Mr. Chairman, I commend you for the timeliness of this hearing on prospects for free trade in the Hemisphere. I am Myles Frechette, Executive Director of the North American Peruvian Business Council (NAPBC) whose fundamental mission is to facilitate investment and promote trade between Peru and North America. The Founding members of the NAPBC are Newmont Mining Corporation, Barrick Gold Corporation, Caterpillar Inc., Continental Airlines, J.P. Morgan, Compañía De Minas Buenaventura S.A., and Forza S.A. Other members of the NAPBC are Exxon-Mobil Corporation, Patton Boggs LLP, Riggs Bank N.A., Texaco Inc., Ferreyros S.A., Hunt Oil Company, and Schmeltzer, Aptaker & Shepard, P.C. The NAPBC was incorporated in August 2000 as a non-profit organization and includes U.S., Canadian and Peruvian companies.

The NAPBC would like to work with Congress to promote and increase trade opportunities in the Hemisphere. The 1991 Andean Trade Preference Act (ATPA) grants Colombia, Bolivia, Ecuador, and Peru tariff preference on certain goods for ten years in an effort to help those countries fight narcotics trafficking. The ATPA has proven to be a valuable weapon in the war against drugs by creating economic incentives to encourage the Andean countries to avoid the illegitimate industry of narcotics, especially coca, and increase the production of legitimate products.

In January, the Office of the United States Trade Representative released its third report to Congress on the operation of the ATPA. The report indicates that the ATPA has generated significant job opportunities in a variety of sectors, including cut flowers, non-traditional fruits and vegetables, jewelry and certain electronic inputs. Between 1991 and 1999, total two-way trade between the U.S. and the ATPA beneficiary countries nearly doubled. The ATPA has been essential to strengthening the legitimate economies in the Andean countries.

I was Ambassador to Colombia from July 1994 to November 1997. During my service there, I saw at first hand the benefits of the ATPA and the potential of an extended and "robust" ATPA. The ATPA created thousand of jobs in Colombia, helped Colombia’s economy and government offset the high cost of countering narcotics trafficking and turned the private sector into staunch and vocal supporters of anti-narcotics cooperation.

The ATPA did not include several import sensitive products such as apparel and textiles. Congress is now faced with the unique opportunity of expanding and extending the ATPA before it expires on December 4, 2001. Congress should not squander this opportunity to provide the ATPA countries with an effective tool for combating the war on drugs. Even though in 1999 Bolivia, Colombia, and Peru achieved record levels of coca eradication, these cooperative efforts to combat the scourge of drugs are ongoing and should be strengthened.

The ATPA should be expanded to include textiles and apparel. The ATPA was based on the Caribbean Basin Initiative (CBI) which did not originally provide tariff relief for apparel and textiles. Recently, the Andean countries’ competitors for textile and apparel have received beneficial trade treatment from the United States due to the recently enacted "Trade and Development Act of 2000." CBI beneficiaries now receive preferential tariff treatment for regional products made with American fabric and yarn. This expansion of CBI already compounds disadvantages to the Andean textile and apparel industries created by the North American Free Trade Agreement.

By including textiles and apparel, the ATPA would become a valuable weapon in the war against drugs in the Andean region. The data on the drug trade clearly shows that the coca economy is regional, and that actions adopted in one country affect anti-drug efforts in neighboring countries. The success in Peru’s drug fight corresponds with an increase in drug production in Colombia which clearly indicates the interconnected relationship between drug production and trafficking in Peru, Colombia and Bolivia.

We commend Senator Graham (D-FL) for taking the lead on expanding the ATPA and for including textiles and apparel. However, we are concerned about the limitations of the textile and apparel provisions included in S. 525, the Andean Trade Preference Expansion Act. The textile provisions included in S. 525 are based on the textile and apparel provisions included in the expansion of the CBI as passed in the Trade and Development Act of 2000. An approach based on the use of fabric and yarn does not help the Andean countries.

The use of cotton grown in Peru and Bolivia is an essential part of their industry. The cotton industry provides an important alternative crop to the coca industry and additional lawful employment for both agricultural and factory workers. These jobs are vital to Peru’s efforts in the war against drugs. Peruvian products that currently benefit from the ATPA are mostly minerals but mining is not as labor intensive as the textile and apparel industries.

Recently, the Trade Ministers of the Andean community at a meeting in Lima stated their joint position on the inclusion of textiles and apparel in the ATPA in a document called "Position of the Andean Community to the Andean Trade Preference Act." The Trade Ministers believe that textiles and apparel should be included in the ATPA and more specifically, "the expansion of the coverage of the ATPA should not be conditioned to regulations regarding the origin of raw materials that restrict the access of our textiles and apparel."

Tens of thousand of jobs are at stake. Most apparel from Peru and Bolivia are made from high quality, locally grown cotton or are made from llama or alpaca that is native to the region. In Peru alone, the textile sector supports 32 percent of the population employed in the manufacturing industry, which amounts to approximately 180,500 jobs. Workers who would otherwise have lawful jobs will be left without an alternative to coca production.

Expanding ATPA benefits to include apparel made with regional fabric will not have an adverse impact on the domestic U.S. industry. In 1999, textile and apparel exports from Andean countries represented only 1.1 percent of the total textile and apparel exports to the United States. The ATPA countries export far less textiles and apparel to the United States than the CBI region does.

An expansion of the ATPA to include textiles and apparel would provide economic and political stability to the Andean countries. Increasing the number of legitimate employment opportunities would provide a needed boost to the struggling economies of the Andean countries. The NAPBC looks forward to working with Congress to extend benefits under the ATPA in order to provide the necessary economic incentives to eliminate the lure of illicit drugs and strengthen democracy in the region.