U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 
58–930 CC
1999
WTO SINGAPORE MINISTERIAL MEETING
HEARING
BEFORE THE
SUBCOMMITTEE ON TRADE
OF THE
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
FEBRUARY 26, 1997
Serial 105–83
Printed for the use of the Committee on Ways and Means
(
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COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, JR., Florida
NANCY L. JOHNSON, Connecticut
JIM BUNNING, Kentucky
AMO HOUGHTON, New York
WALLY HERGER, California
JIM MCCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
BARBARA B. KENNELLY, Connecticut
WILLIAM J. COYNE, Pennsylvania
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM MCDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. MCNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
KAREN L. THURMAN, Florida
A.L. SINGLETON, Chief of Staff
JANICE MAYS, Minority Chief Counsel
SUBCOMMITTEE ON TRADE
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California
E. CLAY SHAW, JR., Florida
AMO HOUGHTON, New York
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JENNIFER DUNN, Washington
WALLY HERGER, California
JIM NUSSLE, Iowa
ROBERT T. MATSUI, California
CHARLES B. RANGEL, New York
RICHARD E. NEAL, Massachusetts
JIM MCDERMOTT, Washington
MICHAEL R. MCNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records
of the Committee on Ways and Means are also published in electronic form. The printed
hearing record remains the official version. Because electronic submissions are used to
prepare both printed and electronic versions of the hearing record, the process of converting
between various electronic formats may introduce unintentional errors or omissions. Such occur-
rences are inherent in the current publication process and should diminish as the process
is further refined.
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C O N T E N T S
Page
Advisory of January 31, 1997, announcing the hearing .......................................
2
WITNESSES
Office of the U.S. Trade Representative, Hon. Jeffrey M. Lang, Deputy U.S.
Trade Representative ...........................................................................................
10
U.S. General Accounting Office, JayEtta Z. Hecker, Associate Director, Inter-
national Relations and Trade Issues, National Security and International
Affairs Division .....................................................................................................
40
American Farm Bureau Federation, Ed Wiederstein, as presented by John
Keeling ..................................................................................................................
103
American Forest & Paper Association, Maureen R. Smith ..................................
167
Boidock, John, Texas Instruments, Inc., and Semiconductor Industry Associa-
tion ........................................................................................................................
72
Christian-Green, Hon. Donna M., a Delegate in Congress from the U.S. Virgin
Islands ...................................................................................................................
163
Coalition of Service Industries, Robert Vastine ....................................................
112
Cornell Dubilier, James Kaplan, Jr. ......................................................................
78
Corning, Incorporated, Timothy J. Regan .............................................................
65
Cross, Aaron W., IBM, and Information Technology Industry Council ..............
57
Distilled Spirits Council of the United States, Inc., Fred A. Meister ..................
179
Grocery Manufacturers of America, Inc., Karil L. Kochenderfer .........................
172
IBM, Aaron W. Cross ..............................................................................................
57
Information Technology Industry Council, Aaron W. Cross ................................
57
Iowa Farm Bureau Federation, Ed Wiederstein, as presented by John
Keeling, American Farm Bureau Federation ....................................................
103
Kaplan, James, Jr., Cornell Dubilier, and Passive Electronics Coalition ...........
78
Keeling, John, American Farm Bureau Federation, presenting statement of
Ed Wiederstein, Iowa Farm Bureau Federation, and American Farm Bu-
reau Federation ....................................................................................................
103
Kemet Electronics Corp., Don Poinsette ................................................................
78
Kochenderfer, Karil L., Grocery Manufacturers of America, Inc .........................
172
Labor-Industry Coalition for International Trade, Laird Patterson ...................
123
Meister, Fred A., Distilled Spirits Council of the United States, Inc ..................
179
Passive Electronics Coalition:
Don Poinsette ....................................................................................................
78
James Kaplan, Jr .............................................................................................
78
Patterson, Laird, Labor-Industry Coalition for International Trade ..................
123
Philips Components, Kevin Rafferty ......................................................................
90
Poinsette, Don, Kemet Electronics Corp., and Passive Electronics Coalition .....
78
Rafferty, Kevin, Philips Components .....................................................................
90
Regan, Timothy J., Corning, Inc ............................................................................
65
Sandstrom, Mark, Thompson Hine & Flory LLP ..................................................
146
Semiconductor Industry Association, John Boidock .............................................
72
Smith, Maureen R., American Forest & Paper Association .................................
167
Stewart, Terence P., Stewart and Stewart ............................................................
134
Texas Instruments, Inc., John Boidock ..................................................................
72
Vastine, Robert, Coalition of Service Industries ...................................................
112
Wiederstein, Ed, Iowa Farm Bureau Federation, and American Farm Bureau
Federation, as presented by John Keeling, American Farm Bureau Federa-
tion ........................................................................................................................
103
SUBMISSIONS FOR THE RECORD
American Iron and Steel Institute, statement ......................................................
186
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iv
American Textile Manufacturers Institute, Carlos Moore, letter ........................
189
Bacardi, LTD., Miami, FL, Steven Naclerio, statement .......................................
192
Philips Electronics, Patricia A. Franco, letter .......................................................
194
Puerto Rico, Government of, Jaime F. Morgan-Stubbe, statement .....................
196
Software Publishers Association, statement .........................................................
198
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(1)
WTO SINGAPORE MINISTERIAL MEETING
WEDNESDAY, FEBRUARY 26, 1997
HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
SUBCOMMITTEE ON TRADE,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:04 a.m., in
room 1100, Longworth House Office Building, Hon. Philip M. Crane
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
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Chairman CRANE. Will all of our guests please take their seats?
Good morning and welcome to the first hearing in the 105th Con-
gress of the Ways and Means Trade Subcommittee. The purpose of
this hearing is to examine the outcome of the WTO Singapore Min-
isterial Meeting held in December, especially the Information Tech-
nology Agreement endorsed by the Ministers at the meeting, and
the basic telecommunications services agreement concluded last
week.
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In addition, we will study the prospects for the future of the
WTO, including the built-in agenda set for further negotiation, ad-
ditional market access, liberalization, the extended services nego-
tiations and potential new issues for further negotiation.
I led a delegation of the Ways and Means Members to the Singa-
pore meeting in December and had an opportunity to meet with
WTO officials, representatives from delegations of our trading part-
ners and business representatives. I believe that the meeting suc-
cessfully provided a significant opportunity for us to assess how the
WTO Agreements have been functioning and to look to the future,
laying the groundwork for future negotiations on tariffs, services
and the built-in agenda.
The most significant outcome was the endorsement of the Infor-
mation Technology Agreement, an agreement that will reduce tar-
iffs on information technology products. I look forward to hearing
what the impact of this agreement will be on various U.S. indus-
tries.
In addition, although it was not a formal focus of the Ministerial,
I was gratified that our discussions with a wide variety of other
delegations demonstrated that our trading partners agree with the
U.S. view that accessions to the WTO should take place only under
commercially acceptable terms.
Finally, I would note my agreement with the conclusion of the
Ministers that the WTO should focus on trade related issues only
and that labor issues are best addressed by the International Labor
Organization.
I now recognize our distinguished Ranking Member, Mr. Matsui,
for any statement he would like to make.
Mr. MATSUI. Thank you, Mr. Chairman.
I want to thank you and congratulate you for holding this hear-
ing and also for leading the delegation to the Ministerial Meeting
in Singapore. I might just point out that Karen Thurman, our new-
est Member, was also part of that delegation and she is here today.
Although, not a Member of the Trade Subcommittee, we welcome
her here.
I would just like to congratulate the administration for both the
information technology agreement and also the recent tele-
communications agreement. I know it was very, very difficult. On
the other hand, I think you achieved quite a miracle and a double-
header, so to speak, and I think as a result of this the United
States is going to be very well positioned as we approach the 21st
century to compete and certainly it is going to create hundreds of
thousands of jobs over the next 10, 15, 20 years.
And, so, congratulations for that effort and we look forward to
working with you on other issues that Chairman Crane has spoken
about, obviously investment issues and others. And, so, again, Mr.
Chairman, thank you and I look forward to working with you, as
well.
[The opening statements follow:]
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Chairman CRANE. Thank you, Mr. Matsui.
Today we will hear from a number of distinguished witnesses
and in the interest of time, I would ask that you try to keep your
oral testimony to 5 minutes, and we will include longer, written
statements in the record.
Our first witness will be Deputy U.S. Trade Representative Jef-
frey Lang.
Ambassador Lang, let me congratulate you on your hard work in
concluding the WTO basic telecommunications services negotiations
last week.
I believe that this agreement is a tremendous example of how
opening markets abroad will benefit our businesses and U.S. con-
sumers. And I might add, parenthetically, that Ambassador
Barshefsky, as I understand it, is tied up with the meetings in an-
ticipation of President Frei’s speech to the Congress tomorrow. It
is probably just as well because you can pay her appropriate trib-
ute that she could not claim herself for the outstanding job she did
in Singapore.
With that, I yield to you, Mr. Lang.
STATEMENT OF HON. JEFFREY M. LANG, DEPUTY U.S. TRADE
REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENT-
ATIVE
Mr. LANG. Thank you, Mr. Chairman and thank you, Mr. Matsui.
You are absolutely right about Charlene Barshefsky, she has
picked up this job in midfield and run hard with the ball and done
what I think is just a spectacular job here. I truly regret that she
cannot be with you, especially since so many Members have shown
up. I think there is a lot to do this year in trade.
I was going to give an oral statement which was supposed to be
half of the written statement, I scratched out half of that and I will
now remove half of that and see if I can cut through this quickly
and leave plenty of time for questions.
But I do think there are a couple of important points that I
should make on behalf of the administration. First, the WTO is the
center of the system. Remember the trading system is designed to
ensure a rising standard of living for our people, not just opportu-
nities for firms, but opportunities for workers and communities and
everybody else in this country.
These are things that the WTO is tailormade to do and to do in
a new world where we are going to have to be faster of foot and
more flexible than we have been in the past with the old system
of rounds.
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Now, the Ministerial in Singapore was a significant meeting, be-
cause it was the first meeting of the WTO when we were going to
try and put these principles into effect. So, we had to make some
breaks with the past and move into an organization that was going
to be able to deal with a world of 18-month product life cycles. This
is going to require some different ways of doing things.
Obviously, the main things we were looking at was how the
agreements are being implemented? How were we going to advance
the ongoing work? And then the area that received the most press
attention about these new areas that have to be explored in the fu-
ture.
We are, as I take it some of you are, pleased with the results
from Singapore. The ITA is obviously a major accomplishment. But
also the businesslike way the meetings were conducted, the prece-
dents they set for future Ministerials in terms of the work that can
be done on paper, without Ministers having to get involved, is enor-
mously important because we have to chew through so much more
treaty text today than we ever have had to do in the past.
Ministerials are absolutely essential. We have to have political
oversight of the trading system. And it was very important not only
that there was an interagency team from the administration there,
but that there was strong representation from the Congress and,
in particular, this Committee. Everybody in the world knows ex-
actly how the American political system operates and they know
that without support and active participation by the Congress, the
administration cannot move forward on a trade policy without bi-
partisan Congressional support.
Now, let me just mention a couple of things that I think were
important at the meeting. One was, in terms of this issue of imple-
mentation—which is not particularly high-profile or sexy but is
enormously important—the key thing that went on in Singapore
was that the United States was able to get the system working
early in 1996 to produce the basic implementation reports that we
needed Ministers to approve in order to be able to move the system
forward in the next 2 years.
If you take a subject like agriculture, for example, there is obvi-
ously a lot of resistance from some of our major trading partners
about moving forward in agriculture in accordance with a built-in
agenda.
A lot of the work that led to the decision at Singapore to imme-
diately begin an exchange of information and analysis on agri-
culture depended on the Committee work that had gone on sort of
below the surface in Geneva all year. Using those Committees in
Geneva is an important way to advance American interests. It does
not get much coverage but it does advance our interests very sub-
stantially.
With regard to the enforcement action, I would emphasize here
that, of course, the high profile thing is dispute settlement and we
are far and away the most active user of the dispute settlement
system. Probably 40 percent of the cases involve the United States
mostly as a plaintiff.
But it is also important that we use the committee system in
that regard. There are many countries whose trade practices are
objectionable to us. We can raise those practices in committees, like
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the balance of payments committee, for example. Seven or eight
countries gave up balance of payments cover in Singapore because
of the committee work. I think that helps all of us. It means Tur-
key is more open to our exports today than they were before the
Singapore meeting, just to use a small example.
I think it bears repeating, whenever I talk about dispute settle-
ment, even if no question has ever been raised about it, that this
system in no way impairs the national sovereignty of the United
States; only Congress, not the WTO, can change the laws of the
United States.
Now, with regard to the built-in agenda, this is the agreed agen-
da of things we are going to be doing in the future, that is, beyond
1997. We know the things that are coming up in 1997, things like
the rules of origin negotiation and the financial services negotiation
which I understand some of you might want to talk to me about.
But beyond that, there is an agenda beginning in 1999 of ex-
tremely important negotiations. I would be glad to go through it
with you in detail in the Q and A, but things like agriculture, serv-
ices, and safeguards are all the subject of scheduled negotiations
that will go on in the future in this organization. That whole built-
in agenda was approved in Singapore and it is important.
Now, let me just say with regard to the emerging issues, that we
might want to discuss this in some detail, this is trade and labor
standards, investment, competition, those kinds of issues. I think
with respect to labor, I know it is a controversial issue on the com-
mittee, but we did move forward in the sense that we were able
to get agreement from our trading partners, I think, on two basic
ideas.
One is that core labor standards should be respected, and second,
that the ILO and the WTO should continue to work together. We
would like to work with you on how this issue can move forward
in accordance with the requirements of section 131 of the act.
With regard to investment and competition, we have very modest
study programs in place. We have some problems with diverting at-
tention to investment from the OECD negotiations in Paris. But we
think educating our developed country trading partners about the
investment issue is important. Competition is not a well-developed
issue in the WTO except for one place where it is remarkably well
developed and that is in the results of the telecommunications serv-
ices negotiations which I will speak about in a minute.
Let me just say with respect to market access, obviously the ITA
is an enormously important agreement. It phases out tariffs on a
wide range of products over a very short period of time mostly by
the year 2000, $500 billion in annual trade flows, and I think that
it did help to do the ITA to be able to then to ahead and complete
the telecommunications negotiations.
Many of the important things we did in Singapore were meetings
that occurred at American initiative on the margins of Singapore.
On the margins of Singapore, for example, we had a meeting with
African trade delegations to find out what their concerns about the
trading system were. Similarly, we had a telecommunications
meeting to which we invited representatives of the World Bank and
the FCC and so on. That is when the improved offer process began.
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I could talk all night about this telecommunications agreement,
but I think it is a remarkable achievement in and of itself. It is
even more remarkable in connection with the ITA because it in-
creases the advantage to our workers and companies of the ITA be-
cause we will be building redundant telecommunications networks
all over the world. I think it shows that we can move forward and
negotiate in this forum on an ongoing basis on one basic condition.
That is, a lot of other countries are willing to come forward and
make commitments in the system and not just be free riders. If
countries are prepared to make commitments it appears now that
we can move forward on an ongoing basis.
So, there is a lot here I should have said but these are, I think,
some of the most important things. I know there are a lot of issues
all of you have to raise with us, but on behalf of Charlene I just
want to say that working together on a bipartisan basis is impor-
tant. This is an important area of our economic development and
we have an administration which I think is intent on moving for-
ward in the area and we want to work closely with you to find
ways to do that.
Thank you, Mr. Chairman.
[The prepared statement follows:]
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Chairman CRANE. Thank you, Jeff.
At the Singapore Ministerial Meeting was the U.S. capacitor
manufacturing industry consulted during these negotiations and
would the inclusion of capacitors in the ITA agreement affect our
national security? And, finally, how do you respond to the other ar-
guments raised by the portion of the capacitor industry in opposi-
tion to the agreement?
Mr. LANG. We have been aware since last spring that the capaci-
tor industry in the United States was divided about the ITA and
that was a concern to us. It was the reason we did not include ca-
pacitors in the U.S. offer on the ITA. However, it was true that our
major trading partners who were important markets for our ex-
ports of these information technology products insisted that capaci-
tors were an essential ITA component and that if they were ex-
cluded the deal would unravel. So, we advised all the major domes-
tic parties, including the capacitor parties, of those considerations.
Now, we, in consulting, as the law requires us to do, with these
folks along with everybody else in this industry, we discovered that
they do have some significant export concerns in the nontariff bar-
rier area. And that is one of the major reasons that we pushed so
hard on those nontariff barrier provisions that are included in the
agreement.
We would like to work with the whole industry to make this
agreement work for them. Exports have been increasing rapidly in
recent years. Imports have actually declined.
As far as the national security issue, it was not raised until after
the ITA was concluded in Singapore. And since the industry has
been expanding rapidly it still is unclear to the administration
what specific risks might be posed by this agreement.
I might say, at the request of the industry, the Department of
Defense in 1995 allowed the procurement of capacitors from off-
shore plants. DOD appears to believe that a broad procurement
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base, including both offshore and onshore supplies, enhances rather
than detracts from national security.
But, obviously, we take any national security concern very seri-
ously and if the Department of Defense determines that inclusion
of capacitors in the ITA jeopardizes our security interests then we
will take whatever action is necessary to rectify the situation.
Chairman CRANE. Thank you.
Mr. Matsui.
Mr. MATSUI. Thank you, Mr. Chairman.
Again, I would like to congratulate you and Ambassador
Barshefsky, Ambassador Lang, for the two agreements that you
have entered into recently.
Mr. LANG. Thank you.
Mr. MATSUI. What I would like to ask is in view of the fact that
you have been very successful in sectoral agreements in the last
few months, is this the approach that you believe will be the wave
of the future, rather than comprehensive trade agreements?
How do these interrelate and is there anything instructive from
this or is this anecdotal?
Mr. LANG. It is early days and it is tough to say. I think that
there have always been sectors in the system that require what I
call internal deals. That is, in agriculture, for example, we could
not make a deal on agriculture that was disadvantageous to Amer-
ican agriculture and tell them that the reason for it was we had
a great deal in the banking sector. We always had to make that
kind of deal work in that rather large sector.
I think that we are going to have to negotiate simultaneously on
a lot of things and there may be tradeoffs. If you look ahead to the
scheduling of the built-in agenda which is not based on any plan-
ning that I am aware of, it just is the result of the outflow of the
Uruguay round negotiations, you can see that there is a great deal
of simultaneity. It is not a round and I do not think a round is in
our interests when we have such a flexible economy, workers that
can adjust so quickly to changes in the competitive environment.
On the other hand, I think what telecommunications does dem-
onstrate, in both the success this year and the failure last April,
is that we are going to have to work very hard with a much broad-
er range of countries than we did even 10 years ago in order to get
the necessary level of commitments to be able to justify these
agreements to the American people.
We cannot get by without substantial commitments in major
countries in Latin America and Asia, Central Europe, even Africa
and Southern Asia. All those countries are going to have to make
commitments to the system and it is going to be difficult. I can tell
you it is time-consuming work. You have got to go to those capitals
and meet those people and talk with them for months at a time in
order to do it.
But I do not think a round makes it any easier. It is important
to remember for people who say that you have to have everything
on the table in order to make a deal that these issues—telecom, for
example—were on the table in the Uruguay round and they were
the things that were too tough to get done when everything was
on the table.
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So, I am not sure that a round is the solution to the problem.
The real solution to the problem is a commitment among our trad-
ing partners to be prepared to undertake legal obligations in the
WTO. If they are prepared to make commitments commensurate
with those of the United States, adjusting for their stage of devel-
opment, I think we can move forward on this continuing basis and
do quite well for the American people.
Mr. MATSUI. Last, one of the concerns I have is the recent ac-
tions by the Europeans taking the Helms-Burton legislation to the
WTO. And with this recent success, I think almost all of the nego-
tiating parties, countries were advantaged by both the ITA agree-
ment and the telecommunications agreement.
I believe frankly that they are jeopardizing the WTO and I want
you to know that certainly Members, like myself, support what you
are doing. The fact is that you are unwilling to allow jurisdiction
to attach to the United States on this issue because it is clearly a
foreign policy issue, although trade issues are attached to it, it is
clearly a foreign policy issue.
This is how this issue emanated from Mr. Helms and Mr. Bur-
ton, who were not at all interested in the trade aspect of this, and
you have significant support on the Hill, I believe on this, maybe
not from all circles, but at least significant support.
And I hope the Europeans understand that this could jeopardize
the WTO because even Members like myself could have questions
about it if, in fact, sanctions are held against us for this act. We
may have some reservations about the legislation, some of us inter-
nally, but this was clearly a foreign policy decision. I might dis-
agree with it, but it was clearly a foreign policy decision.
Mr. LANG. I appreciate that and we will enforce the law. We
have made our position clear in Geneva.
Chairman CRANE. Mr. Thomas.
Mr. THOMAS. Thank you, Mr. Chairman.
I, too, am sorry that the U.S. Trade Representative Designate
Barshefsky is not with us. My understanding is she is with the
President and the President of Chile. It is unfortunate that had
you folks not wanted to push a fundamental revision of fast track,
we would have already had a fast track agreement with Chile and
perhaps she could have been with us.
You made a statement just a moment ago to the gentleman from
California that you could not make a deal that was disadvanta-
geous to agriculture. Disadvantageous to agriculture is a rather
broad statement. I have discovered repeatedly that you have made
decisions that are disadvantageous to segments of agriculture.
And I happen to represent an area that is about $3 billion, value-
added, most of it specialty agriculture, on a broad-based structure.
I will not visit on you the sins of your elders and revisit NAFTA
and the commitment on paper that Ambassador Kantor made to
us, in part, the wine industry and failed to deliver on.
Nor will I look at the recent problem with Mexico on broom corn
and the fact that they have chosen to go after relatively narrow
segments for retaliation, one of them, once again, wine. That fail-
ure to deliver continues to be compounded.
I am especially disturbed by what happened between the United
States and Canada on the dairy/poultry agreement, in which we
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entered into in what we thought—agriculture—was an understand-
ing between the United States and Canada which even preceded
NAFTA but certainly carried through NAFTA and which with the
overlay of the WTO wound up with a decision that was disadvanta-
geous to the United States.
I guess the decision does not bother me as much as the five-O
decision, meaning even the U.S. representatives failed to support
what we thought was a fundamental agreement on our side. And
I guess I just have to ask you, when you say you could not make
a deal that was disadvantageous to agriculture, most of us visiting
the recent past find that an astounding statement since you have
done so repeatedly, especially in terms of segments of agriculture.
