle, I understand how important this is in launching a negotiation. I went out to Seattle hoping to have a chance to meet with some of my counterparts, to talk about why I thought that anti-dumping and countervailing duties laws should not be on the agenda. I know that you faced basically the same issue in Quebec City. And at the same time, the administration, as I understood it, came out against including anti-dumping and countervailing duties on the agenda you were advocating, keeping open the option of labor and environmental issues. And as I understand it, the compromise that was struck, was that you were able to leave the agenda open so that any member nation would be able to include things on the agenda as the FTAA went forward. I think that is a good solution. I would like you to comment a little bit about it, and if I might, I would also like to express the fact that I do not believe that an FTAA negotiation is an appropriate or feasible way of making significant changes in our anti-dumping and countervailing duty laws. Your comments, sir?

Mr. ZOELLICK. Well, as you suggested, the way these negotiations work is that people are allowed to put forward their own text, and in the environment and labor area, we fought long and hard for the freedom to be able to put forward some language that basically said that countries should not adjust their environmental labor standards to draw up an investment, and some language very similar to what we already have in the NAFTA provision. And at the end of the day, people agreed with our right to put forward that language. It partly relates to some of the other questions I have, that it does reveal the degree of sensitivity in the developing world about what I think is a very modest set of proposals, but how people are worried that they are going to be used for protectionist purposes, whether people here like that term or not. They do.

The second point is, is that in the anti-dumping area, as you said, there are many people that would like to change our anti-dumping laws. Our position is that we do not want to change them, and so that is our stated role. There are issues that people have looked at more generally in terms of the transparency in the procedures, and in sort of how the procedures work, which, frankly, I am open to more because I am concerned about how these laws will be used against US companies elsewhere in the world. There are some striking charts about how other countries are now using these anti-dumping and countervailing duty laws without the rules and transparency that the United States has. But, you know, I share the belief that I know you do, that I think that to be able to sustain free trade in this country, we are going to have to be able to have strong laws to deal with unfair trade practices.

And if I might add, I feel this on the safeguards as well, on the whole issue of the 201. You know, this is a subject I have talked about with a lot of my colleagues, and I have raised overseas. I think in a world where, you know, information can move at the speed of light, and financial transactions at a similar speed, and trade is moving at a close to similar speed, it is just a reality that some industries in some communities are not going to move as quickly. And I do not believe our solution should be to protect them and not let them adjust, but I do believe we have to create some mechanisms to allow them to adjust in time so as to be able to maintain support for trade. And this is true in some agricultural areas, and it is true in some manufacturing categories. I think for us to be able to do this effectively, however, we are going to have to be stringent, because, as you know, all the pressures will be on, you know, holding back change which cannot be held back. So I am a strong believer in trying to see how this administration can use 201 provisions effectively, but without letting them slip into a new form of protectionism.

Mr. ENGLISH. Mr. Chairman, with your indulgence, I wanted to ask a quick follow-up question.

Since you, Ambassador, raise the issue of 201, and you are aware of my interest in the steel issue, I was wondering if you could quickly update us on the administration's current thinking on the possible use of a section 201 action to remedy the steel industry's dilemma?

Mr. ZOELLICK. The main point I should make, Congressman, is that since you do such a good job of monitoring this closely, there is very little I can add from the last time that you asked me, which was probably last week.

But in essence, this is a topic that Secretary O'Neill, Secretary Evans, Secretary Chao and myself have all been deeply engaged in. There is an interagency group that is chaired out of the White House. Secretary O'Neill I think has taken a particular interest in some potential international solutions based on his experience with the aluminum industry.

And so we have also, as you know, discussed this with the wide range of industry members, and as you know, there are some different views on this because some of the industry feels that they are more efficient, and they would be able to operate better if some capacity was not in place, and others, it depends on the nature of their business operations and whether they are a fully integrated operation, or it depends somewhat on their strategy. And in similarly, obviously, some of the local unions that are related to specific plants, have a different perspective from the general steel workers who may be recognizing an overall need for restructuring.

So my sense is, Congressman, that this is an issue that we believe is going to have to be resolved in a matter of weeks to month. I cannot say for sure. There is no decision. You know my own preference, but that is not--I do not mean to suggest that is going to by any means be the result, but I do think that it is important for those interested in the issue to be actively engaged, because we are.

Mr. ENGLISH. Thank you for sharing our sense of urgency, and thank you for you testimony today.

Mr. HOUGHTON. Mr. Brady.

Mr. BRADY. Thank you, Mr. Chairman.

Mr. Ambassador, you made the point very early on that we have a lot of time and a lot of effort to catch up on, and these trade jobs are the ones that our kids are going to use to be able to raise a family on, and it is embarrassing to know that Chile has free trade agreements with every nation in this hemisphere except the United States and Cuba. It is embarrassing to know that out of the investment treaties we have--which basically when America invests in a country, we sell to that country--we are 26th in the world there, just behind those free-enterprise bastions of Cuba and Morocco, but we have edged out Tunisia, I think, in those investment treaties. We need to be back on the field so that, again, our children will have the kinds of jobs they can raise their family on. I know in Texas, we have seen as a result of NAFTA, just in 5 short years, in the area we were most likely to have jobs competitive, manufacturing, the one that Ross Perot said we would hear to giant sucking sound in, just in 5 years we have created enough new manufacturing jobs, just in our State, to fill every seat of the Astrodome twice over, just in 5 years, new manufacturing jobs.

Along the border between Mexico and Texas, which is a terrible environmental area, just since NAFTA we now have--the last time I checked--$2 billion of environmental projects to clean the air and to clean the water better than it ever has before, and we still have a long way to go, but that would have never occurred without the free trade agreement. And from labor's standpoint, not only are standards rising in Mexico, but you would be hard pressed to argue that the new plants opening there pay less or have less benefits than those that existed before. It is a win-win situation.

I appreciate the effort you are making to focus on enforcement. Anyone who read the report out of your office from last week would have to be impressed with the aggressiveness of America and this administration to aggressively enforce these trade laws and agreements. There is no question too, that as in any agreement, whether it is between two businesses or two nations or more, there will be disputes. Some can be handled through the administration. Some have to go through a court and an appeals process, and can be very frustrating. But I think you are right on track to enforce the trade agreements, to have written analysis of the impact on the environment, to invite the labor community into these assessments, to make sure that we, indeed, as you said, are rising, not just free trade, but freedom, environmental progress, labor progress, all at the same time. They really are compatible and really do go together, and I appreciate again the effort you are making to enforce and to raise them. Thank you, Mr. Chairman.

Mr. HOUGHTON. Thanks, Mr. Brady.

Mr. ZOELLICK. Can I just make a brief comment?

Mr. HOUGHTON. Yes, sure.

Mr. ZOELLICK. Is that because the Congressman and I have talked about this for a long time. In fact, we had the pleasure of starting to dig into this, I think, before the first Seattle meeting, and I know you have a strong interest in this.

And the point I just want to make on enforcement is that to be fair, this is really an effort that has crossed administrations. A number of the things in the report that you pointed out were things that were done by my predecessors in the Clinton administration, and it is also very much related to this Congress, because you have given us additional 25 people. Many people do not realize that we only have about 203 people at USTR trying to cover the world. So that extra 25 people makes a big difference to us. We are in the process of staffing them up right now, so, frankly, it is the support of the Congress on this that enables us to do a better job, and that report that you read was a combination of my predecessors as well as the current team.

Mr. BRADY. Another example that free trade is a bipartisan issue. Thank you, Mr. Chairman.

Mr. HOUGHTON. Any other comments? Thanks very much, Mr. Ambassador. Certainly appreciate your testimony.

Mr. ZOELLICK. Thank you.

[Questions submitted from Mr. Shaw, and Ambassador Zoellick's response are as follow:]

Although the U.S. objective in both the FTAA and WTO is to open markets for agricultural products, the tariff negotiations in the two fora will differ in many respects. The results of the FTAA negotiations must comply with WTO rules and disciplines for free trade agreements, including the requirement to progressively eliminate tariffs on substantially all trade within ten years. In the WTO agriculture negotiations, we generally seek tariff reductions rather than tariff elimination, although we do not preclude the possibility of zero-for-zero negotiations for certain agricultural commodities. Given these differences in the underlying scope of the negotiations, it is highly unlikely that import sensitive commodities would receive the same treatment in the FTAA and WTO negotiations. We recognize the need to work with Congress and interested representatives of our agricultural sector to develop the most appropriate methods to address the concerns of import sensitive industries in each of the ongoing negotiations.

Most negotiations require some difficult decisions. This will no doubt be true for the FTAA and WTO negotiations. These decisions will likely involve how to best accommodate the particular interests of all segments of the U.S. industry, including import sensitivities and export interests. Our objective is to get the best deal possible for U.S. agricultural producers, processors and consumers in both negotiations, as part of the overall package of results in each negotiation.

The Administration agrees that maintaining the strength and effectiveness of our trade remedy laws is of critical importance. The Administration will continue to consult closely with Congress on all aspects of the FTAA negotiations, particularly with respect to important issues such as trade remedies.

The Administration wants to work with Congress and Florida fruit and vegetable growers to find the most appropriate way to address the growers’ concerns regarding the FTAA. Safeguard mechanisms are certainly one possibility that we are exploring. We would be very interested in receiving advice from interested Members concerning the way safeguards or other mechanisms could be structured to address the concerns of Florida fruit and vegetable growers.

The Administration recognizes that many Florida fruit and vegetable growers are concerned about the potential effects of the FTAA. Currently, FTAA negotiators are focusing on the general framework (so-called "modalities") that will be used as the basis for the tariff negotiations, as well as developing texts on specific issues such as safeguards. Detailed product-by-product tariff negotiations are scheduled to begin by May 15, 2002. During this year, the Administration is seeking specific advice from Congress and our private sector concerning the types of general approaches to tariffs and other issues, including safeguards, that might address the concerns of import sensitive sectors.

Mr. HOUGHTON. Now we will call the next panel. Loren Yager, Director of the International Affairs and Trade, United States General Accounting Office; the Honorable Richard Fisher, former Deputy United States Trade Representative; the Honorable John Sweeney, President of the American Federation of Labor and Congress of Industrial Organizations; Franklin Vargo, Vice President of the International Economic Affairs, National Association of Manufacturers; Daniel Price, Partner, Powell Goldstein, Frazer and Murphy, on behalf of the United States Council for International Business; and William Gambrel, President of the Bank of Boston, Colombia, and Vice President of the Association of American Chambers of Commerce in Latin America.

Chairman CRANE. [Presiding.] We will proceed in the order you were presented to the Committee, and I would ask that you try and keep oral testimony to roughly 5 minutes, and any printed testimony will be a part of the permanent record. And with that, we shall commence with Mr. Yager.

STATEMENT OF LOREN YAGER, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, U.S. GENERAL ACCOUNTING OFFICE

Mr. YAGER. Thank you, Mr. Chairman. Mr. Chairman and members of the Subcommittee, I am pleased to have the opportunity today to discuss our observations on the two recent meetings affecting the negotiations for a Free Trade Area of the Americas, the Trade Ministerial in Buenos Aires, Argentina, and the Presidential Level Summit in Quebec City, Canada.

We reported in March 2001 that the negotiations are at a critical juncture, and that these two meetings offered an opportunity to provide momentum and set an ambitious pace for the next more difficult phase of the negotiations. In that report we cited a number of goals that needed to be accomplished for the meetings to be successful. The primary message of my testimony this afternoon is that the April meetings accomplished those goals and set the stage for the phase of the negotiations where the hard bargaining will begin.

Specifically today, I will discuss what the Western Hemisphere nations did on three issues. They addressed controversial topics. They set objectives and deadlines for the next phase, and they provided momentum for the negotiations. Finally, I will conclude with some long-term challenges that we discussed in our March report.

First, the ministers reached accommodations on a number of controversial issues that had slowed progress on other topics. These agreements, on subjects such as labor and the environment, anti-dumping and smaller economies, enabled countries to set forth basic principles while keeping topics on the table for future resolution. For example, as Ambassador Zoellick stated earlier, on labor and the environment, the ministers defused the conflict over whether to include US text by stating that any delegation has the right to present proposals it deems relevant, though others may place these proposals in brackets to indicate their disagreement. However, the adjacent sentence in the ministerial declaration states that most of the ministers believe non-compliance with environment and labor rights should not result in trade restrictions or trade sanctions. While the ministers and leaders did not resolve these questions, the agreements did allow them to move on and accomplish the rest of the agenda for the meetings.

