Statement of the Hon. Richard W. Fisher, Washington, DC,
and Former Deputy United States Trade Representative

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

Hearing on Summit of the Americas and Prospects for Free Trade in the Hemisphere

May 8, 2001

Chairman Crane, Congressman Levin, members of the Committee, it is a pleasure and an honor for me to be invited back into this Committee Room today.

There are some things that one does not miss about serving as Deputy USTR. There are others that one treasures. I actually miss working with the Trade Subcommittee. Mr. Chairman, you and I worked very closely together on so many issues in the last Administration and almost always saw eye-to-eye, despite being from different parties. And Congressman Levin, you have been a faithful and constant reminder for all of us that it is important to view trade as a means to an end - that, as the preamble to the GATT says, the purpose of trade liberalization is to "raise standards of living, ensure full employment, and develop the full use of resources of the world." Gentlemen, remember I am a free man. Which means I don't have to say nice things about you as a matter of course. So when I say it, I mean it: the members of this Committee do great service to our country with your leadership roles in trade and, as an ordinary citizen, I thank you for it.

AN FTAA MAKES SENSE

Let me get to the point about Quebec and the Summit of the Americas: the United States needs to press the envelope of trade liberalization in this hemisphere.

On the sell side, our hemisphere is already the largest market for our exports, yet we are far from realizing our potential sales to our Latin and Caribbean neighbors.

On the buy side, we can do more to provide market access to countries to the south and east of the Yucatan Peninsula. 

Increased two-way trade flows and the enhanced investment in the region that will surely follow will bolster those economies and under gird democracy, reduce poverty and enhance the rule of law, improve human rights and encourage greater respect for the hemisphere's ecosystem. We would be fools to let pass the opportunity for a Free Trade Area of the Americas. It is both in our economic and our strategic interest to make this happen.

It is also in the interest of our Latin and Caribbean neighbors. For all of them conduct the majority of their trade within the hemisphere. And each covets access to our market, the Big Enchilada Economy, just as we covet access to the 400 million people that live in their markets. Colombia, for example, which sells 50% of its exports to the United States, has an obvious interest in lowering the cost of doing business here. Brazil, on the other hand, sells just 19% of her exports to the U.S.; she has a natural interest in expanding her market share here.

The idea of a barrier free market for the entire hemisphere was originally a Latin conception: Simon Bolivar, the Great Liberator, was the first to champion the cause. Mexico's first native-born leader, Benito Juarez, proposed a similar initiative in the 1860's. Here in the North, Secretary of State James Blaine tried to promote the concept in 1906, Franklin Roosevelt spoke about it in the first days of his presidency in 1933, and it has since been praised in concept by leaders of both parties from Jack Kennedy to the first President Bush.

But until recently it was never taken beyond the world of oratory and conceptual discussion.

President Clinton formally initiated the process of turning this from an academic vision into reality at the 1994 Summit of the Americas in Miami. The Clinton Administration further advanced the ball at a subsequent summit in Santiago in 1998. But, truth be told, in the second half of the Clinton Administration, I was the highest-level voice actively campaigning for a Free Trade Area of the Americas, from my lowly perch as Deputy U.S. Trade Representative.  

Now, we once again have a President as advocate-in-chief. In Quebec, Mr. Bush picked up the FTAA baton with impressive vigor. He declared point blank "the time has come to achieve a Free Trade Area of the Americas." He pledged to "put forward a set of principles that will be the framework for more intensive consultations with Congress," some of which is already taking place. And he added that he was "committed to attaining trade promotion authority before the end of the year," in order to make concluding an FTAA possible.

This is good news. As the former managing partner of the Texas Rangers baseball team might say, the FTAA has moved up from the minor leagues to the "bigs." Question is: can we channel this new found enthusiasm to hit the ball out of the park, or will we strike out at the plate?

I am an unabashed fan of the FTAA. I urge you to aggressively pursue those "intensive consultations" with the Administration and get on with it. Let me tell you why.