I invite a response.
Mr. LANG. Well, I am certainly concerned about the dairy/poultry
panel decision. It is wrong. And——
Mr. THOMAS. I agree it was wrong. But our guys voted with
them.
Mr. LANG. Well, they are still wrong. And——
Mr. THOMAS. Well, are they still employed?
Mr. LANG. They are not employees of——
Mr. THOMAS. I understand, are they still citizens? [Laughter.]
Mr. LANG. But I would say as to the larger issue, I think that
we have to be concerned about the individual sectors of agriculture
and I encourage you to bring these kinds of problems to me or
Charlene and we will try to work on them.
Mr. THOMAS. I can assure you, we brought them repeatedly and
we have gotten written letters from the then Ambassador about
what was going to be done, a timeframe for correction and how it
was going to be corrected and it was never done.
I hope as we enter into this new era and as you folks come to
us with a fast track agreement, which—and I know you put a nice
little spin in your opening statement on the labor agreement that
occurred in Singapore—but I do hope that gets you to understand
maybe you have got to revise the position that you had in the past
on the question of labor, the environment and fast track.
But at least I would hope that you would not undercut the tariff
levels and reductions that were agreed to in the Uruguay round on
specialty agricultural products. And hold that as a firm line with-
out trading off particular segments or resist it in terms of retalia-
tion.
If I can get that out of you, at least I have a minimum comfort
level.
Mr. LANG. I will take the message back.
Mr. THOMAS. Well, I would take a personal commitment from you
that you would not reduce them below the Uruguay round.
Mr. LANG. Well, I am not sure I completely understand but I do
not have a problem with that if that is what you are asking. The
question is, if we have an overall negotiating authority, are you
asking if it would exclude specialty agriculture?
Mr. THOMAS. I guess my point is we have gone through a round
of reduction. We have made fundamental changes in the entire ag-
ricultural system in the United States. That area ought to set a
while and not enter into new arrangements with folks in terms of
further reductions on the world scene, either in terms of specialty
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agriculture, and I would push it to general agriculture, but espe-
cially specialty agriculture.
And if you would not be opposed to that, that is as good as a let-
ter I guess, based upon the way in which folks have honored pre-
vious written statements.
Thank you very much.
Chairman CRANE. Mr. McDermott.
Mr. MCDERMOTT. Thank you, Mr. Chairman.
Mr. Lang, you could probably look around this Committee for a
long time for anybody to understand what a capacitor is or what
it really does. And I think those kinds of issues are hard for us to
understand in any kind of specificity. But what I am concerned
about, in listening to Mr. Matsui’s remarks and your response, I
would like you to give me the arguments that the EU uses as an
explanation for why they have brought the Helms-Burton Act to
the World Trade Organization.
My life experience tells me that there is always another side to
something. And the EU must have good arguments why they think
it fits under the rubric of WTO or at least they have constructed
some way that they bring it to it where we say it is foreign policy,
they must have another theory under which they are bringing it to
the WTO. And in order to understand how the United States in-
volves itself with the WTO—and one of the objections in the Con-
gress was whether we would lose our national sovereignty if we in-
volved ourselves in the WTO—I would like to understand what
their argument is on the other side.
What would a representative from the EU say if they were sit-
ting where you are?
Mr. LANG. Well, what they would say is that because it may have
an effect on commercial operators, it should be something that is
taken up in the WTO, a commercial organization.
Mr. MCDERMOTT. Would that be a nontariff barrier? What is the
construct they are using?
Mr. LANG. Well, it is, in fact, unclear exactly what WTO concerns
it would raise. It is certainly not a tariff issue. They might argue,
at some stage in this proceeding, if it were to go forward—which
as I say, I hope it does not do—that somehow limiting visas for
commercial operators was inconsistent with the professional serv-
ices agreement or something like that.
But it has no effect on goods trade, and it has no effect on trade
that I can see at all. But, as Mr. Matsui said, the problem here is
that this is not a trade matter. It is a foreign policy and national
security matter. And we have always said throughout our history—
it is not new to this administration—that no foreign panelist or
other person is in a position to judge the national security or for-
eign policy interests of the United States. That remains true today.
Thus, I am not a very good advocate for this position because it
is so far off the mark and so dangerous for the system.
Mr. MCDERMOTT. So what?
Mr. LANG. Dangerous for the system.
Mr. MCDERMOTT. Basically, you are characterizing their position
as being one in which they say ‘‘this is the only forum in which we
can address this issue.’’ So, they just grab the WTO?
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Mr. LANG. Well, actually that is not true. They have been work-
ing with my colleague, Stu Eisenstadt, and in those arrangements
we have been able to deal with some of their problems. In addition,
they have already retaliated by enacting what they call blocking
legislation, legislation that is, in effect, to offset the effects of title
IV of the Helms-Burton legislation.
So, it is not clear to me that they do not have other remedies.
In fact, they are exercising other remedies, I think, quite effectively
from their perspective. I am not sure, to be perfectly frank, why
this WTO matter needs to move forward, from their perspective.
Mr. MCDERMOTT. Does this mean that when we want to imple-
ment something, if we frame it as a foreign policy issue, that we
would then be able to exclude it from WTO?
Mr. LANG. Well, I suppose taken to its extreme it might mean
that. But, in fact, for over 50 years the Congress has been very
cautious in such matters. I mean the Helms-Burton legislation
arises from a pretty repugnant act—shooting down these unarmed
civilian aircraft.
And, in my experience, when the Congress enters into this area,
it exercises a great deal of caution. I would urge it to continue to
do so, because so much is at stake here in a commercial sense—
the standard of living of our people, potentially.
On the other hand, I think it comes close to being irresponsible
to take an issue like this which is clearly a foreign policy and na-
tional security matter to the WTO because it puts us in the posi-
tion of having to assert those basic propositions. Remembering now
that Europe is not just challenging the Helms-Burton law. It is also
challenging 30 or 40 years of legislation with respect to Cuba, in-
cluding the embargo and all kinds of other actions that have been
on the books as foreign policy or national security actions since the
late fifties or early sixties.
Mr. MCDERMOTT. So, it is really more than Helms-Burton that
is at stake here?
Mr. LANG. Yes, sir, it absolutely is.
Mr. MCDERMOTT. Thank you, Mr. Chairman.
Chairman CRANE. Mr. Nussle.
Mr. NUSSLE. Thank you, Mr. Chairman.
There is a witness that is going to be in the second panel who
is from my home State, the Iowa Farm Bureau president. Since he
will not have an opportunity to visit with you personally about this,
I thought I would try and just touch on a couple of things here. In
his testimony he said that part of the reason why the U.S. agricul-
tural leaders went to Singapore was to try and push a twofold
agenda.
One was to make sure that we were proceeding successfully to-
ward renegotiating the GATT in 1999. And the second was that
they would be taken a little bit more seriously as a player in the
world and that our government would be more willing to commit
to resolving some of the agricultural trade problems.
I guess what I am curious about is how did they do in fulfilling
that two-pronged agenda?
Mr. LANG. Well, I hope they feel they did very well. They cer-
tainly had an effect on galvanizing the U.S. delegation. As I said
in my opening statement, the issue here, in taking agriculture in
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general, was to make sure that our negotiating partners who are
reluctant about moving forward with opening their markets for
American agricultural exports be prepared to do so in accordance
with this built-in agenda which has negotiations beginning in 1999.
And the accomplishment that they wanted—and I met with them
several times during the meetings in Singapore—was to make sure
that we begin exchanging data and analysis now so that there is
no reason for stalling those negotiations when they are supposed
to begin in 1999.
I am going to Geneva in a couple of weeks and I think it is time
to begin that process of working out the exchange of data and anal-
ysis with our trading partners. I encourage the Iowa group to come
talk to me directly about what their specific concerns are.
Let me say on this agricultural issue that this is a huge portion
of our exports—something like $60 billion in exports last year. It
is actually a high-technology sector that is very successful. We have
been concerned about the implementation of the agriculture agree-
ments.
Let me give you one example. When the agreements first kicked
into place in July 1995, we discovered that Europe was putting into
place a so-called reference price system which was not giving us
the benefit of the bargain. We did not wait for the industry to file
a 301 petition or hire lawyers or anything like that. We asked them
if they had any objection to our suing Europe. And when they did
not, we proceeded to do so on our own initiative.
Now, we are still working on that matter and Europe has been
extremely reluctant to come into compliance with that. But it is not
for lack of attention on our part, I do not think.
In any event, if there is something they need to talk to me about
in a specific crop area or something like that, I welcome them com-
ing in and seeing me as soon as possible.
Mr. NUSSLE. Well, my understanding is that it was just yester-
day the administration received a letter from, I believe, 26 different
groups suggesting that their concerns have not yet been adequately
addressed in agriculture. The president of the Farm Bureau from
Iowa is going to be here later on suggesting that farmers and
ranchers are not convinced that the WTO and NAFTA Agreements
are actually helping them.
I think the message that Mr. Thomas was suggesting and that
I am suggesting is that for fast track to be successful we have got
to have that kind of support. It is number one. It is not as sexy
as some of the other issues and condensers and all sorts of things
that Mr. McDermott was talking about—microchips and proc-
essors—that is for him to worry about. We are just talking about
corn and beans.
It is not quite as sexy, but as a result there are a lot of votes
in them there hills and when we are talking about fast track we
have to show success.
My understanding from the testimony is that we are going to re-
ceive today, as well as my own constituents in Iowa, they are not
convinced and that is the message that we need to be able to report
to you.
The final thing that I was curious about is what effect do you be-
lieve passage of the farm bill, recent reforms in farm legislation,
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has had on the 1999 negotiations? What effect do you see that hav-
ing on our long-term agriculture strategy with regard to trade, now
that you have had a chance to monitor that?
Mr. LANG. Well, let me say first that with an increase last year
in agricultural exports of something like 14 percent from $53 or
$54 billion to $60 billion, we are doing considerably better in agri-
culture. I remember a lot of years when we were under $30 billion
in agriculture exports. So, we are doing a lot better. But I continue
to offer to work with your people and find out what the problems
are and jump on them.
With respect to the farm bill, I think that our trading partners
are going to have to go a long way to come up to the standards of
that farm bill. We are, in terms of domestic policy, ahead of our ob-
ligations and many of them are behind in their obligations. That
is why we are bringing so many cases on these matters in the
WTO, on beef hormones, on grains, on barley, on rice, on wheat,
on corporation and we are going to continue to push to enforce
those agreements.
I think the 1999 negotiation is going to be very tough because
a lot of these folks are not ready for a competitive farm environ-
ment and the fact is, our farmers are ready for that.
Mr. NUSSLE. But, see, that is not the message they necessarily
need. We know they are going to be tough, they have always been
tough.
But the point is that if, in fact, we are ahead—and we are—and
they are behind, and nothing seems to be resolved in the mean-
time, granting fast track and giving more authority to have con-
tinuing agreements that do not seem to hit the mark and cannot
get us to that mark will be frustrating to agricultural sectors of all
kinds and make it very difficult for us who would like to support
fairer and freer trade, and understand the need of the administra-
tion to have a little bit of more autonomy in these negotiations
through the fast track, it would be very difficult for us to support
those things.
Mr. LANG. Well, as I say, I will take that concern back but I do
not accept that we are not doing better because of these agree-
ments. I think I can go through crop-by-crop and show you that.
Mr. NUSSLE. Well, food sells itself.
Mr. LANG. Sir.
Mr. NUSSLE. Food sells itself.
Mr. LANG. Yes. But you have to have access to the market.
Mr. NUSSLE. Thank you, but we have to eat and the world has
to eat. So, with all due respect, I do not think it is because of you
that we are doing $30 billion better. I think we are doing better
because food sells itself. And I think that we miss our mark in
many respects if we forget that. If we have open markets, if we
have the ability to trade, we do quite well, food sells itself.
Mr. LANG. Yes, that is right, if the markets are open. That is a
big ‘‘if’’ in a lot of these things.
Mr. NUSSLE. That is the job we are asking you to help us with,
otherwise, it is going to be difficult to get that kind of legislation
in the future.
Mr. LANG. OK.
Chairman CRANE. Mr. Jefferson.
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Mr. JEFFERSON. Thank you, Mr. Chairman.
In a few minutes, I suppose after the second panel, you will hear
from Representative Donna Christian-Green about a concern she
has about rum of the Virgin Islands. Inasmuch as you may not be
available to answer her question, I wanted to raise one for her, if
I might.
Mr. LANG. Yes.
Mr. JEFFERSON. I understand that white spirits are included in
the Singapore tariff package as a concession to the EU in view of
their status as a major exporter of white spirits, particularly vodka
and gin.
Can rum be excluded from the agreement reached in Singapore
without undermining the purpose or balance of the agreement?
And can you detail for the Subcommittee the potential effect on
the economy of the U.S. Virgin Islands if the tariff phase-out in-
cludes rum?
Mr. LANG. Say the second part again, I am sorry.
Mr. JEFFERSON. Can you detail for the Subcommittee, the poten-
tial effect on the economy of the U.S. Virgin Islands if the tariff
phase-out includes rum?
Mr. LANG. Yes. I appreciate your raising this question. I have
discussed it a couple of times with Congresswoman Christian-
Green. In fact, I talked to her yesterday or the day before.
We are very concerned about this. It is going to be difficult to re-
move rum from the agreement because it is so critical to the bal-
ance of concessions. You have to remember that Europe is making
a bigger tariff cut than the United States is. Part of that is com-
pensated for by this distilled spirits agreement which includes rum
that we negotiated on the margins of the ITA.
However, the important thing to preserve in the case of the Vir-
gin Islands is their access to the U.S. market on favorable terms.
It turns out that we think we can negotiate a type of side agree-
ment with Europe that will preserve the benefits the Virgin Islands
get.
I was working on that negotiation earlier this morning. It is not
completed yet. But we do seem to be within reach of being able to
do that. It essentially has to do with the differential price of the
rum and it would be covered by the agreement. We may be able
to exclude from the agreement rum that would be of importance to
the Virgin Islands and that would preserve the tax carryover that
they need and so on. So, we are hopeful that we can work some-
thing out with the Europeans on the matter.
In fact, they have a similar problem which makes it a little easi-
er to work it out. But I am in close touch with her and I am open
to any suggestions you have about how to resolve the problem. It
is a critical part of the overall agreement, but I think we do not
need to pull all of the rum out in order to solve the Virgin Islands’
problem.
Mr. JEFFERSON. Well, it is a very important issue and I hope you
will continue working hard to square it away.
Mr. LANG. Yes, sir.
Mr. JEFFERSON. You mentioned that on the margins, there was
some discussion about African trade policy in these negotiations in
Singapore. Can you elaborate on that for a moment?
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Mr. LANG. Yes, sir.
We are very aware that Members of the Subcommittee have been
concerned about trade with Africa and at the same time we have
been carrying out the statutory mandate to study this matter. In
connection with that study we decided that it would be useful at
the Singapore Ministerial to ask African Trade Ministers, who were
uniquely collected at this meeting, to come to a meeting with my
colleagues and from other Federal agencies to discuss their con-
cerns as a way of having some sort of direct input to our policy for-
mulation process. That was very helpful and they were extremely
forthcoming and frank. There were some very interesting things
they said.
For example, they said they knew the era of foreign aid was over
and they had to rely on trade and investment in order to develop.
Their thinking is quite advanced and we have moved forward on
that basis trying to develop a program that will be responsive to
both congressional concerns and concerns of countries in the region.
I think this matter should be the discussion of continued con-
sultations with the Committee over the next couple of weeks and
hopefully we can come up with legislation that would be consensus
bipartisan legislation and a real important addition to our trade
policy. It is a very important area. There are 600 million people
who are not participating very actively in the trading system there
and that is a loss to us and to them.
Mr. JEFFERSON. How do you see it as being structured in the
next several months, this continuation of the contacts and the dis-
cussion?
Mr. LANG. Well, we would be happy to structure it any way you
want to do it. I think meetings with individual members or groups
of concerned members would be fine. I think it is our responsibility
to propose some ideas to you.
One interesting thing about this subject is that in the past the
trade agencies, development agencies and financing agencies like
the Treasury Department have not worked closely on this kind of
problem.
I am pleased to say that in this situation we are working very
closely together. My colleagues and I at Treasury and State and
AID and so on have had an interagency working group on this sub-
ject since about October or November, I cannot remember exactly
when it was. We are moving forward and we hope to have some
pretty concrete suggestions for you in the next few weeks.
Mr. JEFFERSON. Thank you very much, Mr. Chairman.
Chairman CRANE. Mr. Houghton.
[No response.]
Chairman CRANE. Mr. Neal.
Mr. NEAL. Thank you, Mr. Chairman.
Mr. Lang, not long ago Ambassador Barshefsky reached an
agreement between the television monitor advocates and the com-
puter monitor advocates for the television screen. While the com-
promise seemed satisfactory and congratulations in your direction,
how are you going to monitor those agreements?
Mr. LANG. Actually, we have several ways of doing that. One is
there is a review mechanism in the ITA which will allow us to con-
sult informally with our trading partners. This particular area you
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are talking about has been very sensitive, particularly in Europe
where some reclassifications have gone on that we are very con-
cerned about.
So, I think that a monitoring and consultation process may be a
helpful way of getting some early warning about what they are
thinking and how they are going to implement the agreement.
In addition, this agreement will fall squarely within the dispute
settlement process of the WTO. And I have not said this before but
I should say it somewhere in this hearing, that dispute settlement
process is turning into a more powerful weapon than we had antici-
pated because it cannot be stalled the way the old GATT system
could.
So, most of our cases, where we are a plaintiff, are being settled
on favorable terms before a panel is even appointed, usually in 4
or 5 months. I would hope that in this case the system would prove
useful too. But we will certainly monitor the situation closely and
be glad to stay in touch with you, whatever you need us to do to
make sure it works out the way it is supposed to work out.
Mr. NEAL. Thank you.
The second question, worker rights, pages 8 and 9 of your testi-
mony. It is fairly descriptive about how you treat the issue of work-
er rights. But could you verbally speak a bit to how you intend to
enforce worker rights?
Mr. LANG. Yes, sir.
First, worker rights are an element of U.S. law in a number of
programs, for example, the Generalized System of Preferences. We
continue to receive information and petitions from nongovern-
mental organizations and other organizations about worker rights’
problems with respect to the GSP Program and we are investigat-
ing those actively.
We have just had a team come back. I understand there is going
to be a report on my desk when I get back to the office today about
an investigation we just carried out in Indonesia where we will
have interviewed not only government officials but labor leaders
and opposition leaders and other people concerned about the prob-
lem.
Second, we have, in accordance with section 131 of the act, raised
the question of core labor standards in the WTO as a whole, which
is a difficult issue to move forward. There is a lot of fear and con-
cern about it. Frankly, there is some division of opinion among
your colleagues on the question. But, nonetheless, as I said in my
opening statement, we were able in Singapore to get other govern-
ments to recognize these core labor standards, the right to orga-
nize, freedom from child labor and so on, and we were able to get
recognition that the ILO and the WTO should work together closely
in the future.
We now have to decide how to proceed with those kind of basic
understandings, how to move forward on them in other words, and
I think we are going to have to consult closely with you on it. It
will, obviously, I think, based on the discussion today, be an ele-
ment of the fast track debate. But we are trying to move forward
on it in a multilateral context as well and we have some support.
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Mr. NEAL. I do not profess to know more than my colleagues on
the democratic side but I can say that worker rights is a unifying
theme on our side and we will be monitoring it very, very carefully.
Mr. LANG. I understand.
Mr. NEAL. Thank you.
Chairman CRANE. Mr. Herger.
Mr. HERGER. Thank you, Mr. Chairman.
Mr. Ambassador, the longest standing section 301 case before
your agency is a case involving canned fruit. Europe has been sub-
sidizing their canned fruit producers with hundreds of millions of
dollars annually for many years. Fifteen years ago the California
canned peach producers and the U.S. Government sought to stop
the EU from disrupting the world market by challenging EU prac-
tices in GATT dispute settlement. They won that case and a bilat-
eral settlement was subsequently reached with the EU.
We now have data developed by the USDA that shows that the
bilateral settlement has collapsed. EU canned fruit subsidies are
way up as are EU production and exports. The Greeks now have
so many peaches in the ground that they are dumping them into
pits the size of football fields.
I am aware that the United States joined with five other coun-
tries last week in Brussels to protect EU canned fruit practices. I
also understand that continued informal talks such as these are ex-
pected by no one to produce the type of broad-based reform we need
from Europe in this sector. section 301 law requires that if a bilat-
eral accord is not being satisfactorily implemented, USTR would
take all measures in its power to correct the problem.
Can you tell me what measures will be taken to get this long-
standing dispute resolved on a permanent basis?
Mr. LANG. I certainly agree that this is a longstanding dispute.
I was actually involved 15 years ago in this dispute, so, nobody is
more frustrated with the European lack of implementation than I
am and the people at USTR.
Charlene has repeatedly raised this issue with Sir Leon Brittan,
her opposite number in Europe. So far there has been nothing
forthcoming. We have been forced to take the matter back to the
WTO. I do not want to say exactly what we will do but we are very
concerned by this. We are going to pursue it and one way or an-
other we are going to have to resolve this thing.
But our objective is to get rid of the practice and sell more
canned fruit, not to retaliate for the sake of retaliating. But, in any
event, we will take the necessary actions to get some action on this.
You are absolutely right, this has been a long standing dispute.
Mr. HERGER. Now, the end of your answer was that you say you
will take steps to correct this. Now, the big concern that I have and
I am sure that many of us have is that if accords like this one
which are a direct result of international settlement are not ad-
hered to——
Mr. LANG. Absolutely.
Mr. HERGER [continuing]. It really brings grave question into just
how effective these settlements are. So, I would urge you to follow
through with your last statement that we will stand very firm and
take appropriate actions.
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Mr. LANG. I appreciate your saying that especially in public.
Thank you, sir, we will follow up on that.
Mr. HERGER. Thank you.
Chairman CRANE. Mr. Ramstad.
Mr. RAMSTAD. Thank you, Mr. Chairman.
Ambassador Lang, good to have you here. I know that my col-
leagues Mr. Thomas and Mr. Nussle referred to agriculture and
fast track and coming from Minnesota I must also.
As you know, under the WTO built-in agenda timeframes, the
deadline for reaching an agreement on agriculture is December 31,
1999. And given what is left to do as far as fast track is concerned,
that is not much time. It is really a short timeframe.