The second accomplishment was the direction provided for refining the draft text and beginning negotiations on market access, which reflect the hard bargaining of the negotiations. To move towards consensus on the draft text, ministers directed negotiating groups to refine as much as possible of the 200 plus pages of overlapping and competing text before the Ministerial. To prepare for the beginning of market access negotiations, the ministers instructed specific negotiating groups to develop recommendations by April 1, 2002 on the basic ground rules for negotiation. Ministers also established the deadline of May 15th, 2002 for negotiating groups to initiate the market access negotiations on tariffs and other topics.

The third accomplishment was that the trade ministers and leaders added momentum to the process in two ways. One was the decision, again mentioned earlier, made at the April meetings, to publicly release the draft text of the non-negotiating groups. In response to public pressure and recommendations by the business community, the ministers determined that releasing the text would help increase the transparency of the negotiating process and build public understanding of the FTAA. The leaders also set a firm deadline for completion of the agreement in January 2005, accelerating the pace of the negotiations.

Facing a critical juncture in the FTAA process, the FTAA countries accomplished an ambitious agenda designed to start the hard bargaining phase of the negotiations on a sound footing. Still, as we had previously reported, the FTAA negotiations face other long-term challenges, including managing the scope and complexity of work required to finalize draft rules, resolving contentious issues, and summoning the political will in the United States and other countries to conclude an agreement.

Mr. Chairman, this concludes my testimony. I would be happy to answer any questions that you or other members of the Subcommittee have.

[The prepared statement of Mr. Yager follows:]

Chairman CRANE. Thank you, Mr. Yager. Mr. Fisher.

Mr. FISHER. Mr. Chairman, thank you for inviting me back. I am honored to be here. As I said in my written testimony, remember, I am a free man. I do not have to say nice things.  But I am genuinely thrilled to be here with so many wonderful representatives and people that do the good work of discussing the trade issues which are so vital to our economy. So I am honored to be back. I thank you. I thank Mr. Levin and all the members for inviting me here.

If you just get to the bottom line here, first, trade is a vital part of our economy. If you take imports and you add exports to it, and divide it by GDP, you come up with 27 percent of our GDP. The way that we distribute this around the world is heavily emphasized in our own hemisphere, and that is why we are here today.  If you look at the numbers, about 46 to 47 percent of what we sell is within our hemisphere, and 40 percent of what we buy is from within our hemisphere (which is, by the way, the same proportion that we buy from countries across the Pacific).

I want to touch briefly on what I call the buy side, given my securities background, and then I want to talk about the sell side, which is so vital.

On the buy side, as a country, we import $1.4 trillion in goods and services every year. Imports are good. They are not bad. They help keep down the cost of living in this country, and if you shop at Dollar General or Wal-Mart or Kmart or Target or any of these stores, this is how you put clothing on the backs of your families and how you feed your families. When we increase our imports, we enhance consumer choice. When we cut tariffs, essentially what we do is we cut tariffs at the border.

Let me put that in perspective, or give you numbers to put in perspective. In the Uruguay Round we cut tariffs from 5.8 to 2.8 percent. Without the benefit of that tax cut, those tariff cuts, our consumers would have paid last year $25.2 billion more for their imports from countries outside of NAFTA than they did otherwise with those cuts. When you add Canada and Mexico to the mix, given the cuts that we negotiated through the NAFTA, we add another $18.2 billion in tax cuts at the border for our consumers from what they otherwise would have paid last year. 25.2 plus 18.2 is $43.4 billion that our consumers and our businesses saved by virtue of the tax cuts we negotiated in NAFTA and the Uruguay Round.

Keep that in mind when you think about the potential on the import or buy side within our hemisphere, because, again, as I said earlier, 40 percent of what we import comes from within the hemisphere.

Of course, you cannot sustain a political mandate for the buy side unless you emphasize the sell side. And as I said earlier, almost 50 percent of what we sell to the rest of the world is right here in our hemisphere, versus 22 percent across the Atlantic and 27 percent across the Pacific. It's important to bear in mind that that market share is focused on two countries. Twenty-five percent of everything we sell goes to Canada. My favorite old saw, that Canada used to be called "the vichyssoise of nations" because it was cold and half-French and difficult to stir, no longer applies. Now it is an exciting market for us, it is the "salsa" of our markets. It is an important market. We sell more to Canada than we sell to the entire European Union.

Fifteen percent of what we sell goes to Mexico. If we continue to grow the rate of growth of what we sell to Mexico, (before NAFTA it was $48-1/2 billion, last year it was $111.7 billion), in another three years we will sell more to Mexico than we sell to the entire EU-15. This is a startling statistic, and it shows that, indeed, we can find a good market even in a country which is poorer than we are. And it is not just for things we send to sell and then send back into the United States. In a typical month last year we sold to Mexico $48 million in surgical equipment, Congresswoman Dunn, 250,000 tons of soybeans, 28,000 cars, $700 million in semiconductors, and my favorite statistic, 200,000 golf balls and 3,200 sets of golf clubs. They are lousy golfers. But they are great customers. This is the kind of business that we want to have in the rest of the world.

And very importantly, along with economic success, Mexicans now are greater advocates of democracy and of human rights. I speak from experience. I grew up in Mexico. The old protected autarchic Mexican economy was riddled with corruption, was a shield for one-party control, led to suppression of individual liberty.  It is no coincidence to me that a businessman, Vicente Fox, has been elected 7 years into NAFTA, and it shows us that, indeed, trade does have a political effect and a democratizing effect if we conduct the right kind of negotiation. That is the good news.

The bad news is that south of the Yucatan, we sell less than 8 percent of what we sell the world, and we bring in less than 6 percent.

Congressman Crane, you asked a very good question. I know you know the answer to the question. Which is why should we be interested in the rest of the hemisphere if we presently sell so little to that part of the hemisphere? I once had an employee that worked for me, who we wanted to send him to Europe to operate an office there--and he said, "Why should I go to Europe? I have never been there before." He did not last very long in our firm. The point is that that is precisely why we should be talking about what they call the ALCA or what we call the FTAA, north of the border here. And that is that there are 403 million people that we are not penetrating and selling to. 173 million of those people live in one country, in Brazil, and if we can sell as much as we sell to Mexico with 100 million people, we can certainly sell a great deal more than we currently sell to the 403 million people that live south of the Yucatan Peninsula.

I usually like to quote Henry James, who said in a wonderful a novella that "courtship is poetry and marriage is hard prose." I was lucky. In the last administration I got to do the courtship part. Now Ambassador Zoellick and you all have to do the hard prose. And I want to just focus on three areas that I think you are going to have to work on very, very hard, draw them to your attention, and then conclude my discussion.

Congressman Levin, you asked a very critical question of Ambassador Zoellick, and that is, how do we deal with agriculture? With regard to agriculture last week Brazil's Agricultural Minister put the issue right up front. He said: if the US does not lift the protectionist barriers and open its market to Brazilian products, we are not interested in an FTAA. And he went on to define barriers to include not just high import tariffs, but also government subsidies to US farmers, and as Ambassador Zoellick said, food safety measures. Some of this bluster is certainly for negotiating purposes or for domestic consumption, but the Argentines and the Chileans and the Colombians and others are also eager to access our agricultural markets. The "easiest" part of that is going to be the tariff structure, which averages 12 percent on ag. imports, but goes up to 116.4 percent on sugar, 26.4 percent on beef and so on.

The tough part is how you all are going to square the corner on both sides of the aisle on this matter of how we deal with the support systems, and there we face a conundrum that Ambassador Zoellick referred to earlier. How do we deal with our support payment programs solely in the context of the Americas without handcuffing our ability to deal with the EU, who is the single biggest violator of agricultural export subsidies? And yet, if we cannot come to grips with this problem in our own hemisphere, then how can we expect the Europeans to take us seriously? If we cannot come to grips in our biggest trading area, the most important market of the United States, how can we expect the Japanese, the Koreans and the Europeans to take us seriously when we go to negotiate with them on agriculture?

The second problem area in anti-dumping. Again, that came up just now in the discussion. It is a critical area. A week ago Chile's lead FTAA negotiator pointed out that in what they have proposed for the FTAA, that anti-dumping has to be on the table. She said, "We know this is a sensitive issue, but many countries are concerned by what we see as, quote, "arbitrary us of anti-dumping measures in the United States."

Congressman English, this is an important subject, and I agree with Ambassador Zoellick, that we should not be shy about exploring how our Latin brethren implement their anti-dumping regimes. I like to remind people that in the year to June 2000, which is the last measurement we have, Brazil and Argentina combined filed 40 anti-dumping actions. We filed 17. The question is: how do we cope with the causes of dumping, the surpluses in steel, (which is about 80 percent of our anti-dumping cases), in chemicals, in pharmaceuticals and agricultural products and so on? And by the way, again, we face this issue: if we cannot deal with this issue in our own hemisphere, how do we deal with the all-time champions of anti-dumping measures, which are the Europeans who most actively use that tool?

I mention these aspects of ag. and anti-dumping to politely suggest that both the Congress and the Executive Branch have some soul searching to do on these critical issues, even before we get to the very tough issue of labor and environment, because this negotiation is not about reducing US tariffs. We are already down to 2.8 percent tariffs, and actually less than that in our hemisphere. What it is about is providing market access to the United States in return for getting access to the goods and service markets and dismantling non-tariff barrier to our products in the rest of the hemisphere.

As to labor and environment, I think we have to be very frank about this. It takes two to tango. It takes two to negotiate. Trade sanctions are out. Our Latin colleagues will not put this on the table. And in fact, we are going to have to struggle mightily to structure any discussion of these issues, as Ambassador Zoellick referred to earlier, so as not to appear protectionist. I think it is possible to construct an architecture of limited monetary assessments applied to the failure to enforce existing laws in the signatory countries, but only where their alleged enforcement failure has a demonstrable trade effect. I doubt you are going to get much more than that, based on my experience in negotiating the courtship phase of this effort within the hemisphere.

Let me just conclude by saying that, first of all, we know that as far as the economy is concerned, we can benefit by structuring a proper agreement. We also know that democracy is sputtering in several countries, in Venezuela, in Ecuador, in Nicaragua, Guatemala. We know the problems of Colombia as discussed earlier, and in Peru. We know that Argentina is under economic duress. And we know that Brazil and the entire hemisphere is worried about the status of the financial markets. I have a question, which is: how can denying these countries greater access to our markets, coupled with the disciplines that we would negotiate--the rules and efficiencies and so on, that we would insist be embodied in FTAA along with a pledge that we limit its benefits to democracies--help them overcome their problems if we deny them access to our country? And if we are not willing to think on that plane, thinking purely selfishly, this is a big market and expanding it is good for us. We know again from NAFTA that we can conduct freer trade with a poor country and expand jobs on both sides of the border.

There is one other aspect that I think is very critical that I rarely hear people talk about in trade discussions, which is the financial dimension. Our stock and bond markets are under severe duress. The debt markets in the world are under severe duress. This is not a Wall Street issue, by the way. 88 million Americans and 50 million households now own mutual funds, and in fact, all told households now have over $12 trillion invested directly in corporate securities. So do the trustees of corporate pension funds and of Taft-Hartley monies. And it strikes me that we send an absolutely negative signal to the financial markets if we tell the world that we are unable to muster the wherewithal within this country to press the envelope on trade. In fact, we should use government for what is useful here, and that is to engineer a constructive international agreement to pry open new markets. If we do not have new markets, we cannot have more sales. If we do not have more sales, we cannot have more workers, we cannot have greater profits, we cannot secure the retirement system that so many millions of our citizens now individually oversee.

So I thank you very much for having me here. I am happy to answer any questions. I submitted a longer text for the written record. I am honored to be here. Thank you very much.

[The prepared statement of Mr. Fisher follows:]

Chairman CRANE. Thank you, Mr. Fisher. Mr. Sweeney.

Mr. SWEENEY. Thank you very much, Mr. Chairman, members of the Committee. I am happy to have the opportunity to speak to you today on behalf of the 13 million working men and women of the AFL-CIO about the prospects for new trade agreements in the Western Hemisphere, particularly the proposed Free Trade Area of the Americas and the possible extension of the Andean Trade Preference Act.

