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EAST ASIAN ECONOMIC CONDITIONS—PART 2
TUESDAY, FEBRUARY 3, 1998
U.S. House of Representatives,
Committee on Banking and Financial Services,
Washington, DC.
The committee met, pursuant to notice, at 11:06 a.m., in room 2128, Rayburn House Office Building, Hon. James A. Leach, [chairman of the committee], presiding.
Present: Chairman Leach; Representatives McCollum, Roukema, Castle, Campbell, Metcalf, Paul, Manzullo, Fossella, LaFalce, Vento, Frank, Waters, Sanders, C. Maloney of New York, Roybal-Allard, Barrett, Watt, Bentsen, Jackson, Carson, and Sherman.
Also present: Representative Greg Ganske.
Chairman LEACH. The hearing will come to order.
This is the third hearing we've had on the subject of the Asian problem. The Chair has a very lengthy opening statement that he would like to request unanimous consent to place in the record, as well as additional material that he would like unanimous consent to place in the record. And without objection, so ordered.
Let me just say that we welcome as our first panel of witnesses a group of very distinguished Members of the Congress, and we look forward to their perspective. Yet it's my impression—it's probably all on one side of the issue—but that is welcomed as well, because this committee wants to establish a record that all perspectives are considered. And with that, unless anyone else wants to make any opening comments, let me turn to our first witnesses, and unless there's a prearrangement to the contrary, I'll just go kind of in the order in which you're sitting, if that's all right.
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So, let me welcome Congressman Peter Visclosky, one of the most respected Members of this Congress. Your testimony is welcome, sir. Peter, please begin.
STATEMENT OF HON. PETER VISCLOSKY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA
Mr. VISCLOSKY. Thank you, Mr. Chairman, and I would understand that all of our testimony would be entered in toto.
Chairman LEACH. Without objection, the entire statements of the Members will be placed in the record. If possible, we would like to hold people to the five minutes or so, if that's agreeable to Members. Please, go ahead, Mr. Visclosky.
Mr. VISCLOSKY. Mr. Chairman, I want to thank you and the other Members of the Banking Committee for allowing me to appear before you today to testify on the Asian financial crisis. I'm particularly happy to be appearing at this hearing today with the International President of the United Steelworkers of America, George Becker, and would associate myself with Mr. Becker's remarks with respect to international labor standards.
I come before you today as someone who represents the steel-making capital of the United States of America. Indiana's First Congressional District produces more steel than any other district or any other State in our country.
For some time, I have been particularly concerned that the government of South Korea has been unfairly and illegally subsidizing its steel industry. In February of 1997, several American steel producers filed a complaint with the United States Trade Representative alleging that the Korean government had violated the World Trade Organization Subsidy Code.
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In March of last year, I joined with 18 of my colleagues on the Congressional Steel Caucus in sending a bipartisan letter to Ambassador Barshefsky expressing our concern that Korea was violating international trade law by subsidizing its steel industry.
Not only do Korean subsidies hurt U.S. companies and cost Americans their jobs, but there is mounting evidence that Korea's current financial problems can be traced, in part, to the subsidization of its steel industry. In one prominent example, the South Korean government gave both direct and indirect subsidies to Hanbo Steel, the country's second largest steel company.
In 1997, the United States imported 675,000 tons of steel from South Korea—I'm sorry, we imported 675,000 more tons of steel from South Korea than we did four years earlier, an increase of about 68 percent. The result of this dumping was downward pressure on steel prices. In order to compete, American steel companies were forced to hold the line on steel prices, and between 1993 and 1997, some 5,000 American steelworkers lost their jobs.
Today's hearing is focused the current economic turmoil, and the proper role of the United States in responding to it. On the one hand, I believe it is in our interest to help. If the value of South Korea's currency continues to drop, vis-a-vis the U.S. dollar, Korean steel exports to the U.S. could continue their dramatic increase.
According to the Congressional Research Service, ''One implication of the continuing financial crisis is that imports of Asian, and especially Korean steel could displace domestic output and could have a detrimental effect on the domestic U.S. steel industry.'' According to CRS, during the four months from July to October of 1997, the amount of total steel exported to the United States from South Korea jumped by more than 82 percent compared to the first six months of last year.