And I am concerned, like my constituents, that without the clout
of fast track authority we are not going to aggressively be able to
push for greater access for our agricultural products or participate
in the discussions at all.
I have two questions, Ambassador Lang. The first, when will the
administration present a fast track proposal? And, second, if we are
not involved, how aggressive would any agreement be in this area,
as far as agriculture is concerned?
Mr. LANG. With respect to the first question we are working
through a proposal now and consulting widely in the Congress. I
am hopeful we can get up here with a bill fairly soon. I do not want
to predict a time now because I have learned from sad experience
that predicting timing in the administration is a difficult business.
But this is——
Mr. RAMSTAD. Next month is reasonable though?
Mr. LANG. Yes. I think so. It is well advanced and I would be
hopeful about that kind of timing. The problem without fast track
becomes very serious. I might say I was out at Farm Fest. I do not
think Farm Fest was in your district, it was out in southwestern
Minnesota. But I got a chance to interact with some people who ac-
tually farm for a living, which I have not done for a long time.
It is obvious that we need to explain to people who do this for
a living why these trade agreements are important. I think it is ab-
solutely essential that we have this authority on as broad a basis
as possible. Because we are going to have to be—this is, in part,
an answer to Mr. Matsui’s question earlier pretty opportunistic
about trade agreements.
If we can do better on a regional basis then we can on a multilat-
eral basis, we ought to do it. We ought to have the freedom, after
consulting with you all and with the interested industry people, to
make those kinds of choices without having to come back repeat-
edly over short periods of time for the authority.
But I agree with you that we have to establish the confidence in
the agricultural community which is going to be used in a way that
serves their advantage. I think we just have to work that out in
the process of figuring out what this bill actually says to make sure
that we earn that confidence from our constituents.
Mr. RAMSTAD. And certainly the administration and the Congress
have had a good track record in recent years of working together
in a bipartisan, pragmatic way on trade issues. I really hope that
continues and carries over as far as fast track is concerned, be-
cause it is so critical as you recognize and know first hand.
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I think you make a good point about the need to communicate
that better. All of us need to communicate the importance of that
more effectively.
Let me just shift gears if I may in my remaining minute or so.
Let me ask you, Ambassador Lang, what are the administration’s
objectives for dealing with the issues surrounding import-oriented
state trading enterprises in the WTO discussions? Is there a con-
sensus for dealing with this issue?
Mr. LANG. Yes, I think there is a developing consensus about it.
We are very concerned about these State trading enterprises. We
have actually raised it with some of our trading partners. Gen-
erally I find they object very strongly to our assertions that these
wheat boards and milk boards and things like that are essentially
monopoly buyers and that state agencies are distorting markets
and do not behave in ways that are consistent with commercial
considerations.
But Congress has been concerned about this since at least 1988
when the provision about article XVII was inserted in the law. We
have received a lot of letters, not only from you but from many of
your colleagues, particularly in the midwest about these problems.
We have been raising them but I think until we get into a real ne-
gotiation where there is some give and take going on, it is probably
unlikely that we will get much done about it. But we continue to
raise the issue, for example, in the WTO agriculture committee.
I appreciate your concern.
Mr. RAMSTAD. Finally, Ambassador, let me ask you whether or
not you believe the Ministerial Meeting adequately addressed
whether there have been significant problems with the WTO mem-
ber countries meeting Uruguay round implementation obligations.
Mr. LANG. No, I do not think it did completely. I am afraid a
number of those problems are going to have to be addressed in dis-
pute settlement.
It is just that some of the countries are unwilling to move for-
ward just on the basis of consensus and we are going to have to
use dispute settlement which we are using today. In fact, today or
yesterday, the dispute settlement body met in Geneva and we
pressed forward on several agricultural cases including barley,
wheat, corn, rice. So, we are going to have to use that remedy, I
am afraid.
Mr. RAMSTAD. Are the notification obligations too onerous? Is
that part of the hold up?
Mr. LANG. I think in developing countries the notification obliga-
tions are proving burdensome. We have been trying to provide
some technical assistance but we do not really have adequate funds
to be able to do as complete a job as we would like.
But there is no excuse for the failures to implement among our
industrialized trading partners. They know how the law works and
they have all the people they need. And those are the cases—I
mean we have cases that we are planning to move forward on pork
in the Philippines and some other cases in developing countries
where we have tried to work with them for a period of time, been
unable to work them out, so, we will have to proceed in dispute set-
tlement.
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But that is not the situation in these industrialized countries.
They know what the obligations are.
Mr. RAMSTAD. Of course.
Well, thank you very much, Ambassador Lang. I appreciate your
responses to all three areas of inquiry. I am particularly encour-
aged by your representation that we will see a fast track agree-
ment from the administration next month.
Mr. LANG. Well, I hope I can deliver.
Mr. RAMSTAD. I do not mean to put you on the spot or anything
but I will yield back to my Chairman.
Thank you.
Chairman CRANE. Mr. Levin.
Mr. LEVIN. Thank you, Mr. Chairman.
I appreciate the chance to participate in this hearing. The main
focus of it, as scheduled, was on the information technology agree-
ment. So, I do not want to veer too much from that. But, you know,
it is has been interesting to hear the discussion between a number
of members and Mr. Lang about agriculture and about the attitude
of many within the agricultural community about the impact of
fast track and there has also been reference here to the need for
pragmatism.
I would just suggest that we take to heart those comments and
that we be willing to apply them to other sectors of the American
economy including the industrial and the service sectors. Because
I think one of the problems with fast track has been this. There
was an effort early on in this hearing to shift the onus to the ad-
ministration and say the President of Chile is coming and if the ad-
ministration had acted more quickly we would have had a fast
track agreement. But I do not think, as evidenced by the comments
on agriculture, that is really a fair comment.
There are some complexities to the proposal to renew fast track.
And I think there has been some inflexibility about, for example,
the ability of the administration to talk about environmental and
so-called labor issues. And I think if the agricultural sector is ask-
ing for some pragmatism and some attention to the complexities of
fast track relating to agriculture, there has to be the same willing-
ness to provide the ability of an administration to negotiate on
issues that are relevant to the industrial sector and to the service
sector.
And I think one reason fast track is where it is today is because
there has been some inflexibility on those issues relating to the en-
vironment and labor.
And, so, I think this hearing has been important in showing the
need for openmindedness and setting aside inflexibility on those
issues. So, I simply wanted to say that to you. We are looking for-
ward to a proposal from the administration on fast track but if it
is going to go anywhere there is going to have to be a willingness
on the part of people on both sides of the aisle in this institution,
in the Congress, to provide the same kind of flexibility to the ad-
ministration that some have asked for in the agricultural sector.
Thank you, Mr. Chairman.
Chairman CRANE. Mr. Watkins.
Mr. WATKINS. Thank you, Mr. Chairman.
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I would like to say a special thanks to you and the Members of
the Committee for allowing me to come by and participate in this
particular outstanding Subcommittee of Ways and Means, the
Trade Subcommittee. So, I want to say thanks to you and the en-
tire Committee.
Chairman CRANE. You are welcome.
Mr. WATKINS. Mr. Lang, I am pleased with the progress that has
been made on several fronts, especially the World Telecommuni-
cations Agreement at the Singapore Ministerial Conference. I think
you should be commended.
I have watched with great interest on numerous fronts what has
transpired in our dealings with the WTO and also our role in the
United States.
But, Mr. Lang, I do have a real concern pertaining to agricul-
tural issues. I think that Congressman Nussle here and others
have brought that to your attention on a more general front. I have
a real concern, specifically about our lack of progress in getting the
European Union’s ban on hormone treated beef lifted. It has been
in effect for more than 8 years or longer, and has cost our produc-
ers hundreds of millions of dollars.
There have been numerous scientific studies over the last num-
ber of years by the EU, as well as the United States, that these
hormones are safe. I have a chronological listing of every step that
has been taken in this case, dating back into the eighties. I submit
to you these are nothing but stalling tactics. I think the latest
study, which confirmed the safety of the hormones, was released in
December 1995. This was 14 months ago and still nothing has hap-
pened. The ban is still in place.
And it is my belief that this proves we are up against people who
are violating their agreements. This ban is unmerited and basically
illegal.
Now, I hope we can see some actions taken to move this matter
forward. So, I would like to ask the USTR’s Office, what it feels
might be achieved in getting this ban lifted, and maybe installing
a longer term mechanism into place that might prevent this from
happening again with the WTO.
There are some real questions concerning the WTO, about
whether or not it is working against us here. Could you bring us
up to date on the latest meeting concerning this on February 17,
1997. They met on this case and they are planning to have a report
April 1. Could you enlighten me?
Mr. LANG. Yes, sir.
This has been a continuing problem with Europe. Your position
is exactly the same as ours, that it is inconsistent with their trade
agreement obligations. Now, originally what we did was to just re-
taliate against them. Forget about the GATT or whatever it was
and just take an offsetting action.
Unfortunately, that did not move them. They continued to keep
the ban in place. So, we have now taken this matter to the WTO
dispute settlement system. We started out on that late last fall. We
have now submitted our briefs. Earlier this week, as you men-
tioned, or maybe late last week—I forget when it was—the team
of experts that had been appointed by the dispute settlement panel
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to advise them on the sound science about this thing reported sub-
ject to questions by us, by them.
As your question indicates, even European scientists have said
that these six hormones are completely harmless and have no ad-
verse health effects. We are expecting that panel to report and we
would hope report favorably on whatever the deadline is. I would
hope it was sooner than April 1, but anyway by April 1.
Mr. WATKINS. I would hope you would keep the Committee and
my office up to date on this. Because you are going to be asking
for fast track authority and this has sure not been on a fast track
in getting a solution over the past 8 years. It has been delay after
delay after delay, illegal tactics. I know I am not only speaking for
Oklahoma, but a lot of the States in the southwest that are deeply
concerned about whether they can support fast track if we cannot
get something done to end such illegal tactics.
So, Mr. Lang, I hope you will try to do everything in your power,
the power of USTR, to try to get this ban lifted by April 1. Please
let us know where we might stand on this particular issue.
Mr. LANG. I will be glad to keep you advised and I will push with
everything I have got to get this resolved in a favorable way.
Mr. WATKINS. Mr. Chairman, I do thank you and the Subcommit-
tee for allowing me to be here to discuss this issue.
Chairman CRANE. Mrs. Thurman.
Mrs. THURMAN. Thank you, Mr. Chairman.
And thank you, Mr. Matsui for inviting me today. I really appre-
ciate this opportunity and also to let me participate.
Ambassador, it is nice to see you again.
Mr. LANG. Thanks.
Mrs. THURMAN. Ambassador, I guess you know that I actually
am surprised at this Committee because I did not realize there was
that much interest in agriculture. I love it. Because it is an area
that I am very concerned about with Florida and just coming off
of the Agriculture Committee certainly has made this an emphasis.
Prior to this meeting, I did talk with Florida and the Department
of Agriculture there to just get some sense of what some of their
concerns might be, particularly as it relates to some of our exports
and some of the problems that they are having and with the fact
that we are coming up, in 1991, to really look at the agricultural
agreements.
Just to maybe ask some questions, particularly as it relates to
phytosanitary measures. This seems to be an issue that has been
discussed and rediscussed and was supposed to have been taking
place in Canada in the agreement and then with NAFTA and has
just kind of been laid to the side.
And yet, for a State like Florida it is $150 million that we have
spent. And on the other side of it, it is actually causing us barriers
of not being able to get into places like Korea, Sweden, Mexico and
areas of that. Can you give me some indication of whether there
is discussion going on in this area or if this might be included?
Mr. LANG. It absolutely is. Sanitary and phytosanitary measures
were the subject of a special standards agreement in the Uruguay
round. Essentially the idea of that agreement is to prevent the use
of these measures as a disguised barrier to trade but still allow us
to determine the risks we are going to take. So, that means any
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country can choose any risk level they want for something that is
going into the food supply. But then they must take measures with
respect to that risk level that is based on sound science.
Now, we have had a lot of concerns, as you indicate, in a lot of
countries about the application of this agreement. In Europe, it af-
fects biotechnology products, principally. In Asia, it tends to affect
pharmacological issues, such as pesticides, Alar in apples and that
kind of thing.
In Asia, we tend to be able, it seems, to work these problems out
through consultations and negotiation. In Europe we have more
difficulty, although so far after a lot of struggling and hand wring-
ing we have gotten most of these biotechnological products in, BT
corn, the round-up ready soybean and so on.
It continues to be a very important area especially in light of the
almost worldwide consumer concern about what is in our food sup-
ply. And we are very careful about those things, of course, in the
United States and we need to be able to continue to be careful and
choose our own risk levels on a completely sovereign basis. But we
are able to do that on the basis of sound science. We need to hold
our trading partners to that standard. We are trying very hard to
do that. If you have got specific problems or the Florida people do,
I would encourage them to get in touch with us as soon as possible
and we will try to address them.
Mrs. THURMAN. So, you believe that we are challenging them on
those areas where we have the science?
Mr. LANG. Yes, and if there is one we are missing, I need to
know about it. I mean we do not increase by 20 percent 1 year and
14 percent another year our agricultural exports without somebody
opening their market somewhere. That is a success story in agri-
culture. We need to keep saying that and in these places where the
system is not delivering what was promised, we need to know
about those cases and take them forward urgently.
Mrs. THURMAN. Actually I think we would have probably a better
number than the $60 billion if some of these other areas were
taken care of.
So, I certainly will bring these to your attention and make sure
that the Department of Agriculture in Florida has that opportunity
to discuss these with you.
Mr. LANG. Great, I appreciate it.
Mrs. THURMAN. Thank you very much for being here.
Mr. LANG. Thanks for your help.
Chairman CRANE. And I want to thank you also, Ambassador
Lang, for coming to testify this morning and give Charlene our
best. We look forward to her appearance in a couple of weeks, and
we look forward to working with you, too, to continue to advance
our bipartisan trade agenda.
Mr. LANG. Thank you, sir.
Chairman CRANE. Thank you.
Our next witness will be JayEtta Hecker, Associate Director for
International Relations and Trade Issues at the U.S. General Ac-
counting Office.
Welcome, Ms. Hecker and let me remind you, as I did the Am-
bassador earlier, if you could try and keep your presentation to 5
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minutes, any other written testimony will be made a part of the
permanent record.
You may proceed as you will.
STATEMENT OF JAYETTA Z. HECKER, ASSOCIATE DIRECTOR,
INTERNATIONAL RELATIONS AND TRADE ISSUES, NATIONAL
SECURITY AND INTERNATIONAL AFFAIRS DIVISION, U.S.
GENERAL ACCOUNTING OFFICE
Ms. HECKER. Thank you, Mr. Chairman.
Mr. Chairman and Members of the Committee, I am really very
pleased to be here today, to share GAO’s observations on the re-
sults of the first Ministerial of the WTO. Today, we will focus on
three areas: the new liberalization that occurred, the progress and
continuing commitment to the implementation of the Uruguay
round as well as the built-in agenda and, finally, an overview of
some actions on the new issues.
Before I begin, I would like to acknowledge the hard work and
dedicated GAO staff, who have supported me in this review. Obvi-
ously, we could not speak to the scope of these issues without their
hard work, Adam Cowles, Anthony Moran, Carolyn Black-
Bagdoyan and others.
To give you the highlights, the short version really is that, there
was some notable and significant progress in new liberalization.
There was a real continued commitment—no backsliding—to the
substantial commitments that were reached at the Uruguay round.
There was actually progress, as Ambassador Lang noted, on some
of the built-in agenda by taking advantage of the members and the
Ministers being brought together, particularly on basic telecom.
There was some action in each of the areas of what is seen as the
next generation of issues.
So, there really was some movement in each area and, in that
sense, a lot of people have called Singapore a success. We think it
really is necessary to look behind all that and take a deeper look
at each of those issues. I will do that in a very short version.
On liberalization, I think what is important is, that the ITA was
not on the agenda. This makes it even more notable that with what
really was a private initiative, the United States and other coun-
tries moved to force it. On the agenda, it was discussed at the
Quad and then it got more momentum at the APEC meetings. The
idea that a brandnew item, a new liberalization could be placed on
the agenda really brought to life the original concept that this Min-
isterial could bring together political leaders and could provide a
forum for continuing liberalization. So, I think that is really signifi-
cant. This was not a built-in agenda item. There was not a dead-
line. There had been no commitment to negotiate in this area. So,
that makes this liberalization all the more significant.
Now, regarding the stock taking, what we did really, typical
GAO, was dig into the WTO committee reports. Really, that is the
nitty-gritty of where you see the progress, where you see the mon-
itoring, where you see the assessment of progress. Now, it is tough
reading, because those are definitely negotiated documents. It is
not the kind of material that you pick up and you say, ‘‘OK, so that
is what is going on in agriculture or SPS or any other given issue.’’
We went through those reports basically.
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In general, people were concluding, Ministers were concluding
that implementation was good ‘‘generally satisfactory’’ is the word
that they used. But a couple of areas were noted. I talked about
this before, before this Committee.
Notifications are not satisfactory. The countries are not really
submitting the required details of their implementation plans
about law changes to the WTO committees. That fundamentally
can impair the oversight process.
On the built-in agenda, as I said, there was progress on telecom,
which was important. Because there had been concern that dead-
lines passed in each of these areas, there was some question about
the viability of sector-specific negotiations. This recent success real-
ly is testimony that this is a viable option.
The new issues were diverse, from government procurement
transparency, investment, labor, environment, and competition pol-
icy. If I could take just another minute, I will highlight the results
very quickly.
In procurement, there was a promising result, which is impor-
tant to the United States because we really have not had a lot of
results from the strategy that was being followed in procurement.
This is a new approach, not an all-or-nothing approach, but an ap-
proach that allows countries to have some moderate contribution
by opening and providing more transparency in their procurement.
The second and third areas are investment and competition.
There are, as Ambassador Lang said, new working groups—but
with very modest work programs and absolutely no consensus on
any future commitment to negotiate. So, even though there is some
sense that these areas do represent new barriers, there are limited
prospects for major progress in those new groups with a lack of
consensus on their scope of debate and general scope of work.
I think that is also reflected in the environment committee where
there was very limited progress. Unfortunately, all the Ministerial
did was, basically, renew the charter of that committee to work
under the same terms of reference. There was no review why they
had made no progress and why they had not been able to come to
any conclusions. They just said, ‘‘keep working under the same
terms of reference.’’
Finally, in the labor area, it really was a modest result, if any-
thing. The Ministers’ recognition of core labor standards intrigues
us because we are not able to find anyone who has defined core
labor standards. Congress has in different laws, had different defi-
nitions. The ILO does not have one definition. There are 174 con-
ventions that the ILO has that set different labor standards. Our
concern is that, this result is not as promising and fruitful as it
sounds—although the ILO took from this outcome a renewed com-
mitment to deepen and broaden their own effort in this area.
That concludes my summary, Mr. Chairman.
Chairman CRANE. Thank you, Ms. Hecker.
What steps do you think should be taken to assure that an ap-
propriate assessment of notifications and implementation obliga-
tions are being made within the WTO?
Ms. HECKER. Mr. Chairman, I think that something actually is
occurring in every committee. They know when there are not notifi-
cations being made. There is a working group within the WTO that
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is working on giving consolidated report cards to countries saying,
‘‘OK, you owe us these 22 notifications.’’ There is even an effort,
particularly with the least developed countries, to give them more
help, saying. ‘‘Well, here is what we need from you on this one and
here is what we need on that one’’ and also providing some tech-
nical assistance to support countries doing that.
So, I think procedurally, there are definite efforts to stay on top
of what countries have not notified and to work with them to com-
plete that process.
[The prepared statement follows:]
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f
Chairman CRANE. What do you believe are the best vehicles for
progress within the WTO? For example, another Ministerial Meet-
ing or higher level meetings or the launching of a new round, what
in your opinion is the best way to go?
Ms. HECKER. Well, you know, the Ministerial was an interesting
process to observe. I know you were there. Actually, the Ministers’
meeting was in a room that was as big as a football field. So, I am
not sure that the actual gathering of Ministers in one room is
where meaningful progress takes place.
Actually, I would turn it around to a topic that has been dis-
cussed here today. I think fast track and the negotiation of this
Committee, and the rest of the Congress, to reach agreement with
the administration of what our trade agenda should be will play a
big role in giving renewed focus and direction to the administra-
tion’s efforts. I think frankly that, absent fast track, they clearly
do not have a mandate. As to and whether it is a Ministerial, or
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a new Round, or sessions in Geneva, I think that mandate is one
of the key factors to further direction and progress.
Chairman CRANE. Thank you. Mr. Matsui.
Mr. MATSUI. I have no questions, Mr. Chairman.
Chairman CRANE. Mr. Nussle.
[No response.]
Chairman CRANE. Mr. McDermott? He is not with us.
Mr. Jefferson.
Mr. JEFFERSON. Thank you, Mr. Chairman.
I want to ask a question about this notification. How serious an
issue is that in the overall process, where you find deficiencies?
Ms. HECKER. It is a serious process, because the basic, underly-
ing element of compliance is the transparency of countries report-
ing what they are doing to implement their obligations. So, the
substance of it is important. But, also understanding and flexibility
and support for developing countries for whom this burden is quite
substantial is similarly important. That is why this working group
has been set up and procedures are being worked on to try and fa-
cilitate that process for developing countries.
Mr. JEFFERSON. Well, have you made any suggestions as to how
this can be dealt with from your point of view? I know this suggest
‘‘working group’’ is set up to look at it, but what do you think
should be done in this area, if you can come up with any sugges-
tions?
Ms. HECKER. We have not evaluated it in detail. This is one of
a number of issues that we have concerns about, but that would
be something that we would have to look at in greater detail to
evaluate how effective this new working group is, and whether it
is really taking effective measures.
Mr. JEFFERSON. Don’t you think the major problem is the burden
it places on individual developing countries to comply with notifica-
tion requirements as opposed to simply not living up to the—not
taking the requirements seriously enough to live up to them?
Ms. HECKER. I think it may be a little bit of both. I think the
burden, without any doubt, is far greater than anyone anticipated.
A lot of these agreements were negotiated separately, by separate
negotiators. I think at the end of the day, no one had any idea that
there were over 200 notification requirements that were in place by
countries. It took a lot of work to even get an overview pulled to-
gether. So, I think there was a breadth to it that no one antici-
pated, but I think there have been issues of noncompliance as well
that may be associated with the late reporting. There have been a
number of WTO reports about countries requesting waivers and
other actions that are really delaying effective implementation.