TRADE IS VITAL TO OUR ECONOMY

Trade is a driving force for our economy.  In fact, the United States is more internationally exposed than any other major economy or trading bloc. External trade in goods and services accounts for 27% of our GDP. That's greater than Japan at 19% and it's slightly more than the external trade of the EU 15's collective GDP. We depend on it for an affordable cost of living, for job creation, for the corporate profits that secure the value of retirement investments, for our economic vitality.

THE BUY SIDE

On the buy side, U.S. businesses who seek cheaper material inputs and people who shop for bargains at Target, Wal-Mart, Dollar General, K-Mart and other such vendors have benefited from trade liberalization, just as foreign consumers have benefited from having better access to U.S. made goods and services. We use $1.4 trillion in yearly imports to lower the cost of living for our people and to increase choice and purchasing power for consumers and employers.

When we increase others' market access to our economy, we enhance consumer choice. When we cut tariffs on imports, we effectively cut taxes on consumption. A tariff cut is a tax cut at the border. In the Uruguay Round, for example, we dropped the average tariff on imports into the U.S. from 5.8% to 2.8%. Last year we imported $840 billion from countries other than our NAFTA partners. Without the Uruguay round tariff cuts, our consumers would have paid $25.2 billion more for those imports than they ended up paying. When you add Canada and Mexico to the mix, we added another $18.2 billion in tax cuts at the border for our consumers from what they would otherwise have paid last year had we not negotiated the tariff cuts of NAFTA. Twenty five point two billion plus 18.2 billion equals $43.4 billion in tax cuts at the border last year alone. This is real money, even in a $10 trillion economy. The point is: by broadening choice and reducing the tax we impose on our citizen's consumption of imported goods, we lower the cost of living and raise the living standards of the American people.

Forty percent of what we import comes from the Americas, about the same volume as we import from Asia. So further liberalization of tariffs and non-tariff barriers to imports from Latin America will accrue great benefits to the American consumer and businesses.

THE SELL SIDE: LOOK AT NAFTA

On the sell side, almost 50% of what we export to the world is sold within our hemisphere. We sell more to Canada than we sell to the entire European Union. At the rate of expansion we have experienced in the six years since NAFTA was completed, our exports to Mexico will surpass those to Europe in another three years. In fact, we sell almost as much to just Canada and Mexico alone - almost $300 billion a year - as Japan sells to the entire world.

From our experience with the NAFTA, we know that free-trade agreements work to our advantage. NAFTA has been a home run for U.S. exporters. Since that agreement was inaugurated, our exports of goods to the world outside of our NAFTA partners have increased 52%, which isn't too shabby. But our exports to Canada have increased by 78% and our sales to Mexico are up 169%. Before NAFTA, we sold $41.6 billion to Mexico; last year we sold Mexico $112 billion in U.S. made goods. And this is not just stuff that they sew with cheap Mexican labor and send back across the border. In a typical month last year we sold Mexicans $48 million in surgical equipment, 28,000 cars and trucks, $700 million in semi-conductors, 250,000 tons of soybeans, and, my favorite statistic, 200,000 golf balls and 3,200 sets of clubs. They may be lousy golfers, but they are great customers, thanks to NAFTA.

IMPORTANT ANCILLARY EFFECTS

Importantly, with their economic success, Mexicans now are greater advocates of democracy and human rights. I grew up in Mexico. The old, protected, autarchic Mexican economy was a shield for one-party control, for massive corruption, dramatic concentration of wealth, and the suppression of individual liberty. It is no coincidence to me that Vicente Fox, a businessman, became the first truly democratically-elected president in Mexican history seven years after NAFTA. To be sure, Mexico is far from being a perfect place. But it is a lot further along the spectrum of raising standards of living, ensuring full employment, and developing the full use of its resources and the human potential of its people because of the expanded production and exchange of goods on both sides of the border.

NOW, FOR THE REST OF THE AMERICAS

That's the good news. The bad news is that while we have done brilliantly in NAFTA, we have under-performed in the rest of the hemisphere. We sell less than 8% of our exports south of the Yucatan, Mexico's southern border. We have under-penetrated the vast Latin American and Caribbean markets, home to 403 million people. And we buy less than 6% of our imports from those very same countries.  

Therein lies the raw economics of a trade deal. We have the potential to sell more to them, and they to us. And generating more trade within the hemisphere will help improve the rule of law and strengthen the potential of representative democracy in an area where, in too many countries, these core values are at risk.