The FTAA has been under negotiation since 1998. During that time business leaders have met annually with the trade negotiators to present their views and make recommendations. Business input has shaped both the negotiation process and the content of the agreement so far. Labor and environmental leaders from all over the hemisphere, as well as representatives of family farm, human rights, women's and development organizations have also met regularly with each other during this period, to exchange views, discuss alternative models for social and economic integration, and communicate with the FTAA negotiators.

Unlike the business advocates, however, the views of broadly representative civil society organizations appear to have had no impact whatsoever on the course of FTAA negotiations. Labor and environmental concerns are completely absent from negotiations so far, and the investment and services provisions appear to be based on the flawed NAFTA model. Finally, the draft text has still not been made public despite requests from hundreds of civil society organizations in Latin America, the Caribbean and North America.

And yet the FTAA, if implemented, will have a profound impact on the lives of everyone in this region and beyond. A Free Trade Area of the Americas will affect the terms of competition between businesses, but also between governments angling to attract foreign investment or localities struggling to keep jobs in their communities. And it will, of course, affect the daily lives of workers and farmers struggling to earn a living, often under very harsh conditions, all over the hemisphere.

In short, if it continues along its current path, the proposed FTAA will dramatically shift the balance of bargaining power in this hemisphere, further protecting and strengthening corporate rights, while leaving workers, environmental advocates, human rights champions, and national governments, with less leverage and less clout. Like NAFTA, this particular model of regional economic integration will lead to growing income inequality, environmental degradation and erosion of workers' rights.

That is why workers and trade unions throughout the western hemisphere are united in rejecting the current FTAA. At its recent congress in Washington, D.C., the Inter-American Organization of Workers, known as ORIT, called for any hemispheric agreement to include a social dimension, including enforceable core workers' right, protections for the rights of migrant workers, debt relief, guarantees that public health concerns will take precedence over trade rules, and a truly transparent, inclusive and democratic process, both for the negotiation of the FTAA and for the implementation of any regional agreement.

The failure to negotiate meaningful and enforceable workers' rights protections in the FTAA would represent a giant step backwards for workers in the hemisphere. Currently some workers' rights protections are included in US trade laws that affect the hemisphere, including GSP, the Caribbean Basin Trade Partnership Act, and the Andean Trade Preference Act. While we believe these provisions should be strengthened and improved, they have nonetheless provided some avenues for improving labor laws and enforcement in the hemisphere. This minimum degree of economic leverage will be lost if the FTAA moves forward without any protections for workers' rights at all.

Workers rights are under attack in many countries in our hemisphere, including our own. We need to use the leverage of new trade agreements to strengthen and improve workers' rights protections, not gut them, as the architects of the FTAA propose.

The success or failure of the FTAA or an extension of the ATPA will hinge on governments' willingness and ability to develop an agreement that appropriately addresses all of the social, economic and political dimensions of trade and investment, not just those of concern to corporations. Failure to address these concerns will produce an agreement that is resoundingly rejected by the people and parliaments of this hemisphere, and that produces disastrous economic results for working people from Alaska to Argentina.

I look forward to your questions and working with you on these important issues.

[The prepared statement of Mr. Sweeney follows:]

Chairman CRANE. Thank you, Mr. Sweeney. Mr. Vargo.

Mr. VARGO. Thank you very much, Mr. Chairman, and let me say it is a great honor to be on the same panel with and to follow Mr. John Sweeney, who is truly a great American.

The National Association of Manufacturers has the Free Trade Area of the Americas as its very top trade priority. It is extremely important to American manufacturing and to American manufacturing workers that the FTAA proceed forward. It is also important to raising living standards throughout the hemisphere, and contributing towards democracy.

Now, Latin America is one of two areas of the world that still has the highest trade barriers, the other being Southeast Asia. Despite this, we already export 60 billion a year to Central and South America. That is four times what we export to China. But with the removal of trade barriers in the hemisphere, our projection is that that 60 billion of exports today, within the decade will more than triple, to $200 billion. It will be subject to the NAFTA effect, and if you look at what has happened to our exports to NAFTA, for example, Exhibit 3 in my prepared statement has a graph showing that our exports to Mexico and our exports to Central and South America, up until 1994, moved very closely together. They were almost identical. But in the years since NAFTA started, we now export twice as much to Mexico, twice as much as we do to all of Central and South America. We want that same effect to apply throughout the hemisphere.

Now, the United States is already a very open market. Perhaps, though the Committee is very well informed, you may not be aware of just how open we are. Last year, average US tariffs were 1.6 percent. 1.6 percent is not a trade barrier, it is a speed bump. Two-thirds of all of our imports came in absolutely duty free. Now, in Central and South America, American exporters face duties that average in major markets 14 percent or more, and it is not uncommon for American manufacturers to face duties of 20 to 30 percent, and on top of that, we have standards barriers and other barriers. These have to come down.

Now, the matter is urgent because we are not the only ones who are talking about negotiating or actually negotiating with Central and South America. So are the Europeans. And if the Europeans manage to get duty-free access to these markets while we still have to pay those 20 and 30 percent duties, that is going to shut a lot of exports out and put a lot of our present $60 billion at risk.

Now, NAM had a delegation in South America, in Chile, and we went to Buenos Aires to talk with other business communities and the American Business Forum. And we believe the FTAA is very feasible to negotiate. We also believe it is feasible to negotiate quickly a trade agreement with Chile, and we say why should we wait until 2005 if Chile is ready to open up its market now?

But another thing was very clear, Mr. Chairman, and that is that both the Latin American business communities and the governments, without trade promotion authority, these negotiations are not going to go forward, no TPA, no negotiations, and we will be stuck with the status quo, and we will lose under the status quo. The time has come to stop negotiating with ourselves and start negotiating with our trading partners, because the cost of inaction is about to get very high. It would be very ironic if we were to continue to debate labor rights in other countries, while thousands of American workers lost their jobs if our foreign competitors were able to cut trade deals with Central and South America while we were not, and we lost those exports.

Now, we are prepared to view labor and environmental concerns in a very flexible manner. We support good labor and environmental practices. We oppose trade sanctions. But if the objective is genuine concern for labor and environmental standards, we believe there are positive steps that reasonable people could agree on and move forward on, and we are ready to look at alternatives, and we are ready to look for creative solutions.

But if we do not negotiate the FTAA, and if we keep the status quo, we lose. You know, keeping our 1.6 percent duties and allowing them to keep their 20 to 30 percent duties, and letting the EU into South America duty free, is not a winning solution for American manufacturers or for America's factory workers.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Vargo follows:]

Chairman CRANE. Thank you, Mr. Vargo. Mr. Price.

Mr. PRICE. Thank you, Mr. Chairman and members of the Committee. I am pleased to be here on behalf of the US Council for International Business. And I would like to focus on the issue of investment in the FTAA.

Time permitting, I would like to address three points. First, the importance of investment flows, inbound and outbound to the US economy; second, the importance of including an investment chapter in the FTAA and what that chapter should address; and finally, I would like to respond to some of the concerns that have been raised about the investor-State dispute settlement mechanism that appears both in NAFTA and in US bilateral investment treaties.

First, it is important we recognize that the world economy is no longer characterized by companies that simply sit within national borders and either export or sell locally. Companies are investing abroad in increasing numbers. They do so to get closer to their markets, acquire new technologies, form strategic alliances, or otherwise enhance their competitiveness, including by integrating production and distribution.

Now, the United States has been a principal beneficiary of this dramatic increase in investment flows. On the inbound side, the United States is host to the largest amount of foreign investment. Foreign investment in the year 2000 reached almost $317 billion. As of 1998, foreign companies in total had invested $3.5 trillion in the United States. Foreign companies employ 5.6 million people in the United States, and pay average annual salaries of over $46,000 per year, which is well above the average salary for US workers as a whole. Likewise, US subsidiaries of non-US companies accounted for 13-1/2 percent of all US manufacturing jobs. Finally, as of 1998, foreign company affiliates in the United States accounted for approximately 22 percent of US exports.

On the outbound side the picture is equally bright. As of 1998, US companies had invested over $4 trillion abroad. In terms of sales, foreign affiliates of US companies had sales of approximately $2.4 trillion. That is nearly 2-1/2 times the amount of US exports. And exports by United States companies that have affiliates abroad were $438 billion in 1998. That amount equals some two-thirds of all US exports. And of those exports, 50 percent went to US affiliates abroad. As Congressman Brady noted in his earlier statement, investment pulls exports. It is a fact.

Now, some have suggested that investment liberalization leads to a race to the bottom. I suggest the evidence is to the contrary. If lax environmental standards, low wages, and the absence of worker rights were the principal determinants of investment flows, one would expect the least developed countries to be the host to the majority of foreign investment. Yet the reverse is true. More investment flows between developed countries. More than 75 percent of all foreign direct investment is in the developed world. The United States itself is host to more than 30 percent. China, by contrast, received $40 billion in FDI in 1999. That is less than 5 percent of global flows.

The wage picture is equally compelling. The average compensation paid to workers at majority-owned US companies throughout the world in 1998 was $33,100. In Canada and Europe, which received two-thirds of all US outbound investment, the average compensation at US majority owned affiliates was $41,200. This is hardly a race to the bottom.

I suggest that the critics of investment flows are confusing cause and cure. The problems of environmental protection and labor standards are problems of economic development. Inadequate standards do not attract and are not the result of increased investment flows. Rather, they are in part the consequences of the absence of investment capital necessary to alleviate poverty and raise living standards.

Now let me say a word about what goes in these agreements. And I think you will find that in addition to securing economic benefits, these agreements achieve broader US policy goals. Investment agreements negotiated by the United States typically incorporate US constitutional protections against the taking of property without just compensation, and against arbitrary and discriminatory government action. Just as they have done in the United States, these principles foster the development of the rule of law, respect for private property, and a market-based free enterprise system that are the essential hallmarks of a democratic society.

But what are these elements? I will address them very briefly. The first point I would like to make is that these elements are not new. The principal protections found in NAFTA and that ought to be included in an FTAA, have been in US investment agreements since at least World War II. All of these protections are traditional protections of US investment policy. The one innovation in 1980, when the US started negotiating bilateral investment treaties, was the inclusion of investor-State dispute settlement.

Well, what are these protections? First, national treatment and most favored nation treatment. That is, the creation of a non-discriminatory environment within which US investors can compete. Second, international law protections that the United States has long fought for, including fair and equitable treatment and full protection and security, and otherwise treatment in accordance with international law. The fair and equitable treatment standard is particularly important and a safeguard against arbitrary, unreasonable or other unjustifiable government actions. The third element has to do with financial transfers, and it safeguards the free movement of capital associated with an investment. The fourth element is the prohibition of so-called performance requirements, export requirements, local content requirements, trade balancing requirements, similar to those the United States succeeded in prohibiting in the negotiation of the WTO Agreement on Trade-Related Investment Measures. The final element of these investment treaties and of an investment chapter, is the investor-State dispute settlement mechanism. That is the right of the investor to seek money damages from a host government that causes economic injury when it violates a provision of the agreement.

Let me say just a few things about investor-State. First, an investor-State tribunal, under NAFTA, is empowered to award only money damages. Tribunals do not have the authority to order a party to change its laws or to nullify a party's laws as some have suggested. Second, it is US investors that have the most capital at risk abroad, and thus, have the most to gain from an effective dispute settlement mechanism. I would note that if one reviews the actual decisions of NAFTA tribunals and not the hype about the bringing of the cases, one will find that these tribunals have acted with great care, and there is no evidence to suggest that these tribunals have or will jeopardize public welfare to uphold economic interest. The track record to date demonstrates that these tribunals have been quite judicious.

Now, critics have raised concerns about cases that have yet to be decided. Critics have raised a concern about the mere fact that cases have been brought against the United States. I suggest to you that part of the price of living in an international system governed by the rule of law is that cases will be brought against the United States. If those cases are not meritorious, they will not prevail. If they are meritorious and the United States is required to pay damages, that is part of the price of being in the system. I would note that the United States has enjoyed enormous benefits from these provisions. Of the 16 claims that have been brought under NAFTA, 11 have been brought by US investors.

This is not to say that the system cannot be improved. I think one should take a serious look at transparency provisions for investor-State, for making the filings available to the public, and making the proceedings open to the public. One might also consider an amicus or friend-of-the-court procedure.