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Therefore, I do believe it is in our interest to stabilize Korea and to help slow down the flood of Korean steel being exported to the United States.
But, bailing out foreign governments, however, should not mean selling out American workers. If assistance is provided, I firmly believe that the United States must require that any funds contributed to the South Korean bailout are not used to prop up companies such as Hanbo Steel. It would be absolutely unacceptable for U.S. bailout funds, which originated with U.S. taxpayers, to be used by the South Korean government to unfairly and illegally subsidize its steel industry in this particular instance.
I also do share the AFL-CIO's concern that the United States must not allow Korea, or other countries, to export their unemployment as a way back to short-term prosperity. Asian countries must be encouraged to make the necessary reforms to their financial systems and further develop their domestic markets.
We must also use this opportunity to advance the cause of internationally recognized worker rights and labor standards. Unfortunately, very little progress is being made in Asia regarding the promotion and enforcement of worker rights or labor standards, and the current crisis could exacerbate worker rights problems.
We do live in a global economy, and America must be a strong player in the increasingly global marketplace, but we cannot ignore the fact that our first responsibility is to working men and women who we represent, and the companies that employ them.
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Mr. Chairman and Members of the committee, thank you very much.
Chairman LEACH. Thank you very much, Mr. Visclosky.
Our next speaker will be the Honorable Clifford Stearns, a former Member of this committee and distinguished colleague and friend. Cliff.
STATEMENT OF HON. CLIFFORD B. STEARNS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA
Mr. STEARNS. Good morning and thank you very much, Mr. Chairman. I'm delighted to have this opportunity to testify before your wonderful committee on which, you mentioned, I had served four years, and I want to compliment you for having this hearing to talk about this very important subject as we start the second session of the 105th Congress.
I think what my testimony is going to reflect is that the IMF is ineffective, unnecessary and perhaps, obsolete. I'm concerned that these bailouts are really anti-free market tools used to subsidize investment mistakes made by creditor banks and these bailouts aid nations that are insulated from the true free market. The IMF is engaging in a policy I would describe as, ''privatizing the profits and socializing the losses.'' The protected markets, not the open ones, are in trouble today. Instead of allowing the free market to run its course, and force the actual creditors to face the music for their poor investment decisions, the IMF instead is guaranteeing a return on investment for the creditor banks who have worsened the situation by overextending themselves through highly risky loans.
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The cause of the economic disturbance in East Asia is not due to the excess of capitalism, but has been caused by the absence of the free market. South Korea, Indonesia, and Thailand have been forcibly insulated from the free market through quasi-protectionist practices, managed economic models, official corruption, and cronyism.
As with the case of Japan, which has experienced a 10-year-long recession, these Asian nations have created managed economies by picking economic winners and losers instead of allowing competition to sort out the free market winners and losers.
By trying to guide their economies through bureaucratic and technocratic hands, these nations have worsened their economic situation, because they were incapable of taking immediate action at the time to combat the effects of a growing economic free-fall.
I strongly believe that the IMF, if it is to continue, has to undergo a major change in its operations. The IMF needs to adopt some type of rating system in which it chooses wisely who receives aid. The rating system would be based upon clear, recognizable and achievable criteria.
Perhaps some of the criteria would be based upon: adherence to an open market for foreign goods and foreign investors; respect for economic freedom; adherence to normal banking, taxation and fiscal standards; respect for the rule of law, especially as it concerns free market standards; and, of course, respect for private property, human rights and even a bill of rights, and respect for taxpayers.
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The IMF should assess each developing country to determine its ratings before any more aid is pledged. In turn, each developing nation will know where it stands in the rating system. I believe the majority in Congress would agree that this would be a better approach than just letting the IMF continue in its helter-skelter manner.
Congress has the time to have a serious debate on the merits of this. We cannot rush to judgment and blindly allow the IMF to continue as it is. We also cannot place weak prescriptions as conditions for receiving IMF aid or for increasing the U.S. quota to the IMF.
There is no cause for immediate replenishment of the IMF without structural changes. The IMF has close to an additional $50 billion in reserves for any near-term fiscal crisis in Asia or elsewhere. In addition, the IMF, through its General Arrangements to Borrow, has an additional $25 billion to manage any other crisis.