We now need to replicate Mexico's success in the rest of the Americas. This is what Quebec and the FTAA are all about.

HARD PROSE IN THREE AREAS

In one of his charming novellas, the great writer Henry James wrote that, "courtship is poetry, and marriage is hard prose." The FTAA team I headed in the last administration advanced the courtship phase all the way to the drafting of a prenuptial agreement, which was completed just weeks ago in Buenos Aires and will soon be released to the public. In Quebec, President Bush reaffirmed the marriage proposal. He will get down the aisle and to the altar of a free trade agreement only if his counterparts in the Hemisphere and here at home in this Congress are willing to say, "I do."

It won't be easy for them or for you to do so. There are three areas that will be hard to crack, where the prose will be very hard, indeed. The first is agriculture. The second involves trade remedies and anti-dumping. The third is the vexing question of whether it is appropriate to include provisions of one form or another to protect workers rights or enhance environmental protection.

AGRICULTURE

With regard to agriculture, last week Brazil's Agriculture Minister put the issue right up front. He said, "If the U.S. doesn't lift its protectionist barriers and open its market to Brazilian products, we aren't interested" in the FTAA. He went on to define "barriers" to include not just high import tariffs, but also government subsidies to U.S. farmers and food safety measures. Some of Brazil's bluster here is undoubtedly for domestic consumption and for negotiating purposes. But the Argentines, Chileans and Columbians are also eager to access our agriculture markets and to somehow overcome our powerful farm support systems, which means to accomplish an FTAA, we will have to be prepared to put agriculture on the table.

The "easiest" part will be negotiating reductions in agricultural tariffs, which currently range up to 116.4% for sugar and 26.4% for beef, with an average 12% overall. Grappling with our support payments will be more difficult. Here we face a conundrum: how can we deal with our support payment programs solely in the context of the Americas without handcuffing our ability to compete with the EU? And yet, if we can't come to grips with this problem in our own hemisphere, and thus cannot accomplish a true free trade agreement in our biggest market trading area - in our very own back yard - how can the rest of the world expect us to deliver what's necessary to launch a global round which includes agriculture? Congress is going to have to work mighty hard to get over this agricultural obstacle. 

ANTI-DUMPING

On the trade remedy front, our anti-dumping regime is under constant attack from our Latin colleagues. A week ago, Chile's lead FTAA negotiator pointed out that in Chile's free trade agreement with Canada, the parties renounced the application of anti-dumping measures. "That," she said, " is what we [Chile] have proposed for the FTAA…We know this is a sensitive issue, but many countries are concerned by what we see as arbitrary use of anti-dumping mechanisms in the U.S."

In the last Administration, we forbade our negotiators from even discussing anti-dumping. Our line was that we and our trading partners were just perfecting the implementation of the new anti-dumping regime agreed to in the Uruguay Round and that until we had that in place and had tested its efficacy, we shouldn't delve into the subject. I don't think that will work here.

Indeed, I think we should consider taking advantage of this opportunity to put this topic front and center and explore just how our Latin brethren implement their anti-dumping regimes. How transparent and/or "arbitrary" are they? How do they really work? Why is it that in 1999, Brazil and Argentina together filed 40 anti-dumping actions while we filed only 17?  What is the real cause for concern here: is it within the hemisphere or across the Pacific Ocean? How might we cope with the causes of dumping - the surpluses in steel, chemicals, pharmaceuticals, and certain agricultural products - as partners with a common cause, rather than as adversaries?

It is important to remember that in Seattle, we were told by the EU that if we were not willing to put our anti-dumping regime on the table, there could be no global trade round. This was despite the fact that the Europeans are the all-time champions of anti-dumping. (In the year to June of 2000, the EU led the world with 49 new anti-dumping investigations). Again, I ask: if we can't deal with this constructively within our own hemisphere and form a common front within our biggest trading area, how can we expect to deal with the Europeans, the Japanese, the Chinese and the rest of the world on anti-dumping?

I mention these aspects of the FTAA to politely suggest that the Congress and the Executive branch has some soul searching to do even before debating the merits of so-called "labor and environment" issues.