Finally, I think consideration should be given to developing an appellate mechanism. Right now the only available review is through national courts, and we have recently seen that in Canada. As we consider an agreement with 34 countries, it may be useful to think about a self-contained appeal mechanism that would address concerns of consistency and would also address the concern of some critics about the possibility of wild or aberrant decision.

Let me conclude by saying that the US has the most at stake in hemispheric integration, and that a comprehensive and strong investment chapter will be a crucial part of that agreement. Thank you very much.

[The prepared statement of Mr. Price follows:]

Chairman CRANE. Thank you, Mr. Price. Mr. Gambrel.

Mr. GAMBREL. Mr. Chairman and members of the Committee, thank you for inviting me to appear before this distinguished panel today. I am pleased to represent the Association of American Chambers of Commerce in Latin America, known as AACCLA.

The AACCLA is a leading advocate of increased trade and investment between the United States and Latin America. The association's 20,000 member companies manage over 80 percent of all U.S. investigation in Latin America through 23 American Chambers of Commerce in 21 countries.

I am also pleased to represent the U.S. Chamber of Commerce, which is the largest business federation in the world.

I could easily spend my allotted time today describing the boom in trade and investment between the democratic nations of the Americas in the past decade. In this sense, the business community has taken the lead in pushing for an integrated hemispheric marketplace. Nonetheless, we in the business sector are very pleased to see the hemispheric governments working to bring down barriers to trade and investment.

I applaud the commitment announced in Quebec City to complete the Free Trade Agreement of the Americas by January 2005. Also in Quebec, President Bush declared that he is committed to obtaining trade promotion authority before the end of this year. This is absolutely critical, and we in the business community are prepared to help the President make the case for trade promotion authority.

There are many reasons why trade expansion is such a priority today, but I would like to focus on just one. With the exception of the United States, nations around the world spent the 1990s weaving a spider web of free trade agreements. Over 133 regional trade agreements are currently in force worldwide. The European Union has signed 27 free trade agreements, and Mexico alone has signed 32. However, the United States is a party to just two trade agreements: NAFTA and the Free Trade Agreement with Israel. This pattern of diminished U.S. participation in trade expansion must not continue.

The spider web of free trade agreements that we have seen emerging threatens to put U.S. companies at a competitive disadvantage. How? Chile is a perfect example. Today, companies from Canada, Mexico, and a number of other countries enjoy duty-free access to the Chilean market. But U.S. exporters still pay Chile's highest duty of 8 percent. The result is that American companies are losing millions of dollars in potential sales every year.

I would like to flag one potential obstacle to the FTAA: the ongoing dispute over efforts to link trade agreements to labor and environmental rules. We have heard some about that in this distinguished panel today.

AACCLA and the U.S. Chamber strongly support efforts to protect the environment and to improve working conditions for all employees. But these concerns we think should be dealt with separately. Our hemispheric partners have made it very clear that they will oppose a final FTAA agreement if it makes market access contingent upon labor and environmental rules. AACCLA and the U.S. Chamber share this view.

Before concluding, I would like to urge the Congress to renew and enhance the Andean Trade Preference Act. Since the Andean Trade Preference Act was passed in 1991, a wide range of export-oriented businesses have been established in the Andean countries, generating jobs, boosting tax revenues, and strengthening civil society. During my 6 years that I have lived in Colombia, I have witnessed firsthand how these trade benefits foster social stability and provide a legitimate alternative to the illegal drug business. Failure to renew the ATPA would undermine the new business ventures that have prospered through legitimate trade with the United States.

In addition to the renewal of ATPA, I urge Congress to expand the list of Andean goods that qualify for duty-free access to the U.S. market.

Finally, Congress should also consider making Venezuela a beneficiary of the ATPA. We have seen that efforts to oppose the narcotics trade in one country are undermined if production can be easily shifted to somewhere else. By granting these simple trade benefits to all the Andean countries, we can support the thousands of small- and medium-sized businesses that are the bedrock of democracy and peace in the Andean region.

Trade expansion is an essential ingredient in any recipe for economic success in the 21st century. Chairman Crane, I would like to thank you and your colleagues on the Subcommittee for your leadership on trade. AACCLA and the U.S. Chamber of Commerce stand prepared to support your efforts on trade expansion in any way that we can.

Thank you very much.

[The prepared statement of Mr. Gambrel follows:]

Chairman CRANE. Thank you.

Mr. Vargo, you point out that South American duties average 14 percent while U.S. duties average less than 1.6 percent and that the EU is currently negotiating free trade agreements with several Latin American countries that will significantly undercut American exports.

How damaging do you think the status quo is to the health of the U.S. economy over the long term?

Mr. VARGO. Well, I think over the long term, Mr. Chairman, that it could be quite damaging because Latin America has the prospects for being a rapidly growing market A WTO analysis that came out a couple of weeks ago shows that South America has the world's highest average level of bound tariffs, and if we do not get those down, not only would we not share in the growth if the Europeans had duty-free access, but we would lose a lot of what we already have.

We have, frankly, not made an estimate of just exactly what would happen if Europe had duty-free access while we continue to pay 20 and 30 percent, but it would be a substantial amount of that $60 billion. So this is very important. We lose under the status quo. Nobody gains. I am convinced that the environmentalists do not gain, Mr. Sweeney's members do not gain. We have got to find a way to move ahead. You know, by engaging the Latins, I think that we can help raise environmental standards, by raising their living standards, we help raise living standards. We need to move ahead.

Chairman CRANE. Mr. Sweeney, do you have Mr. Vargo's text in front of you?

Mr. SWEENEY. No, I do not.

Chairman CRANE. Mr. Vargo, could you show him your Exhibit 1?

That Exhibit 1 in Mr. Vargo's written testimony compares the level of wages paid by companies that are most trade-intensive versus those that are least trade-engaged, and I was wondering what your commentary was on that. The figure here, if I am not mistaken, this is 60,000 a year for the most trade-intensive, and for the least trade-intensive in this chart, it is a little over 40,000 a year. Is that correct, Mr. Vargo?

Mr. VARGO. Yes, sir, it is.

Mr. SWEENEY. Well, I am not sure, with all due respect, what the source of Mr. Vargo's information is, and I would have to take a closer look at it.

Chairman CRANE. All right. Mr. Gambrel, Mr. Sweeney testified that the NAFTA has utterly failed to deliver the promised benefits to working people in the three North American countries. Would you please comment on that statement?

Mr. GAMBREL. Certainly. The figures that we are looking at in terms of the benefits of the NAFTA show a different story. We have seen and we have heard comments in terms of exports increasing by more than 60 percent in some cases. That has actually created more jobs in the United States and more jobs in the countries, both Canada and Mexico.

We have seen the case of a Mexico that in the past has struggled with democracy, where it had a one-party system. We have recently seen the effects of a democratic change of power from one party to another, and we think that that has something to do with the trade benefits and the linkages with the United States of the market such as Mexico.

We also saw a financial crisis in Mexico, which in the past has had a multiple effect on other countries in Latin America, last a very, very short period of time. We think that also has a direct relationship to its contacts with trade through NAFTA. So we think that there have been many more benefits of the NAFTA than not benefits.

Chairman CRANE. Mr. Rangel?

Mr. RANGEL. Thank you. Well, Ambassador Fisher, now that you are a free man, you do not have to be nice to us.

[Laughter.]

Mr. RANGEL. As a free man, could you tell us why, as we seek to do business with these communist nations--Red China and North Korea and North Vietnam--as a free man, why could we not try to break down the communist regime in Cuba by using the same tactics as we have used, using trade as a method for encouraging democracy?

Mr. FISHER. Well, we have made an effort in Vietnam. As you know, we negotiated a bilateral commercial agreement with Vietnam.

Mr. RANGEL. I guess I did not make my question clear. Why do we exclude Cuba while we make these efforts in these other countries? And I ask you this as a free man.

Mr. FISHER. As a free man, I would tell you that the politics of that situation are so complicated; that, as you know, USTR was never allowed to delve into Cuba. This is the nature of a political equation. Whether it is right or wrong, it does not seem to square the corner with what we have tried to do with WTO accession for China, what we are trying to do elsewhere in the world. But that is a political reality, and, Congressman Rangel, as a free man, I know you know a lot more about politics than I do, but that is the nature of the situation.

Mr. RANGEL. Well, the politics of Florida seem to be more important than the international politics.

Why did you say, a man that is as genteel as you, that you wanted to be blunt and it takes two to tango and we cannot get our Latin partners to the dance floor if we talk about labor and environment? That seemed like really rough language for a diplomat.

Mr. FISHER. My point was that I do not believe sanctions as a remedy--that that dog will not hunt. In other words, just to mix my metaphors--neither will that dog dance.  The point is if we are going to insist on sanctions, unless we are willing to focus all of our effort to capture that, I do not believe that our Latin partners will come to the dance floor.

Mr. RANGEL. Do you feel as strongly--

Mr. FISHER. I am not saying we abandon the effort, but I am just saying my point was simply on sanctions. They will not agree to sanctions as remedies.

Mr. RANGEL. Do you feel as strongly about sanction as it relates to violation of our intellectual property laws?

Mr. FISHER. Do I personally feel about this?

Mr. RANGEL. That is all we are talking about.

Mr. FISHER. Well, we currently have in place remedies for violation of our intellectual property laws. All I am saying is that in order to do a deal, in terms of this very vexing and important question of labor and environment, from the standpoint of what we can expect our partners to be able to come to the table for--

Mr. RANGEL. Well, sanctions--

Mr. FISHER. If we make sanctions part of the deal, they are not going to come to the table, so we have no deal.

Mr. RANGEL. So you are saying that--

Mr. FISHER. I am not saying it is right or wrong. That is a fact.

Mr. RANGEL. So they are willing to come to the table when we protect our pharmaceuticals by having sanctions against them if they violate their intellectual property rights or with electronic trade, and somehow they dance, they tango. And, of course, if our Ambassadors do not put it on the table, nobody wants to be put in the position that sanctions are going to be made against them. I think it violates a nation's pride. But we do not have a problem with it when it works. You do not have a problem with sanctions. You just have a problem with sanctions as it relates to labor and environment, because you do not believe--and you are the professional--that it reached the same level as intellectual property rights when it comes to trade negotiations.

Mr. FISHER. I could tell you from my experiencing of 3 years of teeing up the Free Trade Area of the Americas that this subject, whether we want it or not, is not the point. The point is that our partners--and it takes two to do a deal, two sides--our Latin partners will not come to the table.  They have made that very clear, if on this subject of environmental and labor the remedies result in sanctions.

Mr. RANGEL. Did our Jordanian partners come to the table and tango with us with the treaty that was negotiated with them?

Mr. FISHER. They did. They did come to the table, but I am simply making a point that from my experience our Latin partners will not. But you can ask the Ministers who are here. That is the reality. From the standpoint of intellectual property rights, again, that has already been negotiated in previous agreements globally. And it is a WTO area of activity, and we do have our disputes and differences on that front, as they are very clear right now with Brazil.

But, Congressman, I am just trying to sort of define the parameters here on these three very difficult areas. These are the realities, no matter how we feel. I do not think they will play with us--again, unless we want to focus all of our attention on this area. They are attracted by the strength of our market--this is a $10 trillion economy. We are the biggest consumer in the world. That would be part of the trade. I just do not think they are going to accept it, and I wanted to be frank and point out to you that I think that is a non-starter.

Mr. RANGEL. Well, Mr. Ambassador, I do not blame them for not accepting it, if our former trade negotiator is saying that they are not going to accept it. It is really to me a question of what you believe is good for our country. And I know that you would believe that a part of the history and improvement in the quality of life, that the trade unions have played a true part in making us a more productive country. Everyone. No one challenges that, not even the Chamber of Commerce. And, you know, the extreme of not being concerned about the conditions of the worker could be slavery in this country, which worked for us. It did not work for the slaves, but it did work for us.

And, of course, we would want other nations to know that you do not have to be labeled a protectionist when you are saying there should be some basic human labor rights that America--this is what we stand for. When we see super-stars that are investors in overseas garments that are made under conditions that make Americans cringe, America responds to it, whether it is child labor, slave labor, prison labor. And all we are saying to our partners is you have got to have some--you do not have AFL-CIO contracts. You do not reach the standards of an industrialized nation overnight. But you got to have something locked in place that is enforceable because that is the kind of country we are. We want you to have disposable income. We want you to be healthy. We want you to be productive so that you can be our trading partner.