On top of that, these East Asian nations will be paying back their IMF loans, thereby replenishing the IMF themselves. They're scheduled to pay back $28 billion by the end of the year 2000. It seems to me that there is not a need to increase the U.S. quota at this time, because the IMF will have substantial capital to continue its operation for the near future.
In conclusion, Mr. Chairman, the best way to encourage structural economic reforms in East Asia and other borrowing nations is to withhold further IMF funding for the time being. The signal to force reform could not be more clearly sent than through refusing replenishment without the structural changes to the IMF itself.
Thank you, Mr. Chairman.
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Chairman LEACH. Thank you very much, Mr. Stearns.
Our next witness is Congressman Michael Crapo who also holds a very distinguished position of respect in this body. Congressman Crapo.
STATEMENT OF HON. MICHAEL D. CRAPO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF IDAHO
Mr. CRAPO. Thank you very much, Mr. Chairman, and I too appreciate the opportunity to testify before you today with regard to the Asian financial crisis and the ramifications of the International Monetary Fund assistance.
It's clear that the magnitude of this financial crisis has far-reaching and critical implications for the stability of the international financial markets and the global economy, as well as the United States' consumers and companies. I'm pleased that you and the other Members of this committee have recognized the importance of this situation and initiated these hearings to consider the matter, and the implications of recapitalizing IMF funds depleted by this crisis.
My goal today is to stress the need for solid reform in South Korea and alert the committee to the far-reaching and possibly devastating impact of any IMF package to Asia, that it may have on the U.S. semiconductor manufacturers such as Micron Technologies, which lies in my Idaho congressional district.
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Over twenty years ago, excitement over the emergence of the economies in Taiwan, Singapore, Hong Kong and South Korea arose as these countries successfully transitioned from the Third World into the industrialized world. Collectively, they're often referred to today as the ''newly industrialized countries'' and hailed as viable model of development for other less-developed countries. The NICs evolved into economic powerhouses and formidable competitors for the United States, Europe, and Japan in the 1980's. The Asian NIC model of development, which relied on cheap labor, undervalued currency, export-oriented production, and a combination of state control and free markets, known as ''command capitalism,' was enthusiastically advocated as a path to prosperity by numerous investment foundations, developmental theorists, and institutions such as the World Bank and the IMF. Little consideration to the fragile tenets on which the model was based was given until the ''Asian miracle'' began to show signs of strain in the late 1980's and the threat of outright collapse emerged last summer.
The distress of this situation and the costs associated with the recapitalization of these economies by the United States have evoked a great deal of concern among my constituents in Idaho. As I indicated, Micron Technologies is one of the companies in my district, and by the way, I want to introduce to you and recommend his testimony to you, Mr. Steve Appleton, who will testify to you today, later in this hearing. But I've worked with Mr. Appleton, the CEO of Micron, as well as with Micron, for the last several years, on trade issues, one after another, dealing with what we perceive to be very clear anti-competitive conduct by the superconductor producers and the countries of South Korea and others in Asia. And these types of anti-competitive market practices are the type of things that we deal with regularly in our trade policy efforts to protect our American producers from the type of predatory trade practices that can be so devastating on them, and to then see American dollars sent over to subsidize and strengthen those types of very anti-competitive predatory trade practices that harm our own companies in America is not acceptable.
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The current crisis in South Korea is a result of the government's preferential direct lending practices to facilitate the rapid expansion of favored export-oriented sectors and major industrial conglomerates, and this expansion and the overproduction that occurred was not consistent with demand and led to the flooding of world markets, declining prices, and the inability of Korea to repay massive foreign-currency loans utilized to underwrite the very aggressive expansion efforts.
The semiconductor industry is perhaps one of three major United States industries most adversely impacted by the current Asian financial crisis. It's for these reasons that I'm particularly concerned about the prospects of an IMF package that would offer financial assistance to South Korean semiconductor firms that have previously failed to comply with basic fair market principles.
Provisions of any IMF package should not include assistance for the Korean semiconductor industry. These companies must be subject to market principles and the consequences of overproduction and poor business decisions rather than sustained by the United States taxpayers. Corporate structural changes in Korea must be instituted and given close attention to ensure that no funding is diverted to the Korean semiconductor industry as the result of the restructuring process. We must reduce the high debt-to-equity ratios of the corporations operating. We must use the internationally accepted accounting standards that will help us follow these matters and reduce mutual guarantees among these conglomerates. Significant and helpful reforms can be instituted to make the world trade situation more fair and a more balanced circumstance, but we've got to pay attention to it now.
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The goal of any IMF package and the reforms in South Korea should be to let the markets work, even if it means allowing those companies that are unable to sustain themselves according to accepted market principles to fail. It is only through tough measures that South Korean economic stability can be regained, regional prosperity secured, and fair global competitiveness for U.S. industries such as the semiconductor manufacturers will be ensured.
Finally, Mr. Chairman, I want to express my concern for one other industry that's very important to Idaho that stands to be harmed by the Asian crisis and the ramifications of the instability in the region. That is the wood and paper products industries. I understand that they're going to be testifying before you today as well, and I encourage you to listen closely to their testimony. They've already endured formidable competition and adverse, uncompetitive trade barriers such as tariffs, non-tariff barriers, and other discriminatory standards. And as South Korea and other countries are provided IMF assistance and guidance in restructuring, it's vital that the Asian region economies continue to move to open market-based practices, and avoid predatory anti-competitive practices that support their industries against our very own industries in the United States.
Once again, Mr. Chairman, I thank you and the other Members of this committee for listening to this testimony today, and commit to work with you closely as we address these issues.
Chairman LEACH. Thank you very much, Mr. Crapo.
Our next witness is a colleague from the committee, the Honorable Ron Paul, who is a distinguished and thoughtful participant in these proceedings.
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Congressman Paul.
STATEMENT OF HON. RON E. PAUL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS
Mr. PAUL. Thank you very much, Mr. Chairman. I appreciate very much the opportunity to come and present my views, and I appreciate the opportunity for those of us who aren't too excited about this funding to be able to testify as well.
I do have a written statement that I would like for the record, but I'm just going to make a few comments to summarize the statement.
There's been a lot of comments made about the dangers that exist in the financial markets and this is the reason we must rush and pass this $18.5 billion appropriation. But if you look at what's happened over the last several months, every time the IMF came up with a proposal, it tended to do damage to the Southeast Asian markets because their proposals were seen as being detrimental.
For instance, they would frequently ask those countries involved to raise taxes or raise interest rates to slow down spending, and the other market phenomenon that they were getting involved with was to prop up bad loans rather than liquidating bad loans. So, this was perceived in the market rather negatively and the markets didn't do well.
In the last month or so, it's been perceived by the markets that this funding most likely will not go through and the markets are doing quite well. Korean markets and the other stock markets have jumped up all of a sudden and there's a lot more optimism. Our stock market and bond markets have done quite well. So, the immediate danger does not seem to be quite as serious as was once said.
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That does not mean that danger does not lie in the future. I happen to agree with that for different reasons, and I think it's very, very serious. I would like to just take a minute or two and explain what I see as the cause of these problems, because I don't think we can correct any of this. We can't solve our problems if we don't know what the cause is, and I see that everything that we're doing so far, by further financing the IMF and more international financial management, that this actually contributes to the cause and makes the problem that much worse.
I see the fundamental flaw in the international financial system as that of excessive credit expansion, and it starts even here at home and the other countries join in.
By doing this, this starts off the business cycle which inevitably leads to a predictable collapse. By manipulating the monetary policies and using credit expansion, we artificially lower interest rates. Lower interest rates send bad information to investors and lenders, and they do bad things, and they do dumb things, and they have overinvestment, and they have excess capacity and malinvestment. And these things then build up, and instead of the corrections and the cleansing of the system coming in a graceful manner, what they do is they build up and then they have to have a sudden jolt to the system to show that they have been on the wrong track. This is compounded by tax codes and socializing risk and subsidies to certain industries and the cronyism that exists both in this country as well as some of these foreign countries.
But, the whole thing has been compounded, and this is where our Banking Committee and our Congress has a lot of responsibility. One of the leftovers, of course, of the IMF and Bretton Woods has been the IMF's involvement even though its role is different. But the other leftover has been that the dollar has remained as the reserve currency of the world. And after the war, it was the reserve currency because it had a linkage to something of real value and, therefore, the dollar was trusted. Today, we have the reserve currency in the world and we become the exporter of credit. We get the license to spend and the license to run up deficits, and we are then able to run up a huge negative trade balance.
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We're the greatest debtor nation in the world, and unlike other nations, those dollars do not have to come back to us immediately. They're quite willing to hold them, because they're perceived as a reserve currency. And these foreign countries, and Southeast Asian countries in particular, were able to hold these currencies in reserve and use that to expand their own credit and their own currencies. And they were expanding their credit at 20 and 30 percent a year, which was the artificial boom.
They had artificial exchange rates and it was predictable, what came was predictable. The timing wasn't and the extent wasn't, but what happened was predictable. And we're responsible to some degree, because we're responsible for the dollar.
Now what I see is at fault here is that we're rallying by saying what we must do is inflate the dollar even more and prop them up, because the dollar still is perceived as being somewhat sound. But the dollar isn't inevitably sound. Just three years ago, the dollar was worth 80 yen to the dollar, today there's been a rebound. But our responsibility, as I see it, is to protect the dollar, to protect our economy, not to prop up foreign competitors, foreign government bad loans, New York loans, our responsibility is for the dollar.
I believe we're setting the stage by doing this to further put pressure on the dollar. And this is dangerous, because every time this happens, when you have a currency crisis, you always have victims, usually the little people. Mexico still has victims, although we brushed that aside and tidied it over. There are victims. There are victims down there today.
The other problem when a currency crisis hits, you always have to have scapegoats. Today, for instance, you see a perfect example of this, and the scapegoats in Indonesia happen to be the Chinese. In the 1920's, we all know who the scapegoats were. In this country, we will, as long as we pursue this policy, suffer to some degree the same kind of consequences and then that is a political crisis and, to me, that is a threat to liberty.
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My goal and my belief is that sound currencies protect liberty and political freedoms. And it is for that reason I argue for and defend sound currencies. It's an interesting subject, but ultimately we have to have a reason for it. Sound currency throughout the world is just as important as having a unified dollar for the United States. Can you imagine running this economy in the United States with 50 currencies? And this is what the world is doing; they're running the world with fifty currencies, and they're creating all their currencies at different rates, and they're artificially pegging them. It's an impossible task and we will inevitably have these crises unless we talk about sound money and political freedom.
Thank you.
Chairman LEACH. Thank you, Congressman Paul.
Our last spokesman is Congressman Bernie Sanders whose views are always respected in this committee. Congressman Sanders.
STATEMENT OF HON. BERNARD SANDERS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VERMONT
Mr. SANDERS. Thank you very much, Mr. Chairman, and thank you for holding this important hearing.
What I've just tried to do is touch on a few of the many aspects of this problem that concern me. Let me begin by picking up on a point that Mr. Stearns made a few moments ago.
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By and large, the IMF bailout of Asia is more or less over. What we are talking about now is a future investment in the IMF. And I think that the time is now not to rush forward, but to take all of the time that we need to seriously debate the role of the United States in the world economy, discuss some of the concerns that some of my conservative friends have, discuss some of the concerns of some of us who are progressives have, and to take a hard look at the IMF.
I think if you went out to the American people today, 90 percent of the people don't even know what the IMF is, and probably three-quarters of the Members of the United States Congress probably don't know how the IMF functions, despite the fact it plays such an enormously important role in the world economy. So let's slow up. Let's begin the debate rather than simply rushing forward, and continue what we've been doing year after year without, I think, significant success.
Second point I want to touch upon briefly is I suspect that later on we will hear from some of our corporate friends who will be coming forward and saying how important it is that we reinvest in the IMF because of their deep concerns about worker rights and just how much they want to protect the jobs that are in the United States. Mr. Chairman, I would like to place in the record a chart showing how 10 major American corporations, Ford, Exxon, AT&T, GE, ITT, GTE, Coca-