This negotiation is not about reducing U.S. tariffs, though we have some chips to play with in our agriculture tariff structure. When you factor in various trade preferences we extend, the average U.S. applied tariff on imports from the region is well south of 2.8%. On the other hand, the tariff applied to our exports to Peru is 20%. Brazil slaps on a 17% tariff; Columbia, 12%; and Chile, 8%, and Argentina is flopping all over the map as it undergoes Minister Cavallo's exorcism of economic demons. The trade-off here - the gist of an FTAA - calls for these countries to remove both these high tariffs and non-tariff barriers to our exports of goods and services, in return for our removing our non-tariff barriers and providing better market access to their goods. Boiled down to its essence, that is the deal in the minds of the Latins. If we are not able to muster a consensus here for providing greater market access to our friends in the hemisphere, then there will be no deal. 

LABOR AND ENVIRONMENT

As to "labor and environment," let's be blunt. It takes two to tango, as it does to do a trade deal, and we cannot get our Latin partners on to the dance floor if we lead with two left feet (or, for that matter, with two right feet). Trade sanctions are out. In fact, we will have to struggle mightily to structure any discussion of these issues so as not to appear protectionist. I know that Ambassador Zoellick and others are working hard to find a workable formulation on these issues and I wish them luck. It may be possible to construct an architecture of limited monetary assessments applied only to the failure to enforce existing laws in the signatory countries and only where the alleged enforcement failure has a demonstrable trade effect. I doubt you will get much more than that.

You will have to decide if this is sufficient. Once more I ask you to bear in mind the message we are sending here to the rest of world: if we cannot resolve this issue in our own neighborhood, how do we expect to resolve this with the rest of the world, who are equally, if not more vehemently, convinced that these are merely protectionist foils?

CONCLUSION

Latin America is at a tender juncture in history. So is our economy, as are the global financial markets. I view expanded trade in the hemisphere as a vehicle for reducing risks on all three fronts.

Democracy is sputtering in Venezuela, Colombia, Peru, Paraguay, Ecuador, Haiti, Nicaragua, and Guatemala.  Argentina is under economic duress that threatens the financial markets not only of its neighbor, Brazil, but the entire hemisphere, including the U.S. and global debt markets.

Question: how would denying these countries greater access to the U.S. market (coupled with the discipline of the rules and efficiencies we would insist be embodied in an FTAA, including limiting its benefits to democracies), help them overcome their problems? Why would we want to add to those problems rather than provide some measure of relief and incentive and hope?

If our neighbors' problems are insufficient motivation for an FTAA, then we should examine the selfish arguments for the home team. On our side of the border, we know that exports plus imports divided by GDP is 27%. In the USA, trade exerts a big influence on consumption, employment and profits. Our long economic expansion is running out of wind. Unemployment is rising. We know that exports mean more jobs. We know that cheaper imports hold down the cost of living. We know from NAFTA that we can conduct freer trade with a poorer country and both come out winners with job creation on both sides of the border. We know we exchange too little trade with countries to the south and east of Mexico and would profit from more.

The financial dimension is less clear, but none-the-less important. Our stock and bond markets are under severe pressure.  The financial markets are no longer the exclusive purview of Wall Street; they are the preoccupation of Main Street. Eighty-eight million Americans in 50 million households - let me repeat that - 88 million Americans in 50 million households - own mutual funds for retirement and investment purposes. All told, households have over $12 trillion invested, either through mutual funds or directly, in corporate securities. They are feeling a little insecure right now. So are the trustees of corporate pension funds and of Taft-Hartley monies. Underpinning the value of the securities that represent our citizens' retirement monies and financial well-being is the health of the companies that issue those securities. Those companies can't grow profits for shareholders or meet interest payments or hire more workers unless they increase sales. They can't grow their sales unless they grow their markets. And it is a heck of a lot easier for them to grow their markets if we can engineer constructive international agreements that pry open new ones for them.

I am interested in engineering an FTAA that will pry open a market of 400 plus million people in our own backyard. This is the dream we started working on seven years ago at the Miami Summit. It is the promise of what came out of Quebec.

Thank you for the opportunity to offer my two cents. I am happy to answer any questions.