It is so American--it is so American that I wonder why people would refuse to tango with us.

Mr. FISHER. Well, again, I do not disagree with your point of view, and, in fact, let me remind you, as Congressman Levin reminded me the other day in a good speech he gave at the Center for Strategic and International Studies, CSIS, trade is a means to an end. In the preamble of the GATT, it talks about raising living standards, about engendering full employment and developing the full use of the resources of any country, including its people. We do not dispute that. That is not the purpose of my statement. I do not disagree with you, Congressman. But I do feel that if we are not careful in this area, given the way that this thing has proceeded over the last few years, given the reality of Seattle, we have to be extremely careful to deal with this issue that does not send protectionist signals, whether it is truly protectionist or just being interpreted as such.

And I simply wanted to make the statement that from the standpoint of this particular exercise, Free Trade Area of the Americas, I do not believe that the remedy of sanctions is workable in this case.

Now, on the subject area in general, I did point out that I do believe that it is possible to figure out a way or engineer a system or an architecture, as I put it, that has monetary assessments for violations of domestic laws as long as they impact trade. I think that is the most we will be able to get in this discussion, if we can get that much. And I simply, out of respect for you, want to give you my opinion based on my 3 and a half years of experience of negotiating this particular issue.

This is not a personal judgment. Do not interpret it that way. It is simply a matter of what I think can work and what is a non-starter. And, by the way, I say that very respectfully, Congressman, as you know.

Mr. RANGEL. Oh, no, I understand that. It is just that I really do not think you can understand how powerful your statement might appear to those people that we are negotiating with, because if I belong to one of these countries and heard a former trade representative such as you say that, do not even think about it because it is going to be unacceptable and it is supported by protectionists, then I would hang up, too. It is almost--like Mr. Pickle once said, it is like going to a wife-swapping party and someone does not bring their wife.

[Laughter.]

Mr. RANGEL. We do not have anything to negotiate with because our people already said it is not going to work.

Mr. FISHER. Congressman, that is just one individual citizen's opinion.

Mr. RANGEL. Well, you are a very powerful man, and other people can call--you know, there was a time that you said you were talking about Cuba, you must be pro-Castro or pro-communist, except when you are talking about China. And now if you are saying that you would like to have some rights for labor and human rights, you are protectionist.

I think that if we want to move forward toward having the bipartisanship that we used to enjoy on this Committee and in the Congress, we really ought to give up the labels and to rely some more on dance instruction and see whether or not we can make this thing fit, because trade policy, like foreign policy, should be bipartisan. And we are trying desperately hard to talk with people, even those that say that it may not work. We are trying to make it work.

Thank you for coming back and giving us guidance. Next time, whisper.

[Laughter.]

Mr. FISHER. Thank you, Congressman.

Chairman CRANE. Thank you. Mr. Houghton?

Mr. HOUGHTON. Thanks, Mr. Chairman.

I would like to ask you gentlemen, but particularly Mr. Vargo and Mr. Price, about the Jordanian agreement. I have never really been sure what is negotiable and what is not. Is it the dispute settlement? Is it the sanctions versus the fine? Is it the labor standard? What is it?

But when you take a look, as I have here, at the Jordanian agreement, there are some things that sort of make some sense here. Now, what are the things that bother you about it, or do you agree that this is a good concept?

Mr. VARGO. Well, I assume you are talking about the labor and environmental provisions in the Jordan agreement.

Mr. HOUGHTON. Yes, right.

Mr. VARGO. Well, the NAM has not taken a position on that yet. I have to say that we candidly do not like the fact that embodied within the agreement is the possibility of taking trade actions to enforce labor and environmental provisions. We have not taken a position on it, however, because we have--

Mr. HOUGHTON. Sanctions, you mean?

Mr. VARGO. That is right.

Mr. HOUGHTON. Right.

Mr. VARGO. We have not taken a position because, in the spirit Mr. Rangel mentioned, we look forward to working on a bipartisan basis to seeing an overall solution to the question of labor and environment, which, as I indicated in my testimony, has stalled us for too long and we cannot afford it anymore.

Mr. HOUGHTON. I do not want to put words in your mouth, but in taking a look at some of these articles here, in terms of labor laws, the right of association, to organize and bargain, prohibition of any form of forced labor, compulsory labor, minimum age for employment, things like that, if the sanctions were out, this would not be a problem for you?

Mr. VARGO. It would not be a problem for us.

Mr. HOUGHTON. All right. So how do you feel, Mr. Price?

Mr. PRICE. Congressman, I am afraid I will not be able to give you a very satisfactory answer as I am here on behalf of the USCIB on the issue of investment only and cannot really express the views of the association on that point. I could offer a personal view, but I do not know how satisfactory that would be.

Mr. HOUGHTON. Okay. Well, you know, Mr. Sweeney, it always seems to come down to, to me, although the environment obviously is very important, it is the whole conditions of the labor market and are we dealing with our labor force fairly when we are trying to encourage international trade. And I do not know whether this sanction issue is critical for you or there are other things, the dispute settlements or whatever. What are the things which are really critical for you here?

Mr. SWEENEY. Well, the labor movement really feels that labor provisions of trade agreements must be enforced through the same means as commercial provisions. We feel also that fines themselves--

Mr. HOUGHTON. Can I just ask, so, in other words, if--

Mr. SWEENEY. We are looking for parity.

Mr. HOUGHTON. If a country says that we will abide and enforce our labor laws, that is not good enough for you.

Mr. SWEENEY. We would have to see the details. I mean, the Jordanian agreement is an example of an agreement with a country that basically has good labor laws. The Jordanian labor movement and the Chamber of Commerce in Jordan support the agreement. Those are really some major steps for a good agreement. But we would have to see the details in terms of sanctions and fines and how enforceable they were.

Mr. HOUGHTON. But let me just press this thing further. Unless a country has an egregious set of labor laws and an inability to enforce them, you would think that with reasonable conditions in their country and enforcing those laws, similar to those of Jordan, that these would be acceptable for you?

Mr. SWEENEY. There would definitely have to be some enforceable provisions.

Mr. HOUGHTON. Okay. Now, Mr. Fisher, could I ask you a question? What are those non-negotiable issues on the part of our Latin American neighbors that are critical in any negotiation?

Mr. FISHER. What are the non-negotiable issues? Across the board, or are you just talking about this area of--

Mr. HOUGHTON. What are the critical ones?

Mr. FISHER. I think this comes down to, from a Latin standpoint, a very simple issue, again, which is market access in the United States, in return for which not only--again, it was mentioned earlier. Our applied tariff here is about 1.5 percent, 1.6, whatever it is, as far as these trading partners are concerned. So the tariff issue is not the issue.

The issues are other aspects of market access, with the exception of the high tariffs imposed in agriculture, but then the non-tariff barriers to agriculture and to other exports, especially goods, because the rest of the hemisphere, particularly south of Mexico, although they are growing their production of services, are not huge service producers.

From our standpoint, of course, we want to have access to their markets. And, again, we talked earlier, some of the tariffs there are awfully high, so it is meaningful to reduce the tariff barriers. But then it is the non-tariff barriers, the procedures, the efficiencies in the economy, the rules, the way laws are enforced and so on, that is the trade.

And I think, again, listening to my former counterparts and Mr. Zoellick's current counterparts in the hemisphere, the key issues come down to these very tough issues. Agriculture is a big production area for the southern cone in particular. To get Brazil to play ball here--and it is the largest country south of Mexico; it is 173 million people--they have said pointblank that we have to have agriculture on the table. Very tough for us to do as we are crafting a farm bill. Very tough for us to do to take on these very important constituencies for us, the farmers and ranchers of this country.

Similarly, in terms of antidumping activity, as I mentioned earlier, they want that on the table. And that is what they are looking for.

So are they non-negotiable? Everything is negotiable. I do not believe, however, again, just to go back to this point earlier, that certain remedies in terms of sanctions are not negotiable. I think that would basically throw this trade out the window.

We may decide, Congressman, that we do not want to do an FTAA, by the way, that we cannot get it.

One, that certain countries do not want to participate in this thing, that we cannot move Brazil, that we are limited in what we are able to spend politically. And we made decide, as Ambassador Zoellick said earlier, that we will just proceed with bilateral after bilateral or with smaller groupings. The purpose of my testimony was simply to point out that there are certain tough areas for us that we are going to have to look into our hearts to see if we can deal with them, and those are the ones I mentioned.

Mr. HOUGHTON. Well, thanks. My time is up. Mr. Chairman, thank you.

Chairman CRANE. Let's see. Mr. Becerra?

Mr. BECERRA. Thank you, Mr. Chairman.

Let me first thank all of the gentlemen for their testimony and their comments with regard to the issues that we face in trying to negotiate these agreements with our Latin American partners.

Let me just go through a list of objectives and standards and ask if any of you object to or disagree with any of these.

First would be the freedom to associate. Does anyone here object to or disagree with the right of people to freely associate in their country? And just chime in if you think no. What about the right to organize? Anyone disagree or object to that right?

Mr. SWEENEY. I am in favor.

Mr. BECERRA. Duly noted. The right to collectively bargain, does anyone disagree with the right or object to the right to collectively bargain? What about do you object to or disagree with the elimination of child labor? What about do the elimination of forced labor, slave labor? Does anyone object to or disagree with the elimination of discrimination in employment?

Those are, for the most part--I may have missed one or two, but those are the core labor standards in the ILO's Declaration of Fundamental Principles and Rights to Work.

If no one disagrees with them, is there any reason why anyone would disagree with including those within any trade agreement that we have with any country, whether it is Latin America or otherwise? Mr. Vargo?

Mr. VARGO. Mr. Becerra, we certainly do not disagree with those core labor standards. We do not disagree with the idea that nations should do more to bring them about. We do disagree, though, that one can take a trade agreement and say the purpose of the trade agreement is to bring about compliance with these objectives. The purpose of a trade agreement to us is a simple one. It is to remove trade barriers, and that first and foremost is what we want.

We do not think that this is necessarily incompatible with taking steps to bring about greater adherence to labor rights around the world, or environmental standards. We do definitely object to the possibility of creating a new trade barrier or an opportunity to restrict trade in the future from it. That is the only thing we are objecting to.

Mr. BECERRA. Wouldn't it be considered a trade barrier if a country were to use much less expensive labor to manufacture or produce a product that we ourselves could produce here and as a result create, in effect, a better bargaining position for that trade?

Mr. VARGO. No, that is not a trade barrier. It affects trade. It may affect competitiveness. It may not be fair trade. But it is not a trade barrier.

Mr. BECERRA. So, Mr. Vargo, are you implying that you would support unfair trade?

Mr. VARGO. No. I am saying that there are many things that can affect trade. Competition policy can affect trade.

Mr. BECERRA. So how are we to compete with other countries if we do not require in our agreements that they not engage in, for example, forced labor or child labor? How will our industries compete domestically?

Mr. VARGO. Well, Mr. Becerra, we are competing with them now. The question is: Are we going to get them to lower the trade barriers that are now keeping out our products? To us that is the issue. It is not are we going to trade with them or not. We do trade with them. But we trade with them under circumstances under which, for many reasons, our trade barriers are very low. And that is a fact, sir. They are very low. And theirs are high. And we want to get them down.

Mr. BECERRA. And as a result, we are saying to them we are going to open up our markets completely to you if you do certain things. And it seems to me that we would want them to do the right things.

Now, we cannot force them necessarily to have our wage standards because we are working on different planes. But certainly we would want them to at least function and operate under at least core labor standards, which do not ask for a great deal beyond what most people think are humane policies.

Mr. Price, let me ask you a question. In response to Mr. Houghton, you said you really could not give him a direct response to the question about the issue of labor standards. And yet in your testimony, you talked about how investors do not necessarily go to the cheapest countries or the countries with the cheapest labor because if that were the case, you would see a lot of investment going into the poorest countries, and you mentioned that it really would be a race to the bottom. I think you did comment on labor standards, so I hope you could give us a more complete answer to Mr. Houghton's question.