Mr. JEFFERSON. What timeline do you see for this Committee to
do its work?
Ms. HECKER. I do not have the information on that. I could pro-
vide it for the record.
Chairman CRANE. Mr. Houghton.
[No response].
Chairman CRANE. Mr. Herger.
[No response].
Chairman CRANE. Mr. Neal.
[No response].
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Chairman CRANE. Well, we want to thank you, Ms. Hecker, for
your testimony.
We will now convene our panel made up of company representa-
tives from various sectors of the information technology industry,
to discuss the information technology agreement that was endorsed
at the Singapore Ministerial Meeting.
The panel is made up of Aaron Cross, public policy director of
IBM in Washington, DC, who serves as chairman of the Informa-
tion Technology Agreement Coalition and chairman of the Inter-
national Committee of the Information Technology Industry Coun-
cil. Second, Timothy Regan, division vice president and director of
public policy at Corning; John Boidock, vice president and director
of government relations at Texas Instruments and chairman of the
government affairs committee of the Semiconductor Industry Asso-
ciation; Donald Poinsette, vice president for Asia, at Kemet Elec-
tronics and James Kaplan, Jr., vice president of the Cornell
Dubilier Co., both here on behalf of the Passive Electronics Coali-
tion; and, finally, Kevin Rafferty, senior marketing manager of
Philips Components, a division of the Philips Electronics North
America Corp.
Gentlemen, I would remind you, probably unnecessarily that, any
printed statements you have will be made a part of the permanent
record, but please try and confine your oral presentation to 5 min-
utes or less. We will proceed in the order in which I introduced
you.
STATEMENT OF AARON W. CROSS, PUBLIC POLICY DIRECTOR,
IBM; CHAIRMAN, INFORMATION TECHNOLOGY AGREEMENT
COALITION AND CHAIRMAN, INTERNATIONAL COMMITTEE,
INFORMATION TECHNOLOGY INDUSTRY COUNCIL
Mr. CROSS. Thank you, Mr. Chairman. I am Aaron Cross, public
policy director in IBM’s Governmental Programs Office in Washing-
ton, DC. Today, I appear on behalf of the Information Technology
Industry Council where I chair ITA’s International Committee. I
also chair the ITA Coalition. It was also my privilege to be a mem-
ber of the U.S. delegation at the Singapore WTO Ministerial Meet-
ing.
The ITA breaks new ground with significant implications for U.S.
trade policy. This was one of the most successful negotiations in
U.S. trade history. We should consider the precedent set by the
ITA, because the United States stands much to gain if we can learn
from its innovations.
First the ITA departs from the world’s traditional approach to
trade talks. Very importantly, it places the focus of trade negotia-
tions where it rightly belongs, on meeting the needs of consumers
and not on balancing trade concessions among product sectors.
Next, the ITA points to the importance of having the right people
in office, for insuring that the United States is represented by the
most highly qualified people possible.
In delivering the ITA and the recent global basic telecommuni-
cations agreement, Ambassador Barshefsky has proven the case for
her confirmation as U.S. Trade Representative. Third, the WTO
proved itself to be a worthy and more flexible organization that its
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predecessor, the GATT. The ITA might have been negotiated under
the GATT, but it would have probably taken another GATT round.
The ITA also serves as a model of industry-government coopera-
tion on trade issues. The USTR worked closely with our coalition
throughout the entire process. This was augmented by the industry
advisory system authorized by U.S. law. Clearly, such communica-
tions vehicles give our negotiators a significant leg up during trade
talks by having them so well prepared.
Fifth, we can expect more such negotiations in the future and we
need your support. In October, European Commission Vice Presi-
dent Sir Leon Brittan, started talking about the ITA formula, say-
ing he expects more such industry-led initiatives soon. Indeed, he
said he would promote them. In light of this, we reiterate our
strongest support for expanding USTR’s negotiating authority
through fast track this year. We need this negotiating authority be-
cause we are already planning for ITA II. These are negotiations
provided for in the agreement which will cover additional and new
nontariff elimination measures.
We are looking forward to using these new talks to promote fur-
ther liberalization in global IT trade and investment.
Mr. Chairman, our enthusiasm obviously stems from what the
ITA means for the future of our industry. The tariffs savings will
be substantial, but that is only a small piece of a much larger pic-
ture. Throughout the negotiations, we focused on one message; that
this is a global initiative aimed at putting the power of information
technology in the hands of the users of the global information infra-
structure or GII, what many call the information superhighway.
While much of our focus was on the Quad countries, we knew that
we could turn a good agreement into a landmark initiative if we
could get non-Quad countries to join.
The tariff rates in many of these countries are quite high. A
number of them, most of them are developing or advanced develop-
ing economies, now understand that leveling the global playingfield
for users in terms of access to IT products is essential to their eco-
nomic growth. In short, the ITA will narrow the gaps between the
world’s information haves and have-nots.
Beyond these immediate benefits, the ITA will have a broader
beneficial impact on our corporate performance in American trade
policy. My written statement elaborates on some of these.
Staff has asked me to address the product coverage under the
agreement, particularly regarding capacitors.
As we built our coalition, we had in mind an agreement that
would cover computer hardware and software, semiconductors,
semiconductor manufacturing and test equipment, telecommuni-
cations products and other high technology instruments. From the
start, we established a process to evaluate requests for including
other products. We had only one guideline. For a product to be in-
cluded on our recommended list, we had to have a consensus
among the coalition members.
Very early in our work, two of our member associations told us
that several of their member companies opposed including capaci-
tors. They also reported, however, that a number of their other
members wanted these components to be included. These opposing
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views led us to a neutral position on including capacitors and we
informed the USTR of that position.
As you know, in the final outcome, capacitors and other passive
components were included. Our coalition regrets it some, but not
all capacitor companies are unhappy with the agreement. My own
company and virtually every other coalition member company re-
gard these firms as valued suppliers. All of us need a vital, global
passive components industry.
In conclusion, Mr. Chairman, the ITA is a landmark agreement.
It is a model for how industry and government can work coopera-
tively to achieve common goals. The basic aim of these negotiations
were exceeding in almost every respect. That aim, to significantly
enhance the degree to which the benefits of the GII will be made
available quickly and less expensively to IT users worldwide.
We note in closing that, by the year 2000, the global IT industry
will be the world’s largest. The ITA will help to make this happen.
We are pleased to have been invited to testify today. We appre-
ciate Mr. Crane’s and Mr. Matsui’s initial opening remarks this
morning endorsing the ITA. We look forward to working with you
and the Subcommittee to make the ITA a success and a reality.
Thank you.
[The prepared statement follows:]
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Chairman CRANE. Thanks, Mr. Cross, very much.
Mr. Regan.
STATEMENT OF TIMOTHY J. REGAN, DIVISION VICE PRESI-
DENT AND DIRECTOR OF PUBLIC POLICY, CORNING, INC.,
CORNING, NY
Mr. REGAN. Mr. Chairman, thank you for the opportunity to ap-
pear here. I want to talk about a unique situation, a little different
than that others might talk about.
As is the case with most negotiations, this one involved give and
take. They always do. Unfortunately, Corning and the industries
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we are involved with, the fiber optics industry and the television
industries, were on the give side of that ‘‘give and take’’ equation.
The European Community wanted some major concessions from
the United States which would have hurt both of these industries
and there was not going to be anything in the agreement that was
going to offset the pain.
Now, of course, Corning, being a leader in these industries re-
sisted and, as a result, we became a bit controversial. That is why
I am here today.
Fortunately, with the help of Members of this Committee, in par-
ticular, Mr. Rangel, Mr. McNulty, Mr. Neal, Mr. Houghton, your-
self as well as Mrs. Thurmond, we were able to work with USTR
to find some solutions. USTR was openminded. They allowed us to
work with them and figure out a way to come up with some solu-
tions that worked for them and for our trading partners, but at the
same time, did not sacrifice our fundamental interests.
In the final analysis, USTR established a good process and a
good process always results in a good outcome.
Now, before I get into the details, what I want to do is show you
some props. This is a copper cable. It has 400 wires in it, 200 cop-
per pair. This little piece of fiber, which you cannot even see, has
the information carrying capacity, using relatively inexpensive, off
the shelf electronics, as 48 of these. Now, if you want to do really
sophisticated electronics that is available off the shelf today, this
little fiber here can do the work of 781 of these. If you want to use
the advanced technology that we have tested in the lab, this little
fiber can do the work of 6,400 of these.
Now, this is a great technology and it was invented in this coun-
try. Unfortunately, the ITA negotiations were headed toward un-
dermining the ability to be able to make fiber optics here in this
country. Thankfully, we were able to get into the ITA process early
enough and to get some changes.
Specifically we told USTR not to put this product on the table.
We said do not put optical fiber, optical, cable optical couplers on
the table. They said: Why? We are the best in the world in these
areas. We are the world’s leaders. We ought to put them on the
table.
The response really is quite simple. The ITA was exporting de-
signed to deal with tariffs. The problems we have exporting these
products overseas is nontariff barriers. So, any zero for zero tariff
deal is, by definition, imbalanced against us. We face nontariff bar-
riers that must be dealt with and they could not be dealt with in
the context of the ITA.
So, USTR accepted our position. Unfortunately, the European
Community continued to press and they pressed very, very hard on
these issues. In the end, Ambassador Barshefsky was forced to
compromise or face the prospect that the ITA would not be success-
fully concluded. Now, she worked with us to find a compromise. In
the end, she agreed to cut the tariff on fiber optic cable to zero by
the year and to exclude optical fiber and optical components from
any tariff cuts whatsoever.
More importantly, she said, OK, guys. You have a problem in ex-
port markets. I am going to help you. I am going to help you tear
down those nontariff barriers to your exports, outside of the context
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of the ITA, bilaterally. I will use other tools to make sure that we
can push these products overseas.
So, from our perspective, this was a good result. We are working
closely with her right now to implement a plan that will aggres-
sively promote export of this very, very important technology and
make sure it is made here and not over overseas.
The other issue is televisions. Now, televisions are a different sit-
uation all together. It is related to fiber optics only in the sense
that Corning also makes glass for televisions as we do fiber optics.
The television industry is one which really has had a terrible
saga, a saga of dumping and of unfair trade that spans 20 years.
Realizing this USTR wanted to exclude the TV products from the
ITA and we applauded that decision. Unfortunately, a big issue
arose over the definition of a monitor. Normally that would not be
a big deal, but in this case, it was controversial because there is
a technological change occurring in the marketplace.
This is fundamentally rooted in the fact that distinction between
a television (and related video monitor) and a computer and (relat-
ed computer monitor) is being blurred by technological change. The
two are beginning to merge. We call this convergence.
In the past, a television had a big screen and relatively poor res-
olution and a computer monitor had a small screen and very good
resolution. That is changing. HDTV, for example, and standard dig-
ital television now are going to have higher resolution with picture
quality that approximates 35 millimeter film. On the other side,
computers are going to get larger screens and broadcast video capa-
bilities. So, the distinguishing factors will be eliminated. Yet, we
still had to come up with a definition for a monitor.
We worked very hard to work up one, but we encountered all
kinds of problems. The computer industry and television industry
worked together to find a solution. We could not work it out. USTR
took the lead and came up with a compromise. That compromise
defined a computer monitor by three primary characteristics. Num-
ber one, it has a dot pitch of below 0.4, a technical term for resolu-
tion. Number two, it has used cathode ray tube technology. Num-
ber three and most importantly—and this wording is kind of care-
fully done—it must not be capable of receiving and processing tele-
vision signals without the assistance of a computer.
Now, in addition, USTR said we are going to revisit this defini-
tion in 2 years. So, that gives us some time to work this thing out.
We will have some more market data. We will be able to make a
decision about modifying this. We frankly wanted to have a resolu-
tion definition below what USTR proposed, but we understand why
USTR had to accept this definition and why USTR had to close the
deal.
We are going to work very hard over the next 2 years monitoring
the market. If we find monitors coming into the United States that
are principally used as televisions, we anticipate that USTR will be
quick to act to make sure that the duties are properly assessed.
Thank you, Mr. Chairman and thank you everybody in this Com-
mittee for all your help throughout this rather difficult process.
[The prepared statement follows:]
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Chairman CRANE. Thank you very much, Mr. Regan.
Mr. Boidock.
STATEMENT OF JOHN BOIDOCK, VICE PRESIDENT AND DIREC-
TOR, GOVERNMENT RELATIONS, TEXAS INSTRUMENTS, INC.;
AND CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE, SEMI-
CONDUCTOR INDUSTRY ASSOCIATION
Mr. BOIDOCK. Thank you, Mr. Chairman. I appreciate this oppor-
tunity to present the views of the Semiconductor Industry Associa-
tion on the Information Technology Agreement.
The members of our association along with our customers and
our suppliers believe that the ITA will substantially open foreign
markets. We believe it is a major accomplishment for the whole
world trading system. By signing on, countries have agreed to
eliminate their tariffs on information technology products by the
year 2000. This is something that our industry has been working
on for over a decade.
Semiconductors are increasingly a pervasive part of everyday
life. They are the enabling technology for the information age and
the Internet. They have enhanced the functioning of such diverse
products as the family car, advanced medical equipment and mod-
ern defense systems. We in the semiconductor industry employ
250,000 people throughout the United States. We are the tech-
nology behind the nearly $400 billion U.S. electronics industry,
which employs two and a half million people.
We are currently the world market share leader with 1996 world
sales reaching $60 billion, which represents 46 percent of the
world’s semiconductor market. We are a global industry. Roughly
half of our revenues are derived from overseas sales. As a con-
sequence, we have dedicated ourselves since the inception of the
Semiconductor Industry Association to promoting free trade and
opening world markets and we have made much progress, espe-
cially in Japan.
We have not always been the world leader, however. In the
mideighties, we lost the lead due to a combination of Japanese
dumping of semiconductors on the world market and nontariff bar-
riers in Japan, which I might add is the second largest market for
semiconductors. During that period, concerns about the continued
existence of our industry in the United States were voiced by
many, both in and out of government, because of the significant im-
plications that its demise would have for our Nation’s security.
The industry’s response to this problem was a several part strat-
egy, which included, first, the elimination of tariffs on semiconduc-
tors and related products throughout the world, including here in
the United States. At our urging, the United States, Canada and
Japan 
eliminated 
their 
tariffs 
on 
semiconductors 
in 
the
mideighties. As a result, our industry has had to compete on the
basis of quality, technology and cost in our home market for over
10 years, unprotected by tariff barriers.
Second, we worked to secure more equitable access for foreign
semiconductor suppliers in the Japanese market. We did this with
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the help of the Office of the U.S. Trade Representative. As you
know, Mr. Chairman, the United States recently secured the third
United States-Japan semiconductor trade agreement, thanks to the
tireless efforts of Ambassador Barshefsky and her highly dedicated
staff.
As a result of these and other efforts, the U.S. semiconductor in-
dustry has regained the world leadership position and we remain
the most competitive semiconductor producers in the world. Today,
the SIA along with our suppliers in the semiconductor manufactur-
ing equipment industry and our customers in the information tech-
nology business are pushing for other nations to eliminate their
tariffs on information technology products through the Information
Technology Agreement.
Currently many nations of Asia as well as the European Union
maintain duties on semiconductors. For example, EU duties on
semiconductors range up to 7 percent. Elimination of these duties
will save U.S. semiconductor makers and our European customers
$1.4 billion between now and the end of the century. The benefits
do not end there. Consumers and businesses that utilize informa-
tion technology products worldwide will also gain.
The ITA, by lowering the costs of access to computers and soft-
ware, has the potential to increase educational opportunities for
children throughout the world, and by making computers and tele-
communications equipment more affordable for small businesses,
productivity will rise. This agreement truly provides a win-win sce-
nario for all nations choosing to participate.
Mr. Chairman, thank you very much for the opportunity to
present the views of the semiconductor industry.
[The prepared statement follows:]
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Chairman CRANE. Thank you very much, Mr. Boidock.
Mr. Poinsette and Mr. Kaplan, I think you are sharing the time;
is that right?
Mr. POINSETTE. Excuse me, sir?
Chairman CRANE. I think you are sharing your time, the 5
minute time; is that right?
Mr. POINSETTE. That is correct.
Chairman CRANE. Go right ahead, please.
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STATEMENT OF DON POINSETTE, VICE PRESIDENT, KEMET
ELECTRONICS CORP., GREENVILLE, SOUTH CAROLINA; AND
JAMES KAPLAN, JR., VICE PRESIDENT, CORNELL DUBILIER,
LIBERTY, SOUTH CAROLINA, ON BEHALF OF THE PASSIVE
ELECTRONICS COALITION
Mr. POINSETTE. Mr. Chairman and Members of the Subcommit-
tee on Trade, my name is Don Poinsette, vice president of Kemet
Corp., located in Greenville, South Carolina, with facilities also in
North Carolina and Texas. Sitting to my left and also testifying
today is James Kaplan, Jr., vice president of Cornell Dubilier. Also
with us today but not at the witness table are my colleague, James
Jerozal, chief financial officer of Kemet, Mike Ritter, national sales
manager of Industrial Midwec Corp., which is in the Chairman’s
congressional district, Joe Bstandig, communications manager for
Vishay Intertechnologies, with facilities in 14 States and Les Glick
of the law firm of Porter, Wright, Morris and Arthur here in Wash-
ington.
We represent the newly formed Passive Electronics Coalition
that includes many companies producing capacitors and resistors in
18 different States and 25 congressional districts. We share a com-
monality of interests in preserving our companies, preserving our
technologies and protecting the more than 20,000 jobs threatened
by this information technology agreement. A complete list of these
companies is in the written statement filed on Monday and we re-
quest that it be included in full in the hearing record.
Mr. Chairman, I will begin by saying that, the word passive in
our name should not mislead you. The word defines our products
but not our members. Mr. Chairman, we are a very angry and ex-
tremely motivated group, due to what we consider has been a grave
injustice, perpetrated on us, on our industry and perhaps, even on
the very security of these United States themselves by the U.S.
Trade Representative in negotiating the ITA.
That negotiation took place without a single consultation with
any company in our part of the electronics industry. It took place
without regard for the Federal statutes which require that con-
sultation. It took place in spite of two letters sent by Senator Strom
Thurmond in May and December of last year, neither of which
were even acknowledged by the USTR.
I digress here just a minute. He did in fact bring it to the atten-
tion of the USTR at that time, that there was a defense issue in-
volved, counter to what Mr. Lang said this morning.
It took place in spite of several repeated assurances by the USTR
itself that capacitors were not included in the agreement. The lat-
est of these assurances was made when the USTR was meeting
with other country representatives in the far away reaches of
Singapore, far from the communications channels in Washington.
Once again, both we and our attorneys were told that capacitors
were not included. Then in the December 11 issue of the ‘‘New
York Times’’ we were stunned to read that capacitors were in the
ITA.
Mr. Chairman, by definition, successful negotiations are sup-
posed to result in win-win situations for the parties involved. In
this ITA, as far as passive electronic components are concerned, it
is all win-win for everyone outside the United States and is totally
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lose-lose for the American companies inside the United States. The
Europeans win. The Koreans win and even Iceland can win if they
want to. The big winner, one more time, is the Japanese. The Japa-
nese give up absolutely nothing—I repeat—absolutely nothing in
order to get these huge concessions. This is because their tariff is
already zero.
They use a complex system of nontariff barriers in Japan which
make it impossible for our companies to sell there. So, what do we
get in the ITA as it is currently written? In a word, we get had,
to wit, number one, the Japanese finally get that which they have
wanted for a very long time, totally duty-free access to an already
open and competitive market in the USA. Number two, American
companies get no additional access to the totally closed Japanese
markets since duties have never been an issue there.
Number three, while we are told that Europe has been insisting
on the inclusion of passive devices in the ITA, we know for a fact
that the EU has been heavily influenced by Japanese companies al-
ready located there. Number four, true, we get a reduction of duties
such as Australia, Canada and Norway. It is also true that such
reductions make absolutely no difference to any of us in this room.
Number five—and this may be the single most important point
of all. Our own USTR has handed to the other countries, again,
most notably to the Japanese, a 9.4-percent reduction in their cost
of doing business in the USA. Mr. Chairman, I assure you and
other Members of your Committee that a near 10-percent reduction
of costs in this already extremely competitive and low margin busi-
ness can only be compared to a gift from God.
Finally, as if protecting American companies, technologies and
20,000 jobs was not sufficient, we would respectfully draw your at-
tention to the national security. I would like to quote from a deci-
sion brief prepared by the Center for Security Policy directed by a
former deputy Secretary of Defense, dated February 7, 1997. The
article was entitled: ‘‘Hold Everything, Barshefsky’s New Infotech
Trade Deal Promotes Trade at Expense of U.S. Security Interests.’’
The article notes that, and I quote: ‘‘Should the United States
lose the one or two American companies still available to supply ca-
pacitors and resistors required for such systems, military readiness
could be materially degraded.’’ The newsletter goes on to say:
And this is no abstract proposition. In Operation Desert Shield/Desert Storm, U.S.
officials were alarmed to discover that dependency on foreign suppliers for spare
parts or replacement components of vital weapons systems could translate into un-
acceptable shortfalls in defense capacities and/or serious strains in relations with al-
lied nations. For example, Washington had to ask the Japanese government for sup-
plies of display screens for U.S. weapons systems that were not available for U.S.
manufacturers.
Mr. Chairman, we have raised these concerns with the Armed
Services Committee in both Houses and hopefully you and Acting
Trade Representative Barshefsky will be hearing from them soon.
Gentlemen, the simple fact is, not a single integrated circuit, not
a single microprocessor will work without having many of our type
of products alongside it. Our best estimates are, today, on average,
every integrated circuit has five Tantalum capacitors, 100 ceramic
capacitors and an equal number of resistors arrayed around it. Not
only does that allow your television to work, your VCR to work, the
engine in your car to run, the security system in your house to
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work, but it also permits the Patriot missile to work. It permits
Trident to work. It permits TOW antitank systems to work and it
permits our space shuttles to make their way back and forth.
Kemet Corp. and Vishay are the two lone surviving American
companies manufacturing these two capacitor products. The rest of
the world is supplied, for all practical purpose, by the Japanese.
Except for the presence and continued success of these two Amer-
ican companies, Japan can control the world markets of Europe,
South Africa, South America, Asia, China, NAFTA and, of course,
Japan itself. If our government, this time the USTR, persists in de-
stroying every competitive advantage we might have in the United
States then all we can look forward to is being held hostage by for-
eign suppliers and/or to foreign manufacturing operations.
Chairman CRANE. Well, Mr. Poinsette, are you about to finish
up?
Mr. POINSETTE. Yes, just if I may——
Chairman CRANE. We are in a bit of a time bind here.
Mr. POINSETTE. Thank you, Mr. Chairman, if I might have 2
more minutes, please.
Chairman CRANE. Well, I will tell you, we have to go and vote.
Mr. POINSETTE. OK.
Chairman CRANE. If you could sort of wrap it up in about 30 sec-
onds, I would appreciate that.
Mr. POINSETTE. I will do that.
Chairman CRANE. Then I have sort of an announcement to make.
Mr. POINSETTE. I will do it. Thank you, sir.
It should be clear then that these products are not—repeat—not
related in any way to information technology. They do not store or
transmit information. They do not belong in the Information Tech-
nology Agreement.
So, what does our coalition want? Do we ask that the ITA be de-
stroyed?
No, but what we do ask is that you and your Committee with all
urgency insist that the USTR remove passive components from this
agreement. Our best estimates are that these components make up
less than 1 percent of the value of the agreement. Now, I think it
is much less from what I heard earlier. It cannot possibly harm the
agreement to have them removed. Please help us preserve our com-
panies, our jobs and our very ability to compete. We ask you to
please not be a party to giving away another vital industry to over-
seas interests.
Thank you, Mr. Chairman.
[The prepared statement and attachments follow:]
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Chairman CRANE. Thank you very much, Mr. Poinsette. I am
sorry we did not hear from you, Mr. Kaplan.
Gentlemen, we have got to go and vote and there are going to
be three votes between now and 12:30. So, what I would suggest
because of other business, if you can, you come back at 1:30.
I am sorry, Mr. Rafferty, that we have not been able to hear your
testimony. We would like to do it at that point. Then we can ask
some questions. If you cannot stay here or come back, we would
perfectly understand. If you can, it would certainly help us. So, we
are adjourned until 1:30.
[Whereupon, at 12:02 p.m., the Subcommittee recessed, to recon-
vene at 1:30 p.m., the same day.]
Chairman CRANE. First, we want to apologize to our witnesses
for the disruption. I think Mr. Rafferty is the only one who has not
yet testified.
Mr. RAFFERTY. Correct.
Chairman CRANE. Will you proceed, please.
STATEMENT OF KEVIN RAFFERTY, SENIOR MARKETING MAN-
AGER, 
PHILIPS 
COMPONENTS, 
PHILIPS 
ELECTRONICS
NORTH AMERICA CORP., JUPITER, FL
Mr. RAFFERTY. Thank you, Mr. Chairman. Good afternoon and
Members of the Subcommittee as well. I am Kevin Rafferty. I am
the senior marketing manager for capacitors for Philips Compo-
nents.
Philips Components is an operating business of Philips Elec-
tronics North America Corp., which is in turn a subsidiary of Phil-
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ips Electronics N.V., headquartered in Eindhoven, The Nether-
lands. Philips Electronics North America Corp. has more than 20
business operations in North America, employing 35,000 people. It
has more than $7 billion in annual sales in a variety of electronics
businesses, including semiconductors, consumer business elec-
tronics, lighting, consumer communications, electronic components,
security systems and information technology services.
Philips Components, headquartered in Jupiter, Florida, supplies
passive, magnetic and professional components to the electronics
market. Philips Components employs approximately 1,000 people
in locations in, again, Jupiter, Florida, Columbia, South Carolina,
Slatersville, Rhode Island and Saugerties, New York. We manufac-
ture capacitors, resistors, magnetics, camera tubes and imaging
products. Our broad line of components serves the major electronic
original equipment manufacturer markets, including automotive,
telecommunications, computer and industrial.
I am here to testify today to support the Information Technology
Agreement or ITA, which was agreed to by the United States and
many other countries, as you know, at the World Trade Organiza-
tion in Singapore last December and which will eliminate tariffs on
information technology products by the year 2000. In particular, I
am here to support the inclusion of capacitors in the ITA.
As a general matter, Philips supports the ITA because it is a free
trade company and believes that the elimination of tariffs on a
broad range of information technology products will profoundly
benefit high technology suppliers and the American economy gen-
erally. Philips chose to support the ITA despite the cost that such
support portends for our company. While Philips would stand to
gain from an ITA in terms of tariffs savings per year, the company
would also lose significant tariff protection presently applicable to
numerous products manufactured in the United States and else-
where.
Despite such losses, Philips supported the ITA because it be-
lieves it is in the best interests of the company as well as the
United States and world economies to embrace such competition-
forcing measures.
Today, I would like the record to emphasize that the decision to
include capacitors in the ITA is logical because of the capacitor’s
role in information technology products and their inclusion would
facilitate open markets that will stimulate the world economy. As
you may know, capacitors are electronic components that are stor-
age devices for electric energy that are found in various applica-
tions within the electronics industry. There are many types of ca-
pacitors. Some form of capacitor is almost universally found in
hardware that supports information technology products.
Capacitors are found in information applications, such as, com-
puter motherboards, disk drives, modems and cellular telephones.
Worldwide, Philips manufactures many different kinds of capaci-
tors, such as, ceramic multilayer, film foil and aluminum electro-
lytic. We manufacture capacitors in the United States at our plant
in Columbia, South Carolina where we employ approximately 400
people. In South Carolina, we manufacture aluminum electrolytic
capacitors; production value is approximately $50 million per year.
We have invested substantially in all our U.S. locations in the past
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2 years, upgrading our facilities so as to better serve our U.S. OEM
customers.
At present, capacitors are subject to approximately a 9 percent
tariff. Philips recognizes that it loses 9 percent tariff protection if
the ITA is ratified.
We have decided to support the inclusion of capacitors in the ITA
nonetheless for several reasons. First, given that capacitors are
found in hardware that support information technology products, it
seems only logical that they be included in the agreement. Second,
we believe our growth to be based on customer partnerships. Elimi-
nating tariffs on capacitors and other components will allow our
U.S. customers, OEM manufacturers to be more competitive.
Finally, Philips believes that the inclusion of capacitors would
both allow the ITA to achieve its goal of providing access worldwide
to information technology, and force the competitive open markets
that are so necessary for the development of the global economy.
As a company, we are willing to take this competitive challenge.
In closing, Philips supports the ITA again and commends Acting
U.S. Trade Representative Charlene Barshefsky and her staff in
negotiating an agreement that will, through the inclusion of among
other electronics products, passive components such as capacitors,
enrich the American economy. Philips hopes that other companies
are also willing to accept competitive challenges and opportunities
that only an ITA can provide.
Mr. Chairman, we appreciate this opportunity to comment.
Thank you.
[The prepared statement follows:]
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Chairman CRANE. Thank you, Mr. Rafferty.
Mr. Cross, you have described that two members of your coalition
are opposed to the inclusion of capacitors. Two questions. One,
could you describe the position of other capacitors within your coa-
lition and how many are there?
Mr. CROSS. Well, Mr. Chairman, in my statement, I believe that
I said that, two of the member companies of two of our associations
that belong to the coalition expressed opposition to the inclusion of
capacitors. Besides Philips, we also have AVX, which is a major
company based—it is 75 percent Japanese-owned but its head-
quarters are in South Carolina. They have, I think, 4,000 employ-
ees down there. They are entirely U.S. managed and U.S. staffed.
They are listed specifically as a corporate member of our coalition.
In addition to that, Mr. Chairman, I would like to go back to one
of the things that I was trying to get across in my message. That
is, throughout the negotiation of the ITA, the central message that
we tried to carry forward—and I know the U.S. Trade Representa-
tive’s Office did the same—was that if this agreement was going
to succeed, first, we had to recognize that it was a nontraditional
trade negotiation where you were not going to get exact balance in
terms of tariff offers from the various countries involved.
We knew that, for example, as it was pointed out, Japan has vir-
tually no tariffs on information technology products. The U.S. rates
were much lower than those of Europe. So, if you are going to be
looking for trading concessions or balancing concessions, you were
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never going to win that argument in the first place. The key to the
success of the ITA was, therefore, not in terms of trying to look at
it from a product by product balancing effort, but to look at it from
the viewpoint of the users of the information technology products
that are covered under the ITA.
From that standpoint, as far as the capacitor issue goes, we have
a very broad and substantial number of members of the coalition.
I do not think I could give you an exact number right now—who
are the users of capacitor, who buy these capacitors and, therefore,
in terms of their own production costs would like to see those costs
come down. Therefore, they were very supportive of including ca-
pacitors under our proposal for ITA coverage.
We, however, because of the opposition of just two companies out
of a coalition that probably represents about 7,000 companies in
total, when you consider all the members of the associations, be-
cause of that opposition, we took no position on whether or not ca-
pacitors should be included under the ITA. Now, that it is done,
now that we have an agreement, our strong position despite this
concern about capacitors is, that we need to go ahead and get this
done.
There are 397, I believe, tariff line items that are included in the
ITA. The only organized opposition we have heard since then has
been expressed on one. Now, baseball batting averages, that comes
out to a 998 batting average and it is not bad.
So, we applaud Ambassador Barshefsky. We think that despite
this concern about capacitors, we regret that we have this problem,
but we would like to see it resolved.
Finally, just one point in passing that I would like to point out.
The representative that we had earlier talking about the capaci-
tor issue had mentioned the lack of balance because of nontariff
barriers in Japan and elsewhere. That specifically is provided for
in terms of future negotiations under the second phase of the ITA.
We invite, as we did from the very beginning, we invite these com-
panies to my left and any others who have concerns about nontariff
measures in terms of increased access and information technology,
to come and join with us as we prepare for ITA II.
Thank you.
Chairman CRANE. Thank you.
For Mr. Poinsette or Mr. Kaplan, does the elimination of tariffs
on inputs such as capacitors made in the United States in return
for tariff elimination on a broader range of products in the informa-
tion technology industry help your customers buy more of your
products?
Mr. POINSETTE. I think that is a very good question. The answer
to the question is probably fundamentally yes. A better question is,
does it have them buying more of our products? That is our issue
with this. The answer to that is fundamentally no. I would take ex-
ception with several of Mr. Cross’s comments.
First of all, he said earlier that the ITA’s mission was to put in-
formation technology into the hands of the users. I would defy any
user to know that he had a capacitor laying in his hand, should it
have been put there. We think that capacitors, as a part of infor-
mation technology, are as includable as steel, glass, plastic, screws,
nuts and bolts. It is to say that, if you are putting a personal com-
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puter together, you have to have plastic. You have to have screws
and nuts and bolts. Well, why aren’t they in the agreement?
You cannot have an electronic circuit without the capacitors that
we produce, predominantly the ceramic and the Tantalum.
Now, let me say again, our issue is not with the ITA. I say that
again. Our issue is with the inclusion of these capacitors in this
ITA. We are the two surviving companies, Vishay and Kemet, in
the United States, American-owned and American-headquartered
with a lot of employees at stake.
Having said that, a reference was made to AVX earlier. That
AVX is 75 percent Japanese-owned. Three years ago, AVX was 100
percent an American company. Shortly, after that, it was 100 per-
cent owned by Kyocera and only recently for financial reasons, did
they go on to the U.S. stock market. My recollection is that, they
actually issued 20 percent of their stock on to the U.S. stock mar-
ket.
So, what has happened to AVX? What has happened to the Cor-
ning capacitors, for that matter? Corning used to be in the capaci-
tor making business. They are no longer. Philips, for that matter,
used to manufacture the kinds of capacitors that we make in the
United States and they do no longer. They closed those facilities.
We are the two remaining companies.
It comes down to a decision. Does this country want to sacrifice
these two remaining companies as well as a lot of other smaller
companies—Jim Kaplan here can speak for himself—but a lot of
other smaller companies in the niche business of capacitors? Jim,
you might say a word—on the address he never got to make, just
about 10 or 20 seconds.
The USTR, as I said earlier, with the granting to these competi-
tors that we have around the world, predominantly Japanese, of 10
percent off the cost is an enormous number in our business. This
is not a high margin business. This is a commodity, very high vol-
ume product, both in ceramic capacitors and Tantalum capacitors.
I realize that it may be difficult to understand this technology, but
when you appreciate that there are multiples of these capacitors
alongside every IC, no matter where it is used, every micro-
processor, we are getting ready to sacrifice these companies on that
altar of expediency called the ITA.
We are suggesting that we should not be doing anything like
that. At this juncture, that would be the end of my points.
Mr. KAPLAN. I would like to add, if you do not mind, that there
are hundreds of types of capacitors. Vishay and Kemet are large
and they supply Tantalum and ceramic, but there are literally hun-
dreds of types of capacitors. We are one small player. We do about
$60 million in capacitors, but ours go in the military. We are sole-
sourced capacitors in the military programs. We supply capacitors
for the F–16, the Bradley Fighting Vehicle, Northrup, Gruman
Lucas, Aerospace and Hewlett-Packard. These are some of the
types of capacitors we make. Less than 5 percent of our product is
affected by this agreement. The rest do not go into informational
devices or computers.
Yet, 95 percent of our product is going to be affected and we get
tremendous pressure from the Japanese. So, everybody gets af-
fected by this, not just Kemet and Vishay. There are hundreds of
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family-owned businesses like ourselves who are employing thou-
sands of people. It just makes it very difficult for us to even stay
in business and we do a very good job. Our capacitors are signifi-
cantly cheaper than the Japanese capacitors.
Not only can we not get into the Japanese market, but we have
been in this business for 60 years. We cannot get into the Japanese
original equipment manufacturers located in the United States. We
can offer them cost savings of up to 20 percent, and our capacitors
are good enough for Northrup and Lucas and the U.S. Government,
but the Japanese will not buy them and we can still save them 20
percent. They are bent on buying exclusively from Japan. We just
feel that it is not fair.
We are just giving them another foothold, letting them get more
of our market. We are giving them 91⁄2 percent more profit. It is
just going to go right to their bottom line, to give them more money
for more equipment to automate, to compete with us more effec-
tively. It just makes it difficult for small businesses like us to stay
in business.
Mr. POINSETTE. Mr. Chairman, if I may add a point as well to
Jim’s comments.
On the subject of recourse, when it comes to addressing the non-
tariff barriers of Japan, we do not have enough years left in our
lives or enough resources in our company to address that issue in
Japan. I have been trying to sell in Japan four different products
for 33 years. I have not succeeded in doing any of them. When I
took over this present job that I have with Kemet Electronics in
1979, we made a pact and a commitment to 3 years of resources
to finally break through the veneer in Japan and sell our products.
We finally had to decide that a company of our size, especially
then—we were a $185 million company at that time—we decided
at that time that, if we were going to spend those resources on
breaking markets, we were going to have a great deal more suc-
cess, a great deal more benefit for our employees, for our stockhold-
ers and what not, if we went after markets that would be more re-
ceptive to us. Therefore, we addressed the markets of Singapore.
We addressed the markets of Taiwan, Hong Kong, even the Euro-
pean market. We have not had difficulty entering and competing
well in the European market. The Europeans buy from us. There
is a trade between these two areas of the world.
However, it is not possible in Japan and we cannot tolerate,
when Japan has given up nothing, to provide for them this 10 per-
cent duty.
Now, I will say this, we have been open to discussion with the
USTR all along. We have been absolutely willing to discuss any
sort of solution. The USTR has refused—I say refused. Maybe that
is too strong a word—simply avoided us, has not come to address
these issues with us. Vishay and Kemet, as big as we are, have the
same problems that Mr. Kaplan’s Cornell Dubilier has. It does not
matter where the Japanese customer company is. They will not buy
our products.
Now, having said that, if the USTR can get a commitment from
the Japanese that details what their side of this bargain is in the
ITA, that details what they are going to do to open their markets
to the Tantalum capacitors, the high grade aluminum capacitors,
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the ceramic capacitors in Japan, we say, fine. You have our bless-
ing and let’s do this. But let’s have no reduction in duty in these
capacitors for, let’s say, 2 years. If in the third year the Japanese
have demonstrated good faith by opening that market or providing
some sort of document through negotiation with the USTR that we
can enter that market, we will drop half of the duty right then, the
third year. Maybe the fourth year, we will drop the other half of
the duty. It is not much longer than we are talking about right
now. Let’s do it that way.
Let’s get something in return when it comes to that Japanese
market in return for what we are giving up. Why do we, the U.S.
market, the singular most powerful market in the world, not get
something in return when we do this? It is a mystery to us, sir.
Thank you.
Chairman CRANE. Thank you.
Mr. Houghton.
Mr. HOUGHTON. Thank you, Mr. Chairman.
Gentlemen, it is nice to see you.
I sort of relate to the issues that you two gentlemen, Mr.
Poinsette and Mr. Kaplan, are talking about because industry after
industry in the components of the consumer electronics business
has just been cut away. It is really hard when you can enter some-
body else’s market and prevent those companies or that industry
from entering their markets and, therefore, you can price whatever
you want and still make money and dump on the rest of the world.
Let me just ask you a question. Do you gentlemen, your compa-
nies produce outside of the United States?
Mr. POINSETTE. Are you addressing the question to me?
Mr. HOUGHTON. Yes, Mr. Poinsette, do you?
Mr. POINSETTE. Yes, yes, we have——
Mr. HOUGHTON. Why did you go outside the United States, I
mean, for an outside the U.S. market or do you produce there to
bring back here or what?
Mr. POINSETTE. Why?
Mr. HOUGHTON. Yes.
Mr. POINSETTE. It was a matter of synergism. In order to remain
competitive in this market, our philosophies of doing business were
that we had to have what we called a focused plant philosophy.
That means building as much stuff of the same kind, of the same
order of product in one place as we possibly can. As that——
Mr. HOUGHTON. You produce outside to sell here?
Mr. POINSETTE. Excuse me?
Mr. HOUGHTON. You produce in another country to sell here in
this country?
Mr. POINSETTE. No, the way our production works—I will start
from the beginning. We have two primary products, multilayer ce-
ramic capacitors and solid Tantalum capacitors. Within both of
those capacitors there is what we call a raw element or a key ele-
ment. In the case of a Tantalum capacitor, it is called a Tantalum
anode. We manufacture all of those anodes in the United States.
In ceramic capacitors it is called the ceramic element or the chip
element. We manufacture most of those in the United States.
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Now, those—as we have developed over the years—and by the
way, we have been in Mexico now about 30 years. That is where
we have our facilities. They are in Mexico and in the United States.
What we do is——
Mr. HOUGHTON. They interchange products back and forth, right?
Mr. POINSETTE. No, not really. It is a continuation of the inte-
grated line. We build what we call a higher technology——
Mr. HOUGHTON. This is what I am trying to say. If you have a
plant outside, that most of the products ultimately end up back
here in the United States.
Mr. POINSETTE. Oh, no, sir. We export about somewhere between
40 and 45 percent of our production.
Mr. HOUGHTON. I see and that will be back here into this coun-
try?
Mr. POINSETTE. These two areas are synergistic. I want to make
an important point here. We have not moved——
Mr. HOUGHTON. I do not think I got an answer on the first one.
Then you can make yours.
What you are saying is, about half of your production from Mex-
ico comes back here into the United States?
Mr. POINSETTE. In a sense, yes.
Mr. HOUGHTON. Is that right? OK, go ahead. Go ahead with your
question.
Mr. POINSETTE. What we are doing is, we are continuing the
manufacturing process that we begin in the United States and we
finish a lot of it in Mexico.
Mr. HOUGHTON. Right, right.
Mr. POINSETTE. Not all of our product, however, is finished in
Mexico. That part of the product that is finished in Mexico goes
around the world. About 40 percent goes somewhere else. Fifty per-
cent goes around the world and the other 50 percent back to the
United States.
May I make one point, because I think it is very important?
Mr. HOUGHTON. Yes and then I would like to get Mr. Kaplan be-
cause I have a couple of other things.
Mr. POINSETTE. Sure.
This question comes up. Well, if you are so interested why do you
have these facilities in Mexico and haven’t you really moved jobs
over? I want to emphasize the synergistic point. In 1987, we had
about 3,000 employees. About 1,500 of them were in Mexico and
about 1500 of them were in the United States. Today, we are ap-
proaching 11,000 employees and about 5,000 of them are in Mexico
and about 5500 are in the United States.
The point being that, for every time we are adding a job in the
United States, we are adding a job in Mexico and vice-versa. If it
was not for the existence of both of those places, Kemet Electronics,
Kemet Corp. would not exist. We could not compete in the world.
Mr. HOUGHTON. I see. What would it require to have all of those
jobs here in the United States?
Mr. POINSETTE. What would it require?
Mr. HOUGHTON. A higher tariff?
Mr. POINSETTE. I do not believe it is possible and the honest an-
swer to that is labor rates.
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Mr. HOUGHTON. OK. All right, now let me ask Mr. Kaplan be-
cause you come from a very distinguished company that has been
in business I do not know how many years, but years and years.
Do you produce overseas?
Mr. KAPLAN. We had a facility in Taiwan. We were the second
American company in Taiwan. Nine years ago, we shut it down and
moved it to Mexico. That product is an old product. It was invented
in 1912, 1913. It has changed relatively little in that time and it
is very difficult to automate. It has about 40 percent labor and the
only way we can continue to stay in the business is to provide that
product with low labor as well. So, we chose to move it to Mexico,
but we never had the jobs here in the States that we moved to
Mexico.
Mr. HOUGHTON. I guess, Mr. Chairman, that what I am trying
to reach for is an understanding of what some of the economic dy-
namics are here, not from the standpoint of you gentlemen and you
make your case very well, but from what the U.S. policy should be.
The fact is, that despite some of the inequities in the marketplace,
it is not a high tech business and there is nothing wrong with that.
The DOD, if I understand, has not said that this is military ne-
cessity to have production capabilities in this country.
Mr. POINSETTE. They should. I am surprised at that.
Mr. HOUGHTON. They do not, do they?
Mr. POINSETTE. That this is a military necessity? Yes, sir, I
think——
Mr. HOUGHTON. Yes, the DOD has not said that it is essential
that we have this capacity because you can buy it in so many ways
and in so many forms.
Also, if I understand it, Kyocera really sort of dominates this. Is
that right?
Mr. POINSETTE. They?
Mr. HOUGHTON. Dominate the market?
Mr. POINSETTE. Kyocera?
Mr. HOUGHTON. Yes.
Mr. POINSETTE. No, I would not say that. Are you talking about
Kyocera AVX or are you talking about Kyocera as a——
Mr. HOUGHTON. I am talking Kyocera Japan.
Mr. POINSETTE. Kyocera is a long——
Mr. HOUGHTON. But only 75 percent of AVX.
Mr. POINSETTE [continuing]. Kyocera is a dominant player in the
ceramic materials business. That is not capacitors. That is——
Mr. HOUGHTON. Who is the leading producer of capacitors in this
world?
Mr. POINSETTE. The leading producer of multilayer ceramics is
Muraa, Japanese. The second leading producer is TDK, Japanese.
The third leading producer is AVX Kyocera, Japanese. The fourth
leading——
Mr. HOUGHTON. So, it is all Japanese, right.
Let me ask Mr. Regan a question, because you know a little bit
about the capacitor business also. Also, you were touching on these
nontariff barriers. That is something that you worry about as far
as fiber optics is concerned and I am sure other people worry about
in terms of their own products. Could we talk a little bit about the
nontariff barriers?
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You say that you have to monitor this thing very carefully. We
are all right for the moment. You are saying, if I understand it,
that you produce at a lower cost than the Japanese. There is a zero
tariff and you still cannot get in the market.
Mr. REGAN. That is correct.
Mr. HOUGHTON. So, are those nontariff barriers something which
is germane to all the discussion we have had today? Maybe others
would like to join in this. I do not want to take too much time, Mr.
Chairman, but I think this is an essential issues.
Mr. REGAN. Well, I think the point the gentleman down at the
end of the table made was precisely the same point we were con-
cerned about in fiber optics. The U.S. market is 40 percent of the
world market for fiber optics. The only barrier to our market is the
tariff. However, we have a very difficult time breaking into foreign
markets.
Why? We have discriminatory government procurement we have
to deal with. We have behaviors which demonstrate a clear pref-
erence for domestic product. In some countries, we have investment
requirements which basically say, look, if you want to sell it here,
you have to make it here, which involves a transfer of sensitive
technology to other parts of the world. We have the discriminatory
application of domestic taxes which tends to raise the price dra-
matically for a product that is imported versus one that is made
domestically.
We had one case in one country, which I will not mention, where
were prepared to go in and supply the product. The big buyer
which is a PTT has said, you guys have the greatest fiber in the
world, but we are not going to certify you. We are not going to give
you certification to sell in our market, not because you do not meet
a standard, not because you are not good, but because you do not
have a plan to make it here. That is the kind of unfairness that
we face around the world.
Our concern about the ITA was that we were going to engage in
unilateral disarmament. We were going to give away our tariff and
hence, the access to our market and get nothing of meaningful
back. I think what we were able to get was something like the gen-
tleman down the table presented, a commitment to work on these
nontariff barriers going forward and on a commitment to work very
hard on it. Now, in exchange for that, we have given up a modicum
of protection as it applies to fiber optic cable, not to optical fiber
or not to optical componentry.
We hope that this works out. If in fact USTR is successful in
opening up these markets, then we will have negotiated a good
deal. If not, I am probably going to get fired. No, I am only kidding.
[Laughter.]
Mr. HOUGHTON. Would anybody else like to make a comment?
Yes, Mr. Boidock. Would you mind if I continue this just a minute,
Mr. Chairman? We will not take too much longer.
Mr. BOIDOCK. No, I will be brief.
I just want to say that you asked an excellent question. This is
a very, very important agreement and provides $1.4 billion, as I
said in my testimony, in duty reductions or savings for our compa-
nies in Europe alone just because the Europeans are lowering their
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7 percent tariff. However, that pales in getting access to the Japa-
nese market, which these gentlemen are having trouble with.
Now, we had trouble with it in the semiconductor industry in the
eighties and we have worked very hard getting access to it. That
has been a significant boost to our revenues. So, I think it is an
excellent point and you need to be aggressive and you need to work
it everyday.
Mr. HOUGHTON. Mr. Cross, do you have anything? Mr. Rafferty,
would you like to say anything?
Mr. CROSS. Again, on the nontariff measures side, I think every
company here at the table share concerns about nontariff meas-
ures. My concern is that we have singled out Japan for all of the
criticism here. Nontariff measures are common throughout the
world, included in the United States. So, we have to look at this
in terms of the overall balance of interests to the United States.
Therefore, when we are looking, for example, at the second round
of ITA negotiations when nontariff measures specifically will be
brought up, we want first of all to be aggressive in going out and
pursuing market-opening measures. At the same time, we want to
do so in such a way that it is consistent with the overall interests
of the United States.
The round of questions I have heard you raise, Congressman
Houghton, I think they are all very good and to the point in terms
of where do you manufacture, where do you source from, why do
you make these kinds of economic decisions. The plain fact of the
matter is, there is no more global industry than there is in the in-
formation technology industry.
Mr. HOUGHTON. Yes.
Mr. CROSS. If you take a look at Kemet, if you take a look at
Vishay, if you take a look at IBM, if you look at Philips, if you look
at Texas Instruments, if you look at Corning, we are all global com-
panies. We invest widely around the world because of any number
of economic factors. Some companies, for example, may choose
Israel or they may choose Mexico, not only because of lower wage
rates but also because you get advantages of free trade agreement
preferences. So, there are advantages built into the system there.
But do not tell me as a consumer of a product that I am going
to have to pay a 10 percent penalty for buying a product that is
competitive. I want, as a consumer of that product, to be able to
go in there and get the best quality at the best price.
Mr. HOUGHTON. Well, if I could just interrupt you.
You know, that may be fine for a consumer and that consumer
can buy a variety of different products with his or her money. It
is sort of tough for the fellow whose job is totally dependent upon
that product. I guess maybe we are all set.
Thank you very much for your time.
Chairman CRANE. Well, thank you and I want to thank all of our
panelists for their patience and your testimony today. We look for-
ward to further communication with all of you.
With that, this panel is adjourned.
Chairman CRANE. Our next panel is composed of—and I would
like for you to testify in this order—Ed Wiederstein, president of
the Iowa Farm Bureau Federation on behalf of the American Farm
Bureau Federation; Robert Vastine, president of the Coalition of
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Service Industries; Laird Patterson, counsel at Bethlehem Steel on
behalf of the Labor-Industry Coalition for International Trade; Ter-
ence Stewart, partner with Stewart and Stewart; and Mark
Sandstrom, partner with Thompson, Hine & Flory.
[Pause.]
Chairman CRANE. I understand, Ed, that you have a flight to
catch.
Mr. KEELING. Well, in fact, I am not Mr. Wiederstein. I am John
Keeling with the American Farm Bureau. He had to leave even
earlier than he thought because of an emergency back in Iowa. So,
I would like the indulgence of the Chair, if I could summarize his
testimony.
Chairman CRANE. Oh, certainly, absolutely.
STATEMENT OF JOHN KEELING, DEPUTY DIRECTOR, AMER-
ICAN FARM BUREAU FEDERATION, PRESENTING STATE-
MENT OF ED WIEDERSTEIN, PRESIDENT, IOWA FARM BU-
REAU FEDERATION, AND AMERICAN FARM BUREAU FED-
ERATION
Mr. KEELING. I will be very brief. I know it is getting late in the
day.
At the risk of refocusing the Committee, I would move from ca-
pacitors to soybeans and corn and hogs and chickens and other
things agricultural. We really bring a very simple message to the
Subcommittee today and it is a success story I think.
Agriculture last year did over $60 billion in exports. We had a
$28 billion export net balance of trade which ranked us very high
in all the sectors of the economy. We are doing well in world trade.
We could do much better if we could lower the barriers that exist
to our products moving into other countries.
Recently Dean Kleckner, who is president of the American Farm
Bureau, attended the WTO Ministerial Meeting in Singapore. Just
to give you an idea of how important agriculture thought that
meeting was and thought the future of the WTO is and the success
of the WTO, of the 100 private-sector representatives who were in
Singapore, about 50 percent of those were representatives of agri-
cultural groups, agricultural, agribusiness.
And that is at a time when the focus of those meetings was not
even particularly agricultural. So, we view our future as exports.
Right now we are sending 30 percent of our products overseas and
we have a tremendous opportunity to continue to do better than
that.
What did we want to get out of the Ministerial Meetings and
what happened there and what was our reaction? We really wanted
to see two things. We wanted to be sure that the negotiations that
are to begin in 1999 are still on schedule and set to go forth on that
timeframe.
Number two, we wanted to ensure that in the time period be-
tween now and when those negotiations begin in earnest, that the
proper background work is done, that the data is collected so that
we could flat-out hit the ground running in 1999.
We cannot afford in agriculture another trade round that takes
seven or 8 years to get accomplished. We have immediate needs
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and need to make some changes immediately. I will get into some
of the political problems in the countryside a little bit later.
We were pleased with the WTO meetings. Deputy Secretary
Rominger from USDA was there. He was not allowed to present a
paper and we were a little bit disappointed at that but we were
generally pleased with the Trade Ambassador’s stance on things.
We are, however, offering some ideas for change in USTR that we
think would better position agriculture.
We feel strongly that we need a Deputy Ambassador for Agri-
culture in USTR. If you look at the trade disputes that are being
brought before the WTO, a significant portion of those trade dis-
putes are relative to agriculture. If you look at the barriers that
exist out there, a significant portion of them are relative to agri-
culture. Having someone in USTR who’s primary job is to focus on
expanding the successes of a very successful sector we think is very
important.
We sometimes believe that because we have been so successful
in terms of exports, that we are really not looked at as the squeaky
wheel. If you have two kids and one of them makes all As and the
other one makes Cs you tend to focus on the one that makes Cs.
Now, as the one who is getting the good export numbers, we want
some attention too and I guess that’s the message we are trying to
send to the administration and to USTR.
I guess I will finish with looking at where we see the political
landscape and what problems that is causing us. I think that agri-
culture had a very significant impact on delivering both NAFTA
and GATT. We were there very solidly as a block to counter some
of the protectionist measures that were being talked about at that
time.
If we do not see significant wins coming from the trade dispute
arena and a strong, strong stance by the administration to ensure
that they are very, very serious about continuing to negotiate hard
for agriculture, although our organization remains committed to
supporting an extension of the fast track, supporting continuing to
grow into South America with NAFTA and to supporting MFN, we
are going to be short on the political grassroots base to do that un-
less some of our people out there in the country can see some wins.
The Canadian dairy decision and poultry decision, things like that
really undermine our strength and our ability to be strong spokes-
men for that.
So, I guess we look to you all for your leadership and help and
appeal to those in the administration to ensure that agriculture re-
mains important on the negotiating table.
Thank you.
[The prepared statement follows:]
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f
STATEMENT OF ROBERT VASTINE, PRESIDENT, COALITION OF
SERVICE INDUSTRIES
Mr. VASTINE. Good afternoon, Mr. Chairman.
The Coalition of Service Industries was founded in 1982 for the
exact purpose of ensuring that liberalization of trade in services
was made a major focus of international trade negotiations. The
service sector now creates three-quarters of U.S. GDP, 80 percent
of U.S. employment. Last year, 2.4 million of the 2.6 million jobs
created here were service jobs.
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The U.S. service sector racked up a trade surplus of almost $75
billion last year on record exports of about $225 billion. To give you
an idea of the pace of growth of services exports and its potential
for U.S. business and U.S. jobs, the service surplus in 1985 was
only $300 million, about a 75 percent average annual growth a
year since then.
The Uruguay round was the first multilateral trade negotiation
to include services. But its major service achievement was the gen-
eral agreement on trade and services, the GATS, which provides
the general framework for services trade. But there was little effec-
tive liberalization of trade and services as a result of the Uruguay
round.
Since the end of that round in 1994, the WTO’s main task has
been to complete the round’s unfinished agenda of financial, tele-
communications, professional and maritime services negotiations.
Its record has not been one of success until Saturday, February 15,
when a tremendous success was scored in a broad agreement to lib-
eralize basic telecommunications services.
That was a huge achievement because the telecommunications
agreement is the very first trade agreement to open up world com-
merce in a single service sector and this is important for several
reasons. Mainly it proves that negotiations concentrated on one
sector can, in fact, succeed. Ever since the failure of the first round
of financial services talks in 1995 it has been popular in some pol-
icy circles here and in Europe to decry sectoral negotiations as im-
possible because it was argued there was not enough trading mate-
rial in any given sector to make a deal.
It was argued, for example, that perhaps concessions could be
made in agriculture and the United States could make concessions
in agriculture in order to achieve benefits in financial services in
other countries.
The success, in fact, of the telecommunications sectors quashes
these speculations. The world trading community knows now that
it can proceed with a sectoral trade agenda and that it can succeed.
Another major reason why this is an important negotiations,
telecoms, is that it makes much more likely the success in financial
services can be concluded this December, and the progress can be
achieved later in the professions and in the maritime services.
With regard to the Singapore Ministerial and service sector liber-
alization as the Committee has heard and knows, the Singapore
Ministerial concentrated on information technology products and
other issues not directly related to services trade. Indeed, the final
declaration of the Ministerial contains conflicting messages about
services trade. But, while the Ministerial did not significantly ad-
vance the telecommunications financial and other services negotia-
tions, its declaration did provide a very necessary endorsement for
the completion of the key elements of the services trade agenda.
We believe that the next major test of the WTO is to complete
the negotiations on trade and financial services with a broadly lib-
eralizing agreement. I would like to let you know briefly about the
efforts of the U.S. financial community to achieve this success. As
background you should know that the United States has a surplus
of $4.5 billion in financial services in 1996 on exports of $6 billion.
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The financial services group of CSI has led in forming an inter-
national group of businessmen to create a network of private-sector
support for the financial services negotiations. On February 4, this
group issued at the World Economic Forum Annual Meeting in
Davos, a statement of objectives for financial services negotiations
which is attached to my statement.
This statement of objectives expresses the unanimous agreement
of these financial leaders that offers on the table at the end of the
negotiation in 1995 were not sufficient. That new and improved of-
fers must be tabled for the negotiations to succeed this time.
In short, the U.S. financial services community is united in its
desire to achieve an agreement that brings true liberalization. It
has developed an international program to support the negotiations
and it is optimistic that the negotiations can succeed this time but
it is aware that they will be difficult and that 9 months is not
much time to generate the momentum and sense of urgency that
motivated the telecommunications talks.
The Singapore Ministerial regrettably gave very scant attention
to the requirement for the new year 2000 services round. Our gov-
ernment should begin soon to consult with others to prepare for the
year 2000 round because these negotiations, the negotiations ahead
must clear away the residue of restrictions to trade in the most
promising and dynamic sectors of the world economy, that is the
transportation, telecommunications and financial services areas.
Opening trade in these crucial sectors will help improve stand-
ards of living and the pace of growth for people, business and gov-
ernments worldwide.
Thank you, Mr. Chairman.
[The prepared statement and attachments follow:]
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Mr. HOUGHTON [presiding]. Thank you very much, Mr. Vastine.
Mr. Patterson.
STATEMENT OF LAIRD PATTERSON, COUNSEL, BETHLEHEM
STEEL, BETHLEHEM, PA, ON BEHALF OF LABOR-INDUSTRY
COALITION FOR INTERNATIONAL TRADE
Mr. PATTERSON. Thank you, Mr. Chairman.
My name is Laird Patterson. I am here on behalf of the Labor-
Industry Coalition for International Trade or LICIT and its sister
organization, the Coalition for Open Trade or COT. These organiza-
tions bring together companies, unions, and organizations to de-
velop mutual positions on international trade policy issues.
While LICIT has been active across the spectrum of WTO issues,
this statement will focus on a few select areas that are of particu-
lar importance to our membership in the aftermath of the Singa-
pore Ministerial.
The first is the formation of the new competition working group.
This is an area that LICIT and COT, in particular, have been very
active in over the past few years. Attached to our formal statement
are executive summaries of two reports that COT has produced on
this. They cover multiple sectors—paper, glass, steel, autos, auto
parts, heavy electrical equipment, and so forth—pointing out the
way that private anticompetitive practices can be a very effective
barrier to market access around the world.
And it is only logical that as we are increasingly successful
through the Uruguay round and its aftermath in breaking down
other, more formal governmental nontariff trade barriers that there
will be increasing resort to private anticompetitive practices and,
in fact, their toleration by governments as a market access barrier.
So, we think the formation of this working group could provide
a very useful forum for, in particular, educating the WTO popu-
lation on the perniciousness of these practices and the need to
eliminate them. I do not think it is appropriate at this point to see
that process going into the dispute settlement area, but as an edu-
cational process we think it can be a very valuable and useful exer-
cise.
A caveat, there clearly was at Singapore an effort on behalf of
many nations to include in this exercise the issue of antidumping.
The United States and the EU made it very clear that they thought
this was not an appropriate area for this exercise. Indeed, there is
an antidumping committee in the WTO and that is where the anti-
dumping should stay. And our membership very strongly supports
the position of the U.S. administration that as the competition pol-
icy exercise goes forward that it not get into antidumping or other
trade matters covered elsewhere in the WTO.
A second issue of particular concern to our membership at this
point is the terms of the Chinese accession. We have been doing
some reports on that, and I believe another one is in progress.
But in one particular area we have a special concern and that
is the continued use of nonmarket economy practices for antidump-
ing investigations involving China. It is a priority objective of the
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Chinese to eliminate that and to be treated as a market economy.
They are not. And certainly we believe that the terms of accession
should explicitly require the Chinese to be treated as a nonmarket
economy for as long as any transition period provided in the acces-
sion.
Just very briefly, there are a couple of areas that are up for re-
consideration, the first being dispute settlement which has to be re-
newed in another 2 years. We think the system has been working
well but we think it is important that it continue to be com-
plemented by bilateral measures where the WTO does not have ju-
risdiction. We think it is important that we preserve our sov-
ereignty, be willing to take measures unilaterally and compensate,
if necessary, but not afraid to do that. And we certainly endorse
the efforts of the United States to improve the transparency of the
WTO dispute settlement system.
Finally, just very quickly, the WTO subsidy rules are up for re-
newal at the end of a 5 year period. We think it was very unfortu-
nate that the concept of green-lighting subsidies got into the Uru-
guay round and we would hope that when this comes up for re-
newal at the end of the first 5 years that that green-lighting con-
cept not be continued.
Thank you, Mr. Chairman.
[The prepared statement and attachments follow:]
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Mr. HOUGHTON. Thanks, Mr. Patterson.
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Mr. Stewart, and then Mr. Sandstrom.
Mr. Stewart.
STATEMENT OF TERENCE P. STEWART, MANAGING PARTNER,
STEWART AND STEWART, WASHINGTON, DC
Mr. STEWART. Thank you, Mr. Chairman.
It is a pleasure to be here this afternoon. For the record, my
name is Terence Stewart, managing partner of Stewart and Stew-
art, a law firm here in town.
I am here on my own behalf today. With regard to the panel that
preceded this, I think there is general agreement that the ITA is
a very substantial positive benefit. What is unfortunate for both
the ITA and I think for the basic telecommunications agreement is
that there are disputes between the Congress and the administra-
tion on lack of clarity with regard to whether or not these agree-
ments conform to existing law or need to be implemented through
additional law. For an agreement of this magnitude, I think that
is a great misfortune and one that hopefully the Congress and the
administration will resolve quickly.
I would like to focus on an issue that has not been much ad-
dressed that is highly technical but for most companies is the heart
of the WTO and that is the implementation of the various obliga-
tions. In the reports that came out in Singapore, it was acknowl-
edged that the implementation and notification of implementation
across-the-board has been quite weak.
And, in fact, there are a few areas where implementation and no-
tifications have exceeded 50 percent. This should be of substantial
concern to the Congress, as I know it is to the administration and
our major trading partners, and should put a caution on the speed
with which one expands a trading system. If you cannot implement
that to which you have agreed there is a question, why are you
seeking to agree to more?
In that connection I would have three recommendations for the
Subcommittee’s consideration. First and foremost is to assure
through other committees that there is adequate funding for both
USTR and the other agencies that are responsible for the oversight
of the implementation of our trading partners, as well as our own
implementation of our obligations.
What you see in Geneva and what you see in most agencies is
a reduction in staff, and what has happened in Geneva is that
there has been an exponential growth in demands on the time such
that even the United States is not able to cover all of the commit-
tee meetings that occur in Geneva on a day-to-day basis.
Second, there needs to be a cooperation between the Congress
and the administration to speed the public dissemination of infor-
mation from the WTO. One of the major accomplishments in the
first 2 years was an agreement that USTR was instrumental in ac-
complishing to release, make public the vast majority of the mate-
rial that is submitted to the WTO—the laws, the regulations, the
practices, the decisions.
That was done in July of last year. We are now at the end of
February 1997. Virtually no information has been disseminated
since that point despite this very important agreement. Private or-
ganizations, labor groups, companies are the best guarantee that
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there will be implementation of obligations abroad. The data base
is the best way to accomplish that.
Third, much of the lack of implementation abroad is due to the
fact that the countries that have not implemented it are developing
or least developed countries. There is a grossly inadequate tech-
nical assistance funding——
Mr. HOUGHTON. Say that again, I did not hear what you said last
sentence.
Mr. STEWART. If you take a look at the countries who have not
implemented their obligations under the WTO, the more than
roughly 50 percent of countries, the vast majority of them are least
developed or developing countries and a substantial reason that
they have not implemented their obligations is that they do not
have the technical means in-country to do so.
The WTO has technical assistance but that technical assistance
is minuscule in amount and the United States and our trading
partners need to assure that there is adequate funding from multi-
lateral organizations or otherwise to permit that to go on.
The same thing I believe is true with regard to the built-in agen-
da. I agree with the comments of the gentleman from the Farm Bu-
reau. I would note that one of the lacks that currently exists is a
coordination between our domestic legislative initiatives and our
negotiating objectives. Last year in the farm bill those sectors of
U.S. agriculture that are vulnerable because of large subsidies
abroad that saw their own subsidies reduced, over time, faced sub-
stantial dislocations because of the fact that we do not have as a
primary negotiating objective the leveling of the playingfield with
a reduction of subsidies abroad.
I have other issues, Mr. Chairman, and they are in my state-
ment. I see that my time is just about out. Let me just turn quickly
to two. I agree with Mr. Patterson with regard to the importance
of the competition policy issue and the limitations on that initiative
that are there.
With regard to investment, I believe that what we accomplished
in Singapore is not significant, that if we are to expand what we
achieved through the OECD, it will first and foremost be through
an expansion of the FTAA, through other regional and bilateral
agreements, and I think through the experience of developing coun-
tries who have led the way in terms of liberalizing their investment
regimes.
With regard to textiles, I would like to note just briefly, that the
Congress should be concerned with the developments in Singapore
to the extent that those developments suggest a changing of the
basic underlying agreement and I would suggest there are two
shifts.
One is the apparent belief amongst many countries in some
panel decisions that the intermediary category of goods and textiles
are subject to the same standard as an escape clause case. And,
second, that all cases must have findings and recommendations
even when there is not a consensus.
Last with regard to dispute settlement, I agree with Mr. Patter-
son that the system has worked quite well or reasonably well to
this point in time. I would only put a caution that the European
Union challenge to the U.S.-Cuba policy presents a major problem,
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I believe, for the survival of the dispute settlement system. Hope-
fully we will get that resolved without a formal panel decision.
Thank you, Mr. Chairman.
[The prepared statement follows:]
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Mr. HOUGHTON. Thanks very much.
Mr. Sandstrom.
STATEMENT OF MARK R. SANDSTROM, PARTNER, THOMPSON
HINE & FLORY LLP, WASHINGTON, DC
Mr. SANDSTROM. Thank you, Mr. Chairman.
My name is Mark Sandstrom. I am a partner in the law firm of
Thompson Hine & Flory. I should point out that one of the reasons
I was invited here today also relates to my involvement in various
ABA initiatives and recommendations that are relevant to the focus
of these hearings.
At the initiation of the international section of the ABA and, in
particular, its trade committee, the ABA has adopted a number of
recommendations on issues that are before the committee and I
think that both those recommendations and the reports will be of
use to the committee in its deliberations on these issues.
Beyond those recommendations, I should also point out that the
views expressed are primarily my own personal views and not
those of the ABA.
I think, given the testimony we have heard today, most people
would agree that the WTO, and its agreements have been success-
ful, that the Ministerial was successful and that the main problems
probably are that we have not done enough yet both in terms of
other agreements to be negotiated and implementation of those
that are already in place.
That leads me to an issue that Mr. Stewart has already raised
in his testimony. I believe this Subcommittee and the Appropria-
tions Committee in the Congress have got to give very careful con-
sideration to the funding of USTR and the related agencies. We are
not talking about thousands or millions of dollars, we are talking
about billions of dollars of potential benefits to the United States,
assuming that these agencies can ensure enforcement of agree-
ments or implementation of obligations by member parties to the
WTO. I think that it would be penny-wise and pound-foolish not to
give them the support that they need to perform that task.
The other issue which is obviously relevant is the adoption of fast
track negotiating authority. I realize that right now the ball is in
the administrations court. Hopefully within the month that Mr.
Lang mentioned this morning they will have a proposal to you. I
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would point out that the ABA has just adopted a recommendation
at its midterm meeting last month in support of the extension of
the fast track authority. I think that is also very important. I think
it should be broad and long enough in its effective term so that ef-
fective agreements can be negotiated.
I would like to address the rest of my time on one substantive
issue that has come up briefly but I think it will become of greater
importance to this committee and trade policy in general. That is
the issue of competition laws of antitrust laws and trade laws.
It has been pointed out in the WTO Ministerial Declaration, that
the Ministers have agreed to the establishment of a working group
on competition laws. I think a couple of comments would be useful.
First of all, it is very clear that in terms of market access, where
I think most of the U.S. potential growth and economic benefit
from these trade agreements lies, is something that can be ad-
versely affected by anticompetitive practices in foreign countries.
Those that are promoted or implemented by governments are rea-
sonably dealt with under our section 301, but they are not, I be-
lieve, adequately dealt with in the WTO or probably any other
international agreement.
Beyond that, private restraints are even more problematic. To
the extent that they affect imports into this country, we have some
sanctions, some ways to enforce U.S. antitrust laws and a way to
protect producers and consumers from the private restraints.
But on the export side, there really is nothing in existence either
under U.S. law or under any international agreement that provides
practical relief. The other problem here is that many of the private
restraints that we would view as restricting access to foreign mar-
kets, such as nonmonopolistic refusals to deal which was the sub-
ject of some earlier testimony in the last panel—basically compa-
nies will not buy our products—or nonprice vertical restraints may
well not be covered by antitrust laws, at least antitrust laws simi-
lar to those in the United States. However, these restraints do
exist, they do have a negative impact on access to foreign markets
on U.S. exports to those markets.
I think frankly it may well be a subject of proper analysis by the
WTO at some point in time because they certainly have negative
trade impacts. The ABA adopted last year a recommendation in a
report dealing with the relationship of competition laws and mar-
ket access which deals with this in more detail.
My final two comments, very briefly. There is right now an ongo-
ing International Antitrust International Section Task Force that
is trying to look at this issue head-on, that is the relationship be-
tween antidumping laws and the competition laws. Mr. Stewart is
also a member of the task force, as am I.
One of the things that has struck me is the almost unanimous
feeling among antitrust practitioners in this country and I think
that view is shared by the U.S. agencies, the FTC and Justice, as
well, that these issues ought not to be dealt with in the WTO, but
that the OECD is a more proper forum, for that. My own view is
that I think the WTO has demonstrated a real ability to deal with
nontraditional trade matters in an effective way and in a way
which involves and requires commitments from a broad range of
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countries—not just the industrialized, but also the BEMs, the less
developed, a whole gamut of countries.
So, I think the WTO would not be a bad place to talk about, at
least, internationally, certain antitrust issues, core practices that
ought to be prohibited, such as monopolization, price-fixing, things
like that.
And, finally, I would conclude with an issue which has been ar-
gued over for a number of years, and that is the attacks against
the antidumping laws from the antitrust practitioners. The idea
that the antitrust laws and competition laws should replace the
antidumping laws. I am a trade lawyer, so, obviously, I have my
bias on this issue, but it seems to me that replacing the antidump-
ing laws with competition laws is a little bit like replacing a base-
ball team with a shortstop.
The reason the antidumping laws exist and are necessary is be-
cause they deal with cross-border, injurious, unfair pricing prac-
tices. There is absolutely no other remedy to protect industries in
our country against these practices. Within geographic areas where
antidumping laws have been eliminated or not required, you can
look at the European Union or the United States, which I think is
probably the most successful common market in history, you see
that there is free movement of goods, free movement of capital,
labor, the right of establishment—a number of conditions, includ-
ing enforceable antitrust laws against parties within the jurisdic-
tion. These conditions do not exist with respect to trade between
the United States and other countries. To talk about eliminating
the antidumping laws without establishing those other conditions
to me is basically, essentially absurd.
The final point I would make is that whereas the antidumping
laws in this country are administered under a law that parallels
almost identically an international agreement which has been
signed by over 100 other countries, if you look at competition laws,
internationally, there is essentially zip. So, before we talk about
that replacement of or influence on the dumping laws by the anti-
trust laws, I think we ought to get some idea, at least internation-
ally, about what we’re talking about when we refer to the anti-
dumping ‘‘laws.’’
Thank you, Mr. Chairman.
[The prepared statement and attachments follow:]
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Mr. HOUGHTON. OK. Thank you.
Now, I want you all to think of yourselves as being in my posi-
tion and having heard what you have said and how to cull this out
to make sense, not so that it just goes into the Congressional
Record and the reports of this Committee, but something specifi-
cally which is important right now. I mean we have intellectual ar-
guments, we have structural arguments, we have certain things
that affect the marketplace right at the moment. And I hear what
you say about the competition and the antidumping laws. I think
we all probably agree that fast track is something we ought to
enact, get at it. If I am wrong, say that, tell me.
Mr. Vastine talked a little bit about foreign control. And we may
want to explore that but I want to put it all in perspective and
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then some of the structural things that we ought to do, such as
having enough money the USTR and for the negotiating process
and the cooperation between the administration and Congress, all
those things that are important.
But maybe if each one of you and if anybody has an idea in the
process, cut in here, what is the single most important thing that
I or anybody on this Committee—and, again, I’m sorry for this
thing, because it has been a crazy week. I mean we did not have
any votes on Monday, did not have any votes on Tuesday, we have
a half hour of votes and now everybody is off the rest of the week,
and, so, the people that should be here are not here, but we want
to be able to give them a consensus of what are the most important
things, prioritized, that we should be thinking about right now.
So, why do we not start with Mr. Sandstrom. What do you think?
What are those things out of all the talk, whether it is in anti-
dumping laws or competition laws, antitrust, what are those things
that this Committee should home in on right now?
Mr. SANDSTROM. Two quick responses. First of all, I have an
awful lot of faith in this, and in previous administrations, in terms
of their ability to accomplish economic benefits through the nego-
tiation of international trade agreements. So, I think what we need
to do is to give them the authority to go out and negotiate further
agreements and I think we need to have a process, obviously, as
required under the Constitution, which brings in the Congress as
I think the old fast track procedure has done. So, that the Congress
can review and ratify those agreements.
The other thing that I think is important is that the reality of
the international integration of our economy in the world economy
is way ahead of the perception. One of the problems that we have,
that you, Congressmen have when you go back to your constitu-
ents, is trying to explain to them why this is important to the
United States. Why it is good thing to continue in this direction.
I do not know where those educational efforts could be better un-
dertaken but——
Mr. HOUGHTON. Slow down just a little bit.
You are speaking in a muffled tone.
Mr. SANDSTROM. Yes, I am sorry. I think that if one leaves Wash-
ington and travels around the rest of the country, the message has
not been clearly communicated to people why international trade
is good, both for jobs and standard of living. We must find ways
to communicate that message. I think this last round of agree-
ments—telecom, ITA—will be helpful in doing that. That is some-
thing about which the administration could do a better job, the
Congress could certainly use that help. Maybe bar associations and
companies could help as well.
Because one of the problems you have——
Mr. HOUGHTON. Why do you not take it upon yourself to be the
czar or the emperor in this area. Because so many people come to
this Committee and say, we should do this, we ought to do that,
the country deserves such and such a thing and I could not agree
with you more. If we are going to accept the fruits of more jobs be-
cause of international export opportunities then we have got to ex-
plain to people our position in the world.
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But, you know, this is not just the job of an individual Congress-
man who goes back to his district and goes to the various town
meetings, it is everybody’s job.
I mean what is your firm and what is your industry doing to help
us in this thing?
Mr. SANDSTROM. By the way, I want to make it very clear, I did
not say that you should do this.
Mr. HOUGHTON. No. I understand that. But I mean it is a job for
everyone.
Mr. SANDSTROM. I think we need to make it easier for Congress-
men, I think we need to be the ones carrying that burden. We,
being private industry and——
Mr. HOUGHTON. Why do you not tell me sometime within the
next month what you specifically have done in this area and what
more I can do to help you?
Mr. SANDSTROM. I will do that.
Mr. HOUGHTON. You probably have never had a request like that
from this Chair, have you?
Mr. SANDSTROM. Not in a public hearing.
Mr. HOUGHTON. But it involves not only trade, but it involves our
foreign aid program, the United Nations and whatever have you.
Mr. KEELING. I accept that challenge. The president of our orga-
nization, the American Farm Bureau, has probably been the most
vocal advocate of freer trade. And freer trade has not always been
a pleasant banner to wear in agriculture. We have some sectors
who feel they will be strongly disadvantaged by that. So, there are
winners and losers. But we have advocated very, very strongly for
free trade.
I think what we would want and solicit your help in getting us
to make sure that USTR has, one, the resources as other people
have mentioned. And, then also the fire in their belly to go out
there and be tough.
I mean we have got to get reductions in export barriers, internal
subsidies.
Mr. HOUGHTON. Can I interrupt you a minute? My impression is
that the present Ambassador, Charlene Barshefsky, is doing a first-
rate job.
Mr. KEELING. I think we would agree with that. We have sup-
ported her.
Mr. HOUGHTON. I think it behooves us not only to back her up
with words but also with money, too. And I think Mr. Stewart indi-
cated that. Forgive me.
Mr. KEELING. And that is why we ask for a Deputy Trade Am-
bassador specifically for agriculture. We think it is an important
enough sector in the economy that it ought to get that kind of at-
tention.
The message that sends to our trading partners, the European
Union and the Japanese, for instance, who essentially refused to let
our products in. We will find it does not matter what you do to the
Europeans in terms of trade negotiations they will always find a
way to say, we are not going to take your agricultural products.
Do you believe for an instant that our meat packing plants in
this country are not up to the standards of those in Europe? I do
not believe that, and neither does anybody else. And, yet, they use
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that as a way to keep our products out. So, having somebody at
USTR who gets up every morning and thinks about what can I do
for agriculture to expand trade would be a good step.
Mr. HOUGHTON. Yes. I think that as long as the most precious
asset we have is our market and people want to sell to us rather
than have us sell to them, that is the preference, that it is going
to be an unending job.
We are never going to finish this thing. And, so, what you are
really talking about not only free, but also making sure that it is
level, that it is fair. And that requires just man-hours.
But it also requires a bit of spine, too.
Thank you very much.
Mr. KEELING. We think WTO is the mechanism to get that done
in the long run, but we have got to be tough.
Mr. HOUGHTON. Good.
Mr. Vastine.
Mr. VASTINE. Thank you, Mr. Chairman.
I think that the comment about negotiating authority is key.
Congress has to provide the authority and the mandates, the direc-
tion, the policy direction, the impetus for the negotiations.
Second, I think we need congressional understanding of the im-
portance of the sectoral service negotiations and forbearance, pa-
tience, as WTO attempts these extremely difficult negotiations. I
recall last year when I testified here, you asked me a question
about telecommunications. I made the blanket statement that well,
we had to open up foreign telecommunications markets so our
firms could go in there and invest. You said, look, it has taken 25
years or something like that in this country to get our market more
competitive. How can we possibly do it in foreign countries?
No one dreamed that the result in telecommunications would be
as extraordinary. I think it is possible to do the same in financial
services, professional services, maritime, but it is going to take a
series of years and congressional support.
The third thing is accession. At Singapore, where I had the privi-
lege of being, one Trade Minister after the other stood up and said,
we have got to globalize immediately the WTO, we have got to ac-
cept 29 I think it is or 27 new members, including China, Russia,
a few small guys like that.
That is a strong impetus, that is a very powerful impetus on the
part of other countries, they want to secure, they want to globalize
this organization. We have to be very cautious there. I would ask
this Committee to look at this carefully because in this is some-
thing, WTO accession is something the Chinese and the others
really want. This is a point of key leverage. We have got to maxi-
mize this opportunity; we, the United States.
Other countries are going to say and they do say, the EU particu-
larly, do not worry about the terms of accession, just get them into
the fold. When they are there we can take care of it. They will lib-
eralize. Those are the same arguments made about Japan early in
the fifties when Japan became but had exceptions from GATT rules
for a long time.
So, my point is that the Committee should join others of us in
holding a strong line on the accession issues.
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I have a comment finally about my friend who called for a special
USTR Trade Ambassador for Agricultural. If he gets one, we want
one.
This is a dangerous game, Mr. Chairman, it is like we ought to
have a department of education, we ought to have a department of,
you know, X, Y, Z. There is in the services, I will be positive, in
the services area, there is a U.S. Trade Representative for services
negotiations. She does a very good job for us. I am sure that the
agriculture people try to do a good job for you all but if you want
your own cabinet secretary, I want mine, too.
Mr. HOUGHTON. Well, I appreciate that. We will take both of
those recommendations under advisement.
Mr. VASTINE. OK. Everybody wins.
Mr. HOUGHTON. Mr. Patterson.
Mr. PATTERSON. Thank you, Mr. Chairman.
I would certainly agree in terms of what the Committee can do
that the proper funding of the trade organizations is critical and
aggressive oversight by the Committee of the exercise of their func-
tions is critical. I should say, continued aggressive oversight. The
Committees have never been shy in that respect.
Third, the role of the Committee in ensuring that we continue to
have strong and effective unfair trade remedies. This is critical for
American industry, American jobs. As hard as we are trying to
break down foreign trade barriers, they still exist. Conditions per-
mitting dumping continue to exist. And it is vital to certainly the
LICIT membership that strong and effective trade remedies con-
tinue to be available.
I certainly agree with Mr. Vastine that accession to WTO by cur-
rent nonmembers be on commercially reasonable and sound terms.
That is critical. We should not be dealing with the problem after
it is already in the WTO.
And, finally, there is just a point of information not on behalf of
LICIT, but Mr. Sandstrom noted the importance of trade education
and I would point out that the Business Roundtable under the in-
stigation and leadership of the late Jerry Junkins has initiated a
very active trade education program with companies using their in-
ternal communications to teach their own people the importance of
international trade to their jobs, and so forth.
And that effort is now being expanded to other business organi-
zations around town and will continue. But I think we are working
aggressively to educate our public on the importance of trade.
Thank you.
Mr. HOUGHTON. Thank you, Mr. Patterson.
Mr. Stewart, the last words of wisdom.
Mr. STEWART. Always a dangerous thing.
I would split my comments into five quick points.
First, I believe that the trading system at the moment has a
number of holes in it that should be filled and the Subcommittee
and the Committee’s task is to fill those through the negotiating
mandate through fast track or otherwise.
Let me just go through a couple quickly. Competition policy has
been mentioned but there are a whole host of issues that Congress
identified in the 1988 act that were not fulfilled as part of the Uru-
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guay round. One was exchange rate policy in terms of greater sta-
bilization.
As you know the Yen has depreciated roughly 50 percent in the
last 3 or 4 months. That creates tremendous havoc in terms of
trade for companies whether here or abroad.
Third, the longstanding issue on the difference between direct
and indirect tax rebates, in terms of their permissibility under the
WTO which puts U.S. commerce at a substantial disadvantage. I
think those are all negotiating mandates and followthrough.
Second, there is a tendency on the part of any administration
and there is a tendency on the part of this or any other Committee
with jurisdiction, to try to paint a very rosy picture of whatever has
been accomplished in the past. I believe that you do the public a
disservice if you do not obtain realistic appraisal of the cost/bene-
fits of agreements that are made.
The stories before NAFTA suggested great benefits or great
losses. I would say that history has suggested that both are over-
stated but there are substantial benefits and there are occasional
significant losses. The appraisal that gets done this year should be
a factual owe.
Mr. HOUGHTON. You do not expect me to disagree with that
statement, do you? [Laughter.]
Mr. STEWART. My hope would be that the evaluation of this and
other agreements would be factually based and not done in a way
to, if you will, beat the band.
I think that is a question of oversight by this Committee or this
Subcommittee.
Third, we have to implement what we have. And that goes to the
funding and oversight issues.
Fourth, you need to get transparency in fact. Transparency in
fact, means getting it out to the public and you have a huge oppor-
tunity that has yet to be fulfilled.
And, fifth, at the end of the day you need a system that works,
that gets balance in fact. I was a mathematician in college and
higher math is a form of philosophy where you have a minimum
number of assumptions, a minimum number of rules and try to ex-
plain the most data points that you come up with.
It is only in international trade that we have created a system
that is an absolute. Regardless of how well or how poorly the sys-
tem we have devised explains the data points we get, we insist that
the system is inviolate. At some point in time, Mr. Chairman, I
would suggest that it may be appropriate to treat international
trade as any other study, namely that if the rules do not explain
the phenomenon that exists, you may wish to change the rules.
Mr. HOUGHTON. All right.
Well, I really appreciate your patience and your contribution. I
think this last bit has been very, very helpful.
Thank you very much for being here today,
Mr. STEWART. Thank you.
Mr. VASTINE. Thank you.
Mr. HOUGHTON. Now, Dr. Donna Christian-Green. Dr. Green is
the Member of Congress from the Virgin Islands; I really appre-
ciate your coming here. Again, I apologize for being so late here,
but as you know the series of mechanical votes that we have gotten
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involved in has put this thing off to a really very late hour. Thank
you very much.
You may proceed with your testimony.
STATEMENT OF HON. DONNA M. CHRISTIAN-GREEN, A
DELEGATE IN CONGRESS FROM THE U.S. VIRGIN ISLANDS
Ms. CHRISTIAN-GREEN. Good afternoon, Mr. Chairman.
Thank you, Mr. Chairman, for giving me this opportunity to
come here this afternoon and to discuss an issue that is of para-
mount importance to the people of the Virgin Islands, whom I am
very privileged to represent in this body.
The purpose of the hearing today as I understand it, is for the
administration to update the Subcommittee and Congress on the
outcome of the recent Ministerial Meeting of the WTO held in
Singapore in December 1996.
While the people of the Virgin Islands generally support free
trade and would support the agreements reached, as a result of the
Singapore meeting, one aspect of the Singapore agreements, that
being the unexpected agreement between the United States and
the European Union to phase out their tariffs on white spirits, par-
ticularly rum, by no later than the year 2000, would deal a very
severe blow to our already fragile economy if it is not changed.
As you know, Mr. Chairman, rum is a unique product of the Car-
ibbean. It is central to the region’s history, culture and economy.
The viability of our rum industry in the Virgin Islands is of critical
importance to the stability of our economy.
It is the second most important industry in our islands, next to
tourism. It is for this reason, when we first learned that the United
States was considering making such an agreement, that former
Virgin Islands Governor Alexander A. Farrelly wrote to President
Clinton in 1994 to express our strong opposition to having white
spirits included in any duty-free agreements.
Through a special tax provision governing the relationship be-
tween the U.S. territories and the Federal Government our rum in-
dustry generates 10 percent of the total revenues of our govern-
ment.
Today’s Virgin Islands economy, Mr. Chairman, is fragile at best.
We have been battered by four hurricanes since September 1989
and we are still struggling to reach full recovery. Against this back-
drop, opening the U.S. markets to duty-free shipments from all
countries would mean a severe loss of jobs in the territory and fur-
ther undermine our already unstable economy.
Mr. Chairman, the Virgin Islands Governor Roy Schneider and
I have been working with the Trade Representative’s Office in an
attempt to address this problem. In particular, I have discussed the
issue several times with today’s hearing’s lead witness Ambassador
Jeffrey Lang, who has been very understanding of our concerns.
It is my understanding that the USTR is in the process of work-
ing out a solution that would address our concerns. And I do want
to take this opportunity to commend Ambassador Lang and the
USTR for their efforts on our behalf and I look forward to working
with the Ambassador in finalizing an acceptable resolution to this
problem.
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In conclusion, Mr. Chairman, the people of the Virgin Islands re-
alize that free trade agreements are, for the most part, the engine
that is driving world affairs today. But we also understand that
these agreements do not take place in isolation. We would ask that
as we move toward the opening up of markets consideration be
given to the impact that free trade will have on the fragile econo-
mies of these smallest members of the American family and that
our interests, which are U.S. interests and U.S. jobs will also be
protected.
I thank you for allowing me to make these brief comments and
I would be happy to answer any questions.
Mr. HOUGHTON. I thank you very much.
I wish everybody’s testimony was as short and succinct to the
point as yours.
That was very well done.
Ms. CHRISTIAN-GREEN. Thank you.
Mr. HOUGHTON. I guess the only basic question I have is this, we
are moving in a direction of lowering tariffs. That is the whole con-
cept of GATT and the WTO and NAFTA and the regional agree-
ments, things like that. And the point being that in opening up
your borders a little bit you increase your opportunity to export a
great deal. Now, what is the answer to this thing as far as the Vir-
gin Islands are concerned?
Ms. CHRISTIAN-GREEN. Well, Ambassador Lang is working to-
ward an agreement that involves a price limit and while it is true
that reducing tariffs could open up markets, for us it is a much big-
ger issue in that the Virgin Islands does receive over $50 million
each year from duty placed on rum that is produced in our terri-
tory. And it does provide a significant portion of our government
funding annually. And this is where the losses would be realized
and this is why we are asking for, if not rum being taken out of
the agreement, that some reasonable agreement be reached to pro-
tect our particular industry.
Negotiations are still in progress. I think Ambassador Lang said
this morning he is working on it as late as today and would involve
a price limit on gallons, as I understand it.
Mr. HOUGHTON. You may not know these figures and they abso-
lutely are not essential but if you do have them at the tip of your
tongue, I would appreciate them. What percentage of the white
spirits, of the rum, in this world or hemisphere are produced out
of the Virgin Islands?
Ms. CHRISTIAN-GREEN. I do not really have that answer. I would
imagine that it is a very small portion. Even compared to Bacardi,
we are maybe a third.
Mr. HOUGHTON. And Puerto Rico——
Ms. CHRISTIAN-GREEN. Yes.
Mr. HOUGHTON [continuing]. And places like that, right.
Ms. CHRISTIAN-GREEN. They are three or four times as big pro-
ducers as we are.
Mr. HOUGHTON. OK. But it is not over 50 percent.
Ms. CHRISTIAN-GREEN. Oh, no. It is quite small.
Mr. HOUGHTON. But although it is more than 10 percent of the
basic economy of the Virgin Islands?
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Ms. CHRISTIAN-GREEN. It is small on a world scale in terms of
the entire market but it is very big for the Virgin Islands.
Mr. HOUGHTON. Now, one other specific question. In terms of
rum production and the exporting of it, are there any major mar-
kets that you find difficult to get into that want to export their
product? In other words, can you, for example, can you export your
product to Puerto Rico?
Or even within our own kin, are there nontariff barriers there?
Or can you export it to Chile or to Brazil?
Ms. CHRISTIAN-GREEN. What I am being told by my legislative
director is that under this agreement we would not be able to ex-
port to Chile or the South American countries. I know that we do
not export to other Caribbean countries.
Mr. HOUGHTON. Let me just hold on here. Let me just give you
an example. So, you might be willing to import Chilean Risling
white wine into the Virgin Islands yet, they would not permit Vir-
gin Islands rum to come into their country?
Ms. CHRISTIAN-GREEN. Well, I can speak to some of the other
Caribbean countries where we are not allowed to export our rum
there, but their rum comes in freely to the Virgin Islands, although
there is a duty placed on it.
Mr. HOUGHTON. Well, one final question. If you were Ambassador
Barshefsky, and obviously, your allegiance is to the American
sphere, the protectorates, the States, the whole business. But, at
the same time, you wanted to have the United States in the fore-
front, what would you say about the ultimate trade position in
white spirits with the Virgin Islands? Would you say that this
would be something which would have a zero tariff in 20 years or
never or there will be other stipulations? What would the trade pol-
icy be?
Ms. CHRISTIAN-GREEN. Well, we realize that we would not have
a zero tariff for a long period of time, but we certainly anticipate
that we would have it past the year 2000, so, that we could further
develop our markets. But we do need a bit more time, even the
year 2000 would be a bit too short for us but we do not expect it
to continue in perpetuity.
Mr. HOUGHTON. So, the objective is a good one but the timing is
poor?
Ms. CHRISTIAN-GREEN. For us it is. For us the timing is poor. We
would prefer to have it go on in perpetuity, but we realize that that
is not realistic and so we would accept some limitation but not the
year 2000 because we are still developing the market for our rum.
Mr. HOUGHTON. All right.
Well, listen, I thank you very much for your testimony and you
are very articulate and it was very helpful.
Thank you.
Ms. CHRISTIAN-GREEN. Thank you, Mr. Chairman.
[The prepared statement follows:]
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f
Mr. HOUGHTON. Thanks again for your patience.
Well, since there are no other witnesses, anybody want to testify?
Ooops, we have got it on the other side. I am sorry, I did not turn
the page.
So, we have Maureen Smith and Dr. Kochenderfer, and Fred
Meister, sorry about that.
Will you please come to the table.
Now, Ms. Smith, would you like to testify?
STATEMENT OF MAUREEN R. SMITH, INTERNATIONAL VICE
PRESIDENT, INTERNATIONAL AFFAIRS, AMERICAN FOREST
& PAPER ASSOCIATION
Ms. SMITH. Thank you very much, Mr. Chairman.
My name is Maureen Smith and I am the international vice
president for the American Forest & Paper Association.
The U.S. forest products industry had a lot riding on the outcome
of the Singapore Ministerial. We were hopeful we could convince
our trading partners to build on the results of the Uruguay round
and support a proposal by the government of Canada to eliminate
tariffs on paper products as of January 1, 1998 and agree to zero-
for-zero treatment of wood products as well.
We had a lot at stake. First, an estimated $15 billion in addi-
tional export sales between now and the year 2004; second, some
28,000 direct U.S. jobs; and finally, our future ability to compete
for the fastest growing export markets and our own domestic mar-
ket, as well.
When we testified before the Subcommittee last April in the com-
pany of the United Paperworkers International Union, we ex-
plained that the tariff agreement reached in the Uruguay round al-
lowed our European competitors to maintain tariffs on paper prod-
ucts for an unreasonable 10-year period at levels which even today
in some cases exceed 7 percent. In addition, the Council allowed
Japan to keep its tariffs on wood products at levels which top 14
percent, while U.S. tariffs in these two sectors were already at zero
or nominal levels.
We viewed the December Singapore meeting as our last chance
to reverse this inequity. At that time, we were encouraged by the
statement of Ambassador Barshefsky that both wood and paper
tariffs would be priority U.S. objectives in Singapore. Regrettably,
and notwithstanding the efforts of our tireless, and for many
nights, sleepless negotiators, and strong support from the congres-
sional delegation in Singapore, we failed to get our trading part-
ners to level the playingfield with us.
In sum, neither Europe nor Japan appears ready to give the U.S.
forest products industry the same level of access to their market
that their suppliers have here in the United States. In Europe, al-
though several individual member States and customer industries
had weighed in with Brussels in support of a Singapore tariff pack-
age including wood and paper products, the EU appears to have
paid more attention to the protectionist interests of some paper
producers including, we understand, Finland, and blocked any
progress on this point.
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Earlier this month, Deputy U.S. Trade Representative Jeff Lang
met with Finnish trade officials to try to make some progress in
this area. And we are deeply grateful for his personal involvement.
Also, in Singapore, as in the Uruguay round, Japan once again
blocked any progress on wood products tariffs. Japan’s continuing
refusal to even consider further wood tariff cuts is inconsistent
with its stated desire to reduce housing costs in Japan. This also
raises legitimate questions about how genuine reform of the Japa-
nese housing industry can be accomplished without opening the
wood products market.
Ambassador Barshefsky has made it clear that the elimination of
tariffs on wood products is the priority U.S. objective in APEC. And
Japanese intransigence in Singapore makes the achievement of
this objective both more difficult and more urgent.
In conclusion, Mr. Chairman, our industry is forced to look be-
yond Singapore in our search for relief from a crippling tariff dis-
advantage. In doing so, we make the following recommendations
for U.S. policy.
First, market access must be the first priority of the United
States in the WTO and the first job of the WTO. We urge the ad-
ministration to take the lead in developing initiatives which will
accelerate post-Uruguay round tariff liberalization and offer oppor-
tunities for expedited WTO action on proposed tariff measures.
Second, the administration’s existing tariff cutting authority
which is bound by the zero-for-zero sectors is inadequate. USTR
must have the ability to put together broader tariff cutting initia-
tives which will include items of sufficient interest to our trading
partners and which could accommodate changing interests of U.S.
companies and industries.
And, finally, U.S. participation in the work of the WTO commit-
tee on trade and environment must focus on ways to asset trade
disciplines in areas such as ecolabeling.
Thank you, Mr. Chairman. That concludes my statement and I
would be pleased to expand on any of these points during the ques-
tion period.
[The prepared statement follows:]
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Mr. HOUGHTON. Thank you very much, Ms. Smith.
Dr. Kochenderfer.
STATEMENT OF KARIL L. KOCHENDERFER, DIRECTOR, ENVI-
RONMENTAL 
AFFAIRS, 
GROCERY 
MANUFACTURERS 
OF
AMERICA, INC.
Mr. KOCHENDERFER. Thank you, Mr. Chairman.
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My name is Karil Kochenderfer, and I direct environmental af-
fairs for the Grocery Manufacturers of America. GMA is a member
of the Coalition on Truth in Environmental Marketing Information.
The Coalition’s members are trade associations representing Amer-
ica’s interests in the chemical, forest and paper, electronics, food
and consumer product industries among numerous other indus-
tries.
Together we represent over 1,200 companies in the United States
doing over $1.2 trillion of business internationally. And with me
today is Bruce Hirsch of O’Melveny and Myers to help me answer
any questions.
GMA’s members support the sharing of environmental informa-
tion with consumers through ecolabeling. But we are very con-
cerned that ecolabels, particularly those being developed in Europe,
provide misleading and incomplete information and can serve as a
barrier to trade.
The Singapore Ministerial addressed ecolabeling and achieved
limited progress toward greater transparency and participation in
ecolabeling programs. However, further steps are needed to protect
U.S. exporters from those who may abuse ecolabeling schemes and
to prevent misleading claims that undermine the legitimate objec-
tives of ecolabeling.
What are these objectives? They are to inform consumers and to
encourage the development of use of products with reduced envi-
ronmental impact. We agree with these objectives and they are
broadly shared by government, industry and environmental groups
alike.
A system modeled on the FTC guides for the use of environ-
mental marketing claims is an excellent means of achieving these
objectives, while at the same time preventing misleading claims
that can lead to trade disputes. They are based on truthfulness,
science, verifiability, and nondeceptiveness. These guides have been
praised by environmental groups and business alike and have led
to an increasingly meaningful environmental labeling practices in
the United States.
We urge the U.S. Government to build on these results and to
advocate an FTC approach to environmental labeling internation-
ally. While the Coalition strongly supports ecolabeling based on the
approach embodied in the FTC guides, we are deeply concerned
over ecolabeling programs that are being called ecoseals.
Namely, an ecoseal is a type of ecolabel that is awarded by a cen-
tral certification panel that purports to judge the environmental ef-
fects of products and packaging, and to tell consumers with a single
seal which products and packages are best for the environment.
An example can be seen on the last page of my testimony. Our
20 years of experience with ecoseals in Europe and elsewhere have
shown that these programs are inherently flawed and create
unresolvable problems. Specifically, one, the selection of the criteria
upon which ecoseals are awarded is subjective. It is not scientif-
ically sound.
Two, they are inherent barriers to trade and innovation. Three,
they fail to educate consumers. The ultimate goal of these seals is
to educate and bring a greater awareness about the environment
but they fail to achieve even this.
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And four, fundamentally, they are barriers to trade because the
criteria frequently discriminate and are protectionist in nature.
I would like to go a little further, if I may, into the issue of
science because it is integral to the criteria for any credible ecoseal
program.
At this time there is just no objective way to scientifically deter-
mine which products or packaging are best. Products have different
strengths and weakness from environmental standpoint, even with-
in the same category. For example, one product may have low en-
ergy consumption but generate high solid waste, and in another
case one may have low solid waste but cause greater water pollu-
tion.
And even within a single environmental parameter there are
tradeoffs and even within geographic areas. The relative priority of
environmental issues varies. For example, detergents that use less
water are inherently more valuable in countries that are dry.
The process of granting an ecoseal inherently is based on value
judgments by the issuing organization and these ecoseal panels
typically consist of government officials, companies and experts
from the country establishing the program.
Faced with no objective means for trading off environmental at-
tributes of products, they are inherently sensitized to local con-
cerns. We suspect that discrimination favoring these products to
the local manufacturers is often intentional.
Therefore, ecoseals have become sources of increasingly conten-
tious trade disputes as Ms. Smith alluded to. Last year, the EU
issued an ecoseal criteria for paper and pulp that threatened to
shut the U.S. producers out of the European markets. We can ex-
pect trade disputes such as these to occur with increasing fre-
quency as ecoseal programs proliferate in the coming months and
years.
And we are here to say that we cannot let U.S. products to con-
tinue to be discriminated against by protectionist measures dis-
guised as environmental good deeds. We hope we have your sup-
port and thank you.
[The prepared statement and attachment follow:]
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Mr. HOUGHTON. Thank you, Ms. Kochenderfer.
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I appreciate that and I have a question or two.
Mr. Meister.
STATEMENT OF FRED A. MEISTER, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, DISTILLED SPIRITS COUNCIL OF THE
UNITED STATES, INC.
Mr. MEISTER. Thank you, Mr. Chairman.
I am Fred Meister, president and chief executive officer of the
Distilled Spirits Council of the United States. We are the trade or-
ganization which represents U.S. producers and exporters of dis-
tilled spirits.
I appreciate this opportunity to express our strong support for
the tariff elimination agreement for distilled spirits, which was con-
cluded at the WTO Ministerial conference held in Singapore.
This agreement provides for the elimination of tariffs on so-called
white spirits, including vodka, rum and gin, and liqueurs by no
later than January 1, 2000. In addition, the agreement brings for-
ward the schedule for eliminating tariffs on whiskey and brandy
that was agreed to in the Uruguay round by 4 years, also to Janu-
ary 1, 2000.
The agreement on spirit tariffs is an important step toward glob-
al free trade in the distilled spirits sector. The European Union is
our leading export market totalling nearly 35 percent of our ex-
ports to the world. It is the largest market in which we still face
tariffs and those tariffs are measurably higher than ours.
As a result of the duty-free treatment secured by the Singapore
agreement, we expect to substantially increase our sales to the Eu-
ropean market to more than $200 million per year. Expanding ex-
ports holds the key to our industry’s future. The Singapore agree-
ment also provides an excellent basis for pressing other WTO mem-
bers to eliminate their tariffs as well. For these reasons we urge
the Congress to endorse the distilled spirits tariff agreement
reached at Singapore and to continue to support the administra-
tion’s efforts to secure tariff elimination commitments from addi-
tional countries.
I also appreciate this opportunity to express our strong position
that all distilled spirits should be included for tariff elimination.
All of our products compete directly with one another for consumer
preference, market share, and brand loyalty.
The agreement reached at Singapore ensures for the first time
that U.S. exporters of white spirits, such as vodka, rum and gin,
and liqueurs will benefit from tariff elimination—just like U.S. pro-
ducers of whiskey and brandy—in the largest foreign market for
us.
Caribbean suppliers of rum have called for the removal of rum
from the tariff elimination agreement. These suppliers already
enjoy duty-free access for their rum both to the U.S. market and
to the European market, while U.S. producers of rum, located al-
most entirely in Puerto Rico, face significant tariffs on their ship-
ments to Europe. DISCUS, therefore, strongly opposes this attempt
to remove rum from the tariff elimination agreement in order to
maintain the Caribbean suppliers advantage over Puerto Rico in
the European market.
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The European Union is a large and growing export market for
Puerto Rican rum. With the removal of EU tariffs, U.S. producers
in Puerto Rico will be able to expand their sales greatly to the EU.
This will generate increased production and create new jobs in the
rum industry in Puerto Rico, which currently accounts for more
than 2,600 jobs and at least 5 percent of the island’s economy—an
estimated $1.4 billion per annum.
In addition to denying U.S. rum producers duty-free access to
their largest export market, removing rum from the agreement
would place them at a competitive disadvantage vis-a-vis all other
distilled spirits which will receive duty-free treatment. Excluding
rum from this agreement also would make it extremely difficult to
secure duty-free commitments in other trade agreements in the fu-
ture.
Mr. Chairman, we have been working with the administration
and members of the Congress to address the issues raised by the
Caribbean rum producers and by the Virgin Islands rum producers
and we will continue to do so. However, we cannot agree with their
request that rum be removed.
We urge the Congress to endorse this agreement and to work
with the administration to ensure its full implementation.
Thank you very much.
[The prepared statement follows:]
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Mr. HOUGHTON. Thank you, Mr. Meister.
Let me ask you a question in response to Donna Christian-
Green’s comment about rum. Would you say that her industry
would be better off if it agreed to the tariff dropping the restric-
tions that we have now in the Singapore agreement? Or would you
say it would be better for her, personally, to have more time in
order to stretch the adjustment period out?
Mr. MEISTER. We would make a distinction, Mr. Chairman, be-
tween the Virgin Islands and the Caribbean Islands. In the case of
the Virgin Islands we would not oppose some reasonable solution
to their problem, which we recognize. But, at the same time, we
would not support their contention that rum should be removed
from the agreements. Nor, would we support the idea that it should
be stretched out beyond the year 2000. But as Ambassador Lang
said this morning, they are working on some agreements. We can
be cooperative in that effort if it is, in fact, reasonable.
In the case of the Caribbean Islands, however, it is an entirely
different set of circumstances. In the case of Trinidad, and Ja-
maica, and Barbados, they have been exporting their rum to the
United States duty-free and to the European Union duty-free.
What this agreement does is to permit the Puerto Rican rum indus-
try to have a level playingfield with the Caribbean producers. All
of them should be able to compete in the European Union without
tariffs on any of their products. We very strongly would oppose
anything that would give them or permit them to have their contin-
ued preferential treatment to the disadvantage of the Puerto Rican
rum industry.
Mr. HOUGHTON. Now, that makes broad sense.
I do not disagree with that, but what does it say to the person
who is producing rum in the Virgin Islands?
Mr. MEISTER. Well, the Virgin Island producers to our knowledge
have been interested only in shipping to the United States where
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they already have the advantage of duty-free access. We do not
know of plans by the Virgin Islands rum industry to try to export
their product to Europe and, so, the agreement would not have an
impact on them on that basis.
Mr. HOUGHTON. Well, that probably is true but that is not what
Ms. Christian-Green said.
Mr. MEISTER. Well, I think we have some disagreement over the
intentions of the Virgin Islands rum industry.
Mr. HOUGHTON. OK.
Let us talk about the Uruguay round, Ms. Smith.
Given the Uruguay round history on tariffs for paper and wood
products, what is the incentive for the European Union and also for
Japan to agree to liberalize tariff in your industry and, so, really,
in effect, do you believe there is a forum for further tariff reduction
in the near term?
Ms. SMITH. I am sorry, Mr. Chairman, the question is what in-
centives might be offered?
Mr. HOUGHTON. Yes.
What is the incentive, why should the European Union and
Japan agree to liberalize tariffs in your industry, I mean what is
the incentive for them?
Ms. SMITH. I agree that on the face of it, the argument that has
been offered by Finland is persuasive. Finland says they sell 75
percent of their paper exports to the European market and only 5
percent to the United States. So, on the face of it, they say they
have no interest in pursuing tariff liberalization.
However, if we look at the experience of the paper industry in
the NAFTA when tariffs were eliminated between the United
States and Canada as an example, the historical experience there
is that shipments in both directions increased.
If you look at European experience when the tariffs were elimi-
nated between the original European Common Market countries
and EFTA, and when the Scandinavians then gained duty-free ac-
cess to the rest of the European market, in that instance the pro-
duction on both sides in the paper industry increased remarkably.
I would be very happy to submit for the record charts that we
have which show that the time coincidence of these two economic
developments precludes any other explanation other than the clas-
sic explanation that free trade does, indeed, benefit both partners.
Mr. HOUGHTON. Yes. But if I could just interrupt for a minute.
The Uruguay round took place in what was it, it was 1986, some-
thing like that.
Ms. SMITH. Yes.
Mr. HOUGHTON. And I think you indicated there has been some
real problems as far as paper and wood products.
Ms. SMITH. Yes.
Mr. HOUGHTON. So, my question again is and maybe you have
said it and I did not pick it up, is what turns that, what is the in-
centive? We can sit here and discuss these issues and maybe we
can translate it into laws but what is the incentive for those people
do to something they have been unwilling to do before?
Ms. SMITH. Well, I am sorry, my answer was that in the first in-
stance we believe free trade is to their advantage and that would
be an incentive. But, second, you are exactly right. If we approach
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it in terms of a traditional trade negotiation USTR needs authority
to go beyond their existing zero-for-zero authority so they can put
together a package of issues that might be of interest to our trad-
ing partners.
Europe has answered that their existing authority which goes to
industries where the United States is very competitive is not of in-
terest to them in putting together a package.
Mr. HOUGHTON. Sure.
Well, I would like to thank you very much for that.
I would like to ask a question of Ms. Kochenderfer.
What about the ecolabeling issue? Is there consensus among our
nonEuropean Union trading partners that the ecolabeling scheme
is discriminatory?
Ms. KOCHENDERFER. There is a developing consensus. We are
talking to our other Ministers at WTO and in other forums. Basi-
cally sharing with them our experiences trying to get into the EU
market and are finding that their stories are very similar.
And, so, I think there is a developing consensus that, in fact,
these seals have become barriers to trade and there needs to be
more openness, more honesty, more sharing of information and we
are finding agreement with them.
Mr. HOUGHTON. OK.
There needs to be, there should be. How does that happen?
Ms. KOCHENDERFER. Well, what we see with the FTC guides is
basically truth in advertising, be open, be honest. The market will
determine whether a claim is false or not. Companies will bring
claims against one another before the FTC and ultimately in the
world, if you will, an international FTC.
With true competition, two competitors will definitely say wheth-
er one is being truthful in advertising by saying something is non-
biodegradable or recyclable or whatever. And if the other is not
being truthful, they will bring it to the FTC or an FTC-like forum
in an international arena. And we think that competition, that
market orientation brings about greater information sharing rather
than just a kind of a seal which really does not convey anything.
Mr. HOUGHTON. OK.
Well, that is all the questions I have. I want to thank you very
much for your patience and for your testimony and this concludes
our hearing.
The record, as you may know, will be open until March 12.
So, thank you very much, this hearing is concluded.
[Whereupon, at 3:39 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
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Æ
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