But let me ask you to comment. I agree with you. You are not going to see investment going to the countries that are poorest simply because the atmosphere there is not the best for investments. But I think last week's reaction by the stock market to the news in this country that unemployment and shot up dramatically and how the stock market was jubilant and went up is clearly a sign that investment does operate on what is a lower-cost market. And, therefore, I think it would be difficult, I think, to argue--and I would hope you are not arguing--that indeed investors look for the highest-cost markets. And to me it seems that labor is one of the components of the production of any particular good, and, therefore, you are going to as an investor take into account what a country has with regard to wages in its country, would you not?

Mr. PRICE. Let me try and answer that. Congressman Houghton asked me to comment specifically--

Mr. BECERRA. You have to get closer to the microphone.

Mr. PRICE. I am sorry. Let me try and answer your questions. Congressman Houghton asked me to comment specifically on the provisions of the Jordan FTA, and I said I was not in a position to do that on behalf of the organization that sent me here since I am talking about investment.

Let me respond to your question now. I think it is true that investment flows--and it is demonstrable--to high-wage jurisdictions with a high standard of living. The point that I was making in my testimony is that if wages were the principal determinant of the location of investment, you would expect the majority of investment to be in low-wage jurisdictions--

Mr. BECERRA. But no one has ever argued that wages are the sole determinant of where investment goes. And providing wage or environmental standards within a trade agreement would not in and of themselves affect investment decisions by people throughout the world in a country with a core labor standard within a trade agreement, would it?

Mr. PRICE. Well, I think we are talking about two different things. One is the question of whether wages or labor costs are a factor in investment decisions. I think that was your first question. And I think the answer is they are. They are among the factors that are taken into account. Again, it depends on what the purpose of the investment is, and it depends how the other factors are weighted.

What I think you have just asked me now is whether investment decisions would be affected if labor and environmental provisions were included in trade agreements. And I think the answer to that is it would depend on what those provisions said and whether the provisions create new risks to foreign investment or not.

Chairman CRANE. The gentleman's time has expired.

Mr. BECERRA. Thank you, Mr. Chairman.

Chairman CRANE. Let me alert everybody on the Committee that we have only one more hour to go, and we have our Foreign Ministers coming up in the next panel. And so if you will all please adhere to the lights and remember that when the green light goes off and the red light goes on, your time has expired. And I am talking to members of the Committee. With that, I recognize Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman. I will keep my questioning disciplined.

Ambassador Fisher, it is a pleasure to have you here. May I say, I think you have an expertise that is particularly useful in this discussion, and commenting, as I imagine you guessed I would, about your testimony with regard to antidumping and countervailing duty issues being put on the table, I think that you have made a case that there is a good basis for having a discussion worldwide about the sorts of standards that are applied to 201- and 301-like processes, and encouraging other countries to adhere to our standards when it comes to those laws.

We do, though, have a WTO antidumping code in place, and given that--and I presume you agree with me on this--I believe that having strong trade protections, strong methods of policing our market against unfair trade practices, is critical to maintaining support for free trade within our country.

Do you think that an FTAA is really an appropriate place to have a negotiation? This is, after all, a negotiation for a regional trading pact. Would this not be better handled either under the WTO or would it not be better handled as a side agreement separate from any FTAA that might be developed? Since we like, some of us like side agreements, as it applies to labor and the environment, would not a side agreement be a more appropriate place to deal with an antidumping or countervailing duty understanding?

Mr. FISHER. First, I am certainly not advocating changing our laws, Congressman.

Mr. ENGLISH. Very good.

Mr. FISHER. Secondly, I'm not advocating abandoning our right to take action against people that dump into our market.

I think I heard Ambassador Zoellick say earlier what we always said, that this new anti-dumping regime has just been put in place, and our arguments were that, until we saw how this worked and what its efficacy was, we did not want to put it back on the table. That makes a lot of sense.

Frankly, what I'm saying is I'm tired of hearing from our Brazilian and other friends that we're unfair. Look at how many anti-dumping cases Argentina and Brazil combined filed when we only 17--they filed 40. Let's call their bluff on this. In other words, let's say, "you say that our system is arbitrary, let's examine, with a fine-tooth comb, how you apply these in your own country," let's achieve a common understanding of how we're putting this new regime in place--

Mr. ENGLISH. Would it not be easier, though, to move forward--I don't mean to interrupt, but I'm under strict time here.

Would it not be easier to conduct this discussion outside of an FTAA? Wouldn't it be easier to conduct this discussion in a way that doesn't increase how controversial the FTAA already is domestically?

Mr. FISHER. Well, again, this is one of the--remember, we have nine negotiating groups within this structure, already carved out by common agreement amongst the 34 countries that this will be discussed. I'm not sure you can remove it, Congressman, at this stage.

Mr. ENGLISH. Your point is well-taken.

Mr. FISHER. But we shouldn't be afraid to talk about it, because I think we're going to find that we might have some common cause here if we're careful.

Mr. ENGLISH. Mr. Sweeney, I agree with many of the things that you have included in your testimony, and I would encourage you to look at House Resolution 1446, which I have introduced, that would provide for a standard trade negotiating authority.

But you say in your testimony, "We believe that any fast-track legislation must require--" your emphasis "--the inclusion of enforceable workers' rights and environmental standards in the core of all new trade agreements."

I guess my question in view of that is, what would be the appropriate core labor and environmental standards to be included in a specialized trade agreement, like financial services, competition policy, or intellectual property rights? Are there not some trade agreements we may want to have with our hemispheric partners, or our partners world-wide, that are so specialized they don't naturally have a labor and environmental component to them?

Mr. SWEENEY. We would have to say that we think the core labor standards and environmental concerns have to be addressed in all trade agreements.

Mr. ENGLISH. Okay. Mr. Gambrel, from your perspective, what is the appropriate core labor or environmental standards to be included in a financial services treaty?

Mr. GAMBREL. I can't think of any, Congressman.

Mr. ENGLISH. Ambassador Fisher?

Mr. FISHER. The financial services is just part of a total trade agreement. I don't think that's what Mr. Sweeney was saying, in terms of specifically financial services itself. I believe what he was saying is that it's part of the total agreement, and he feels it should be part of--

Mr. ENGLISH. I'm out of time. My point is that there are some things that we may want to negotiate that don't include labor and environment, and I think my bill addresses it. Thank you, gentlemen. Excellent testimony.

Chairman CRANE. Mr. Levin.

Mr. LEVIN. Thank you, Mr. Chairman.

We regret that the ministers and others on the next panel have been delayed. But I think, though, this has been an especially useful panel, and I think it's good that we have all heard it.

Some of you I know well, and that should not detract from my commenting directly.

First of all, let me suggest, in terms of our discussion of core labor standards, I hope the ministers here and others not only listen to the former Deputy USTR and others, but those who are presently in the U.S. Congress.

I think it is a mistake to have the total focus on exactly what remedy and to forget--for example, in the GSP, sanctions have been available to the U.S. for many, many years. Most of the Latin American countries have operated within a GSP system that allowed the U.S. to utilize what are called trade sanctions. We have done that responsibly, and there has been the threat--and Mr. Sweeney spells this out rather at length, and I think interestingly--there has been the threat they haven't been utilized. But GSP has moved the issue of core labor standards along.

So the notion that countries will not, under any circumstances, negotiate, I hope isn't misread. If that had been the standard 15 years ago on intellectual property, we never would have done anything, because countries were saying to us "never". We were saying let's move ahead and let's discuss it, and eventually we came up with that kind of a structure.

Secondly, let me say to you, Mr. Vargo, we have had a lot of discussion about these issues. If I might say so, I think the purpose of trade agreements isn't simply to remove trade barriers. The WTO talks about a standard of living being uplifted, and I think you agree with that. Anti-dumping laws are there not to remove trade barriers, competition policy, safeguard mechanisms that are permitted under WTO. It's because the feeling is you have to have rules of trade, terms of trade, and that the only issue isn't only opening up trade barriers of other countries. I hope we will think about that.

Thirdly, if I might just pick up briefly on Mr. Becerra's point, Mr. Price, I just want to go back to this because you say, "If lax environmental standards, low wages and the absence of worker rights were the principal determinants of investment flows, one would expect the least developed countries to be the host of the vast majority of foreign investment." You also say , "The critics confuse the cause and cure: problems of environmental protection and labor standards are preeminently problems of economic development."

No one is saying that labor standards and environmental standards are "the" principal determinant of investment flows. Really, in your back and forth, you acknowledge the relevance of environmental and labor standards to decisions in many cases of investment. There is no single principal determinant of investment. I think you'll agree.

The question is, is it part of the mix. I think the answer clearly is--and as evidence, I referred earlier to the Equadorian situation--is that it's relevant in many situations. For example--and I'll say this bluntly--if Brazil feels that we won't discuss environmental issues in the FTAA, and that will be part of the bargain, that's a non-starter. No agreement will pass this institution if there isn't a consideration of environmental issues. I see Mr. Fisher shaking his head, I think in agreement.

Lastly, I just want to make clear, Mr. Sweeney, and I think others of you have said this, the issue of labor standards and environmental standards, the thrust does not come basically from any effort at protectionism, any form of it. It comes from a number of us who want expanded trade. It's an essential ingredient of that. Thank you.

Chairman CRANE. Thank you.

With that, I want to express our appreciation to all of the members of this panel. I will excuse you after your outstanding presentations.

Now it's a delight to introduce the next distinguished panel to discuss the renewal of the Andean Trade Preference Program. I especially welcome Colombian Minister of Foreign Trade, Marta Lucia Ramirez, and the Bolivian Vice Minister of Trade, Ana Maria Solares. And because the Andean Trade Preference Program is part of a close partnership effort between the United States and the Andean countries that strongly impacts national security interests of the United States, I have elected to waive normal Committee rules so that we may hear your testimony today.

I want to thank both of you and the other Andean Ministers in the audience for taking time out of your business schedules to be here today.

Due to Committee time constraints, we have included you on a panel with representatives from U.S. industry. I recognize that this is unusual and I appreciate your patience and understanding in graciously accommodating our time constraints.

If you folks could take your seats, please. We have to conclude today's hearing at 6:00 o'clock sharp, and as a result, I want to remind colleagues on the Committee here to watch the lights with regard to their questions, and also all of our witnesses who will be testifying today, if you can keep your oral testimony to five minutes or less, please do so. Any written testimony will be made a part of the permanent record.

With that, I now welcome Minister Ramirez to begin.

STATEMENT OF THE HON. MARTA LUCIA RAMIREZ RINCON, MINISTER OF FOREIGN TRADE, GOVERNMENT OF COLOMBIA

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

Mr. Chairman and members of the Subcommittee, thank you for inviting me to appear before this panel today. If you allow me, I am going to read the short version of my statement, but I am going to leave both for your records.

I am Marta Lucia Ramirez, Minister of Foreign Trade for the Government of Colombia. I appear here today on behalf of the Andean community countries not only to express our strong commitment for a Free Trade Area of the Americas, but also to ask your support for the early enactment of legislation to renew, expand and enhance the Andean Trade Preference Act.

As you know, the ATPA expires in December of this year. It is appropriate that this Committee today looks at both the FTAA and the ATPA. These two important trading initiatives are interrelated. A hemispheric free trade area will increase economic growth and employment and create new opportunities for all of our countries. That is why we are pleased with the outcome of last month's summit in Quebec City. We look forward to advancing negotiations toward the implementation of the FTAA by no later than year 2005.

More immediately, the issue of ATPA renewal, expansion and enhancement must be addressed by the U.S. Congress. ATPA was designed to promote export diversity and strengthen legal activities in our country through new exports and through the generation of new legal jobs in order to confront the destabilizing threats to our democracies posed by illegal narcotics production and trafficking.

ATPA is also about saving lives. It's about the strength of our democracy, both in Andean countries and in the United States, because it reinforces our common goal, which is the fight against illegal drugs and the corruption it generates.

USTR stated in their last report that the ATPA is strengthening the legitimate economies of the countries in the region and is an important component in the U.S. effort to contain the spread of the illegal drug trade.

Moreover, both the Andean countries and the United States have benefited economically from the ATPA. Over the last nine years, the ATPA has created 140,000 new jobs in the Andean Region. In dollar terms, U.S. exports to ATPA countries have risen 75 percent between 1991 and the year 2000.

The United States serves as the leading source of raw materials, capital goods and technology imports for each of the ATPA countries, as well as our leading export market. As a result, ATPA benefits have generated employment in both the United States as well as in the Andean Region.

Colombian flowers are an excellent example of why ATPA is working, and of the social and economic benefits that ATPA promotes. The $439 million in cut flowers that ATPA shipped to the United States last year resulted in some $9 billion in retail sales in America, generating jobs and income for many Americans. But equally important, the Colombian flower industry is a world-recognized leader in the war on drugs, maintaining state-of-the-art drug interception technology and collaborating closely with the United States Customs Service on interdiction.

In addition, due directly to the benefits ATPA provides, the Colombian flower industry initiated major labor and environmental programs that are models not only in Colombia but also in so many other countries.

We are well aware of the suggestions that ATPA could be rewritten to match the benefits provided to the Caribbean and Central American countries last year. Indeed, Senator Graham of Florida has already introduced such a bill in the Senate, S. 525. We appreciate that first step. However, the Andean Region and the CBI region are very different. The structure of our productive sector is so different. We in the Andean Region have more vertically integrated industries and the purposes of the CBI are very different from what the ATPA must accomplish. Therefore, we believe that the ATPA must reflect those differences.

One of the sectors offering the greatest opportunities for the generation of new jobs in our region is textiles and apparel chain. The ATPA countries are currently a minor player in the U.S. apparel market, accounting for less than one percent of the total U.S. apparel imports, and that is all we have accounted for every year since 1992.

By contrast, the CBI countries account for almost 23 percent of total U.S. apparel imports. These numbers demonstrate that, with respect to textiles and apparel, the ATPA countries are more like the sub Saharan African countries than we are like the CBI countries. Therefore, we believe that an enhanced ATPA should be based more on the model established in the African Growth and Opportunity Act rather than the one in the CBI.

The Andean countries also need to promote new foreign investment in key business sectors to achieve economic recovery and effectively fight the drug war. While the original ATPA, with its ten-year term, initially brought new investment into the region, recently new investment has declined considerably, mainly because of the uncertainty of the medium- and long-term market access conditions to the North American market.

To generate new interest in the region, we need ATPA to be extended for a term sufficient to ensure that the FTAA has come into force before the ATPA completes another term. Additionally, we would like you to consider that, of the five members of the Andean community who have benefited from the ATPA, these preferences do not cover Venezuela. Our trading block, as well as the United States, will benefit if ATPA were expanded to include all the members of the Andean community.

Mr. Chairman, members of the Subcommittee, the Andean countries greatly appreciate your support in holding this hearing today to discuss renewal of the ATPA. We are very hopeful that you will act quickly to enact a new ATPA before the current program expires. Time is of the essence. It is absolutely essential that we create jobs to assist those who are displaced by illegal crop eradication and to lure workers back to those areas where legitimate employment can be developed.

In particular, we ask that this Subcommittee take up and pass ATPA legislation preferably before the July 4th recess, in order to generate momentum for this legislation. Such momentum is needed if a new, expanded and enhanced ATPA is to be enacted before the current ATPA expires in December.

We welcome the opportunity to work with you, and with the Bush administration, which has been very supportive, to achieve both an enhanced ATPA and an FTAA as quickly as possible.

Mr. Chairman, I thank you for this opportunity and honor to be here sharing with you such an important Subcommittee.

Thank you very much.

[The prepared statement of Ms. Rincon follows:]

Chairman CRANE. Thank you, Minister Ramirez. Minister Solares.

[The following testimony was interpreted from Spanish:]

Ms. SOLARES. Thank you, Mr. Chairman. First of all, I would like to thank you very much for taking the initiative to invite us to participate in this panel to deal with a subject that is so important for the Andean Group countries.

Thank you, also, for your personal interest in this subject.

I have provided a document in writing explaining in detail my presentation, and I'm aware that I have a short amount of time right now.

I will be going directly to the point on the subjects that I want to mention to you, but I hope you will give me a little bit of consideration with regard to time because I need interpreting.

Chairman CRANE. If you will yield, we will, indeed. All of the written testimony will be a part of the permanent record as well.

Ms. SOLARES. Thank you.

First of all, I would like to indicate that the countries of the Andean Region are here in this room and in this country to encourage a reaffirmation and breathing new life to the terms of the strategic alliance that was agreed on ten years ago between our countries.

This alliance was formed because of a common problem that we have, and because of a common goal that we share. This alliance was conceived with a holistic approach that would create actions to confront the problem of drug trafficking and its levels of demand, consumption and distribution. This would create a type of cooperation. The goal was to have cooperation that in economic terms would result in trade and investment.

This Andean Trade Preferences Act has been an expression of this strategic alliance, which has been as very effective means for encouraging trade in both directions between our countries. Indeed, we have seen that, as a result of this agreement of ATPA, there has been an increase in exports to the United States. There has also been a generation of imports to the Andean countries from the United States in machinery products and imports and, to be honest, this results in a greater amount of imports than Israel and Brazil.

We can also see this Andean Trade Preference Act as a way to--as an instrument to lead to free trade, which is something that we all desire. Nevertheless, we must return to the original concept that led to the agreement. It was originally conceived in order to create alternative forms of work so that people who would be involved in illicit drug production would be able to have other types of work that would be legitimate jobs.

Something else that we must recognize as the goals of this agreement is to lead to national security, the health of our people, and stability in the Andean countries. Mr. Chairman, we have made tremendous strides over the past ten years, but as you know, drug trafficking never sleeps. We must preserve our accomplishments, but also deepen our efforts.

So what we must do at this time with regard to the Andean Trade Preferences Act is renew the terms, broaden them, and also incorporate Venezuela in the Andean Group countries of this Act.

In order to do this, we would like to propose a new modality. We would suggest a general opening up of the U.S. markets, excluding some of the sensitive sectors to the United States. We would hope in this regard to see a priority given to the textile sector. We would hope that in this production we would be able to contribute to all aspects of the chain of production, using inputs from the U.S. as well as those from our own region.

Mr. Chairman, please allow me to refer to my country's case. As you know, my country has accomplished tremendous progress with a lot of difficult effort. By applying the dignity plan, we have almost completely eradicated or removed our country from the vicious circle of drug trafficking.

We have been able to withdraw from international markets 240 tons of cocaine. Obviously, these tons would have multiplied tremendously on the streets of large cities throughout the world. Mr. Chairman, we need to preserve this progress. So one way to do this would be to open up alternative employment sources for people to be able to reduce the terrible effects of unemployment that we're seeing these days. The only way to do this is to produce more and export more, because we have a very small market in our country. Thus, we have a tremendous need to be able to participate in international markets and, of course, principally that of the U.S.

We must also see textiles as a priority sector, but not in the form of assembly plants. If we were to stick to that modality, then Bolivia would not be able to take advantage of this opportunity. With regard to the purchases that you make in this sector, our purchases are very small in number.

Mr. Chairman, we trust that, through the opening up of U.S. markets, you will show to our Andean community your solidarity in struggling against the common problem that we share.

Thank you very much.

[The prepared statement of Ms. Solares follows:]

Chairman CRANE. Thank you. Mr. Moore.

STATEMENT OF CARLOS MOORE, EXECUTIVE VICE PRESIDENT, AMERICAN TEXTILE MANUFACTURERS INSTITUTE

Mr. MOORE. Mr. Chairman and members of the Committee, my name is Carlos Moore. I am Executive Vice President of the American Textile Manufacturers Institute, the national trade association of the U.S. textile industry. Our member companies operate in more than 30 States and process approximately two-thirds of all textile fibers consumed by mills in the U.S.

With respect to the subject of a Free Trade Agreement of the Americas, ATMI believes that the details will prove critical as to whether an FTAA will help the U.S. textile industry establish beneficial trading partnerships in this hemisphere. We believe the goal of an FTAA, from a textile perspective, must be to establish measures that will benefit our industry. We believe the same to be the case of an Andean Trade Preference Act.

This has become even more crucial in the past year. The U.S. textile industry is being seriously injured by low-priced imports, primarily from Asia, and also by the economic slowdown in our economy. In 1999, our industry earned $690 million from total shipments of $78.6 billion. Last year, our industry lost $529 million, on sales of $76 billion. Employment dropped by 25,000 over the past calendar year, and many thousand more jobs have been lost already this year.

As imports continue to take away domestic business from our members, we are working hard to find markets outside the U.S. However, many markets, primarily those in Asia and especially India, are closed to imports. That is why NAFTA has become increasingly important to us and why we believe that an effectively implemented Caribbean Basin law can contribute to our industry's growth.

Let me address a few key concerns about the FTAA. As ATMI stated in its March 7th statement to this Subcommittee, it is important that the FTAA governments create a sub-group within the market access negotiating group that is dedicated to textile and apparel access issues. These market access issues include safeguards, customs enforcement, verification, and negotiation of over 1,500 tariff lines, and they are technical and detailed. To date, no such sub-group has been established.

We also believe that an FTAA, like NAFTA, should include a basic yarn-forward rule of origin, but without the large tariff preference levels included in NAFTA that granted benefits to countries outside the agreement.

On the matter of renewal and expansion of the ATPA, we have serious concerns regarding the inclusion of textiles and apparel, particularly coming so close on the heels of last year's Trade and Development Act of 2000. This law, which went into effect only seven months ago, has not been given the opportunity to achieve its desired results. Moreover, there are still a number of outstanding issues which must be resolved before the new Caribbean Basin trade partnership's potential benefits and impact can be properly determined and evaluated.

While ATMI endorsed and supported the CBI portion of the law, we are still concerned about U.S. Customs' interpretation of key provisions of the Act, especially with respect to texturing of U.S. yarn and the dyeing and finishing of U.S. fabrics which we believe should be carried out only within the United States.

The sub Saharan Africa portion is also troubling to our members, including our concerns about a surge mechanism, the size, structure, and growth rate of quotas on apparel made of non-U.S. components, and generally its weak anti-transshipment measures.

Senator Bob Graham, who was helpful in securing enactment of the CBI law, has introduced legislation in the Senate to renew the ATPA and to extend it to textile products, provided the final product is made of U.S. fabric, of U.S. yarn.

Let me state very clearly that ATMI would strongly oppose any efforts to weaken this fabric and yarn requirement. If the U.S. is to grant Andean countries greater access to our markets on a unilateral basis, the principles of fairness and reciprocity require that U.S. textile components be used.

We also note that Senator Graham's bill would permit duty-free entry for knit-to-shape apparel articles assembled in the Andean Region, and it also provides benefits to Andean knit-to-shape apparel from components formed in the U.S., regardless of where the yarns were made. They could be U.S., Andean, or Asian. It doesn't matter. These are significant differences from the precedent set in last year's Caribbean legislation and are in opposition to the intent of the legislation which is to promote increased trade in goods sourced from the region.

We further note that Senator Graham's bill provides for an additional 70 million square meters of imported apparel made of regional knit fabric of U.S. yarn, which would be allowed to increase over the next three years. While ATMI represents yarn spinners who could benefit from this provision, we also represent knitters who could be harmed by its inclusion.

Finally, as we stated earlier regarding the CBI law, we believe that texturing of yarns and dyeing and finishing of fabrics should be done only in the U.S., and U.S. Customs has yet to issue a final ruling on these issues. Because these issues are still unresolved, that adds greatly to our concerns with respect to the expansion of the ATPA to include textiles and apparel.

In light of our concerns cited above, and particularly in light of reports that this body might seek an even further weakening of the Graham bill to the detriment of our members, we are opposed to expanding the ATPA to include textiles and apparel.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Moore follows:]

Chairman CRANE. Thank you, Mr. Moore. Mr. Lamar.

Mr. LAMAR. Thank you. My name is Steve Lamar and I'm Director of Government Relations for the American Apparel and Footwear Association, the national trade association of the apparel and footwear industries.

Just to give you a sense of where we fit in, our members purchase fabric from companies like those in Mr. Moore's group, or we make our own fabric. We then go and make clothing either in the United States or abroad, and then we sell the clothing ourselves or through companies like those in Mr. Autor's group.

Thank you for providing our Association the opportunity to appear before you today. I would like to focus my comments this afternoon on the need for a robust renewal and expansion of the ATPA as it relates to the apparel industry.

The American Apparel and Footwear Association supports enhancement of the ATPA to provide additional benefits for apparel produced in the Andean Region. Expansion of the current ATPA to provide such benefits, to the extent they provide an effective incentive to sourcing and production in the region, is a natural extension of our policies to promote hemispheric integration and to eliminate the economic conditions that permit drug trafficking in the Andean Region. Expansion of the ATPA is also a key stepping stone to negotiation of a well-balanced and commercially viable Free Trade Area of the Americas, a goal we also support.

In general, we believe any expansion of the ATPA benefits to cover apparel products should incorporate the following principles:

First, the program should be simple to use. As this Subcommittee knows all too well, a similar extension of benefits to the Caribbean Basin and African countries is mired in disputes over arcane and complex rules of origin. Although these programs provided important new incentives for apparel production and, consequently, U.S. textile and yarn exports--by the way, I congratulate the Subcommittee for the leadership they exhibited last year in getting this legislation passed--it has been difficult to realize fully these incentives because of problems in delays and interpreting the law and in promulgating rules and regulations.

Second, the program should be unique to the trading relationships with and within the Andean Region. One of the goals of the program is to provide legitimate job creation opportunities in the region. Such goals are thwarted, however, if existing Andean exports to other Andean markets are diminished by an overly restrictive rule of origin. Similarly, an overly restrictive rule of origin will make it difficult for new investments and production--which may depend on Andean, Asian or European fabrics--to stimulate job creation.

Third, the program should promote flexible sourcing of apparel and their inputs within a given rule of origin. For example, the rule of origin should reflect a negative list of goods that cannot qualify for preference, rather than a positive list of goods that can. This would ensure maximum opportunities to navigate within a particular rule of origin and eliminate some of the interpretation problems we have seen with regard to the Caribbean Basin and Africa legislation.

Fourth, the legislation should be of sufficient duration to provide meaningful incentives for investment and trade. This is especially important if the preferences are subject to significant labor, anti-narcotics, and trade conditionality. If the countries are going to be required to make long-standing commitments to gain better access to the U.S. market, fairness dictates that the access be given an equally long-standing nature.

Finally, this legislation should provide a bridge to the Free Trade Area of the Americas for the ATPA region. It should help prepare countries for their FTAA commitments while promoting the kind of trade linkages that will develop and strengthen under the FTAA.

In my written statement I have provided some statistics and graphs that highlight features of the ATPA apparel trade environment. These statistics show significant differences between the ATPA and the CBI regions, suggesting that the CBI trade partnership model, per se, may not be the most appropriate and effective model for the Andean region. The data also show that there are well-developed patterns of input sourcing that rely upon other Andean sources, as well as sources outside the region.

Finally, the data emphasize that, although this region is not an important sourcing center for the United States, this region depends greatly on access to the U.S. market for its apparel products.

In conclusion, I would like to emphasize that the AAFA strongly supports expansion of the ATPA to include apparel. A number of our members are manufacturing in those countries and others have signaled their interest in sourcing from those countries in the future if a flexible and easy-to-use program is created.

An ATPA program that is simple, flexible, and accommodates and maximizes the natural advantages of the region, will offer the best opportunities and incentives for our members to commence and expand their trade partnerships with these countries. But one that is overly restrictive, or which effectively negates the duty savings by imposing additional costs, will be largely ignored by our industry.

Thank you for providing us this opportunity to be here today, and I'm available for any questions.

[The prepared statement of Mr. Lamar follows:]

Chairman CRANE. Thank you, Mr. Lamar. Mr. Autor.

Mr. AUTOR. Thank you, Mr. Chairman.

My name is Erik Autor. I am Vice President and International Trade Counsel with the National Retail Federation. The National Retail Federation appreciates the opportunity to present the views of the U.S. retail industry on an enhanced Andean initiative and on the Free Trade Area of the Americas.

NRF is the Nation's largest trade association representing the retail industry. NRF member companies cover the entire spectrum of retailing, including department, specialty, discount, catalogue, Internet and independent retailers. U.S. retailers employ 23 million Americans, about one in five workers in this country, and registered sales in 2000 of over $3 trillion.

First of all, I would like to associate myself with Mr. Lamar's comments. We discuss the retail industry's views on the FTAA in our written statement, and, in the interest of time, I shall focus my remarks on the Andean initiative, which we view as a building block to the FTAA.

An Andean initiative should advance the larger U.S. policy goals for the Andean region: stopping narcotics production and trafficking, and promoting political and economic stability. To reflect those larger goals, we believe this initiative should be called the Andean Regional Stabilization and Development Act. It is doubtful, however, that these goals can be achieved without a trade program that provides economic options and opportunities for the people of the region.

Currently, workers and farmers in the Andean countries have few decent employment opportunities in legitimate industries. An Andean initiative that includes trade preferences for apparel could quickly provide thousands of jobs for these people, particularly women. These jobs would not threaten U.S. production or jobs. The Andean countries are small suppliers to the United States market, at less than one percent of imports, and are likely to remain so for the foreseeable future.

By providing needed business and investment, U.S. retailers can play an important role in helping to develop an integrated textile and apparel industry in the region. U.S. retailers are interested in new apparel sourcing opportunities in the Andean region, but that new business will be created if, and only if, the right incentives are in place.

In structuring a trade preferences program for apparel, the Caribbean Basin Trade Initiative that Congress passed last year is not an appropriate model for the Andean region. Looking at their competitiveness, the cost of doing business, the structure of their textile and apparel industries, the size and patterns of trade, the Andean countries have more in common with sub-Saharan Africa than the Caribbean Basin region.

In our view, a viable textile and apparel trade program for the Andean countries must be simple to use and structured to recognize the unique problems and needs of the Andean region. It must avoid complex rules of origin and eligibility restrictions that become disincentives for using the program. I have in mind here restrictions that require the use of only U.S. inputs, such as yarn and fabric, or require that certain production operations occur only in the United States, such as dyeing and finishing of yarn and fabric.

A viable textile and apparel trade program must also provide sufficient incentives for retailers and other U.S. businesses to use the program. Under a viable trade program, we believe that trade preferences should apply to any apparel assembled or knit-to-shape in one or more Andean countries from inputs produced in the United States and/or one or more Andean countries that provide the essential characteristics to that apparel; from yarn or fabric, regardless of origin, determined to be in short supply, and yarn and fabric produced outside the United States and the Andean region subject to reasonable limitations, to encourage the development of an integrated textile and apparel industry in the region.

U.S. retailers want to see trade with the Andean region grow, and by increasing their business in the region, are prepared to play a role in furthering the larger U.S. policy goals for the region. However, retailers have other sourcing options in places where, quite frankly, it is easier to do business--Asia, Mexico, and the Caribbean Basin. Without adequate incentives in place, retailers will go elsewhere and there will be no new business in the Andean region.

If the incentives are insufficient to attract U.S. retailers, who sell clothing, to do more business in the region, the result will be lost business opportunities for U.S. cotton growers, yarn spinners, fabric producers and apparel manufacturers, who make clothing and the inputs for producing clothing, as well as producers and workers in the region.

More importantly, the likelihood of achieving our country's larger foreign economic and drug policy goals for the region would be diminished.

Thank you for the opportunity to speak before the Subcommittee.

[The prepared statement of Mr. Autor follows:]

Chairman CRANE. Thank you, Mr. Autor.

Before we get to questions, let me remind colleagues on the Committee here that tomorrow our Andean Trade Ministers have agreed to meet with us, with the full Committee on Ways and Means, and we're looking forward to that meeting. So we will reserve questions for you folks until we sit with you tomorrow. Anyone who has any questions for our other witnesses, since we have to be out of here in approximately eight minutes, I will start with Mr. Rangel.

Mr. RANGEL. I will yield, Mr. Chairman.

Chairman CRANE. Mr. Rangel yields back his time. Mr. Levin?

Mr. LEVIN. Thank you very much.

Let me just ask one question, because, as mentioned, we are going to have the opportunity to meet with the Trade Ministers tomorrow. If I might then focus a question on those of you who won't be here tomorrow. Again, thank you for your testimony. I think you have helped to focus this discussion very well, all of you. You clearly have somewhat different interests in mind, and that is what this is all about, seeing how we can talk about apparel and fabrics and piece them together.

Mr. Moore, let me ask you, so that I'm clear, and my colleagues are clear, in your testimony--and we won't have time to go into a lot of detail, but let's just spend a minute or two probing this. You say at the bottom of the third page, "If the U.S. is to grant the Andean countries greater access to our markets on a unilateral basis--" and any Andean agreement, I suppose, would be unilateral, though eventually part of a multilateral agreement "--the principles of fairness and reciprocity demand that only U.S., textile components be used." Then you go on to conclude that, in light of the concerns that you've laid out, particularly in light of reports that this body might seek an even further weakening of the Graham bill, to the detriment of your members, you are opposed to expanding the ATPA to include textiles. Let me, if I might, just ask you a question or two about that.

As I understand it, there is, within the Andean countries, some considerable use of materials, or fabric, that doesn't compete with that produced in the United States. There is some of that, isn't there?

Mr. MOORE. Certainly there is some, and we never suggested there was no textile production in the Andean countries.

Mr. LEVIN. But there is some production there of fabric that isn't made in the United States--in other words, it's not competitive with American production of materials or fabric? Or am I wrong?

Mr. MOORE. There may be. There may be some exotic fibers that we don't process here. But I'm not aware of a lot of fabrics that are made in the Andean countries that we do not make.

Mr. LEVIN. So you're saying there isn't any substantial material, fabric, that is made in the Andean region which is not also made in the United States?

Mr. MOORE. There may be some, I said, but--

Mr. LEVIN. But you think it's small?

Mr. MOORE. As I said, maybe some exotic fibers, but in both the NAFTA and CBI law, there were provisions to exclude fabrics that were not made at all in the United States. So we would not be opposed to--

Mr. LEVIN. You wouldn't be opposed to that kind of provision?

Mr. MOORE. No. It was other provisions we were concerned about.

Mr. LEVIN. Mr. Chairman, our time is running out. We have just started on this today and I know we'll work on it further. Thank you. It has been an excellent panel, and thank you for your patience.

Chairman CRANE. I think Minister Ramirez wanted to respond to your question.

Mr. LEVIN. Okay. I didn't want to take up the time of my other colleagues for questions. Please.

Ms. RAMIREZ. Mr. Chairman, thank you, and thank you, Congressman Levin.

I just want to add something to Mr. Moore's comments. This is not only a question about exotic fibers. This is also a question about some specific fibers and jobs that we are doing with some American raw materials. In the case of cotton, for example, we are importing into the Andean region something close to $80 million of cotton from the United States. We are using this cotton in order to produce jobs and textiles. So these textiles can be used for a Colombian or Peruvian or Equadorian or Bolivian apparel that we are expecting to export to the United States. So that's why I like very much the association of retailers proposal, in order to have a regional content that permits us to use Colombian fibers or regional fibers made with some of the American raw materials, which gives the United States also the benefit of including some of your goods in the apparel that we are going to export to you with preferential access. So this is not only exotic fibers. These are regular fibers that we are expecting to use also. Thank you.

Chairman CRANE. Thank you.

Mr. LEVIN. Mr. Moore, do you want to briefly comment?

Mr. MOORE. Well, that was my point. As I mentioned, our industry is really being clobbered right now with several major developments that have occurred in the last year--the slowdown of the economy and the imports that continue from countries that keep their own markets closed. We are facing bankruptcies, two this week, and one mill was closed by creditors. We lost over 25,000 jobs last year, and thousands this year.

Now, the ATPA is a true unilateral grant of access to the U.S. market. We're not talking about this in the FTAA context. We recognize in the FTAA context that that's a two-way deal, like NAFTA is. But in a unilateral grant, we do not want to endanger our workers and our production any further. We think there can be gains for both under the CBI model, gains in U.S. textile production and in U.S. textile employment, and gains in apparel production and employment in the Andean region.

So that is the position that we are taking. We are being hammered right now, very badly, and when you look at job losses of thousands and thousands in one year, and the first loss on sales that our industry has ever sustained in modern times--a $500 million loss in 2000--we believe that you need to structure an agreement so that you can provide some incentive for growth and survival for our industry.

Mr. LEVIN. Thank you.

Chairman CRANE. Let me thank all of our panelists. Unfortunately, we are going into session and it's my understanding we will have a recorded vote on the floor very soon, if not immediately. But I want to express appreciation to all of you for participating as panelists today. We are sorry for the program running as long as it did, and for our Ministers here from the Andean countries, we look forward to seeing you tomorrow.

Thank you all. The Subcommittee stands adjourned.

[Whereupon, at 6:02 p.m., the hearing was adjourned.]
[Submissions for the record follow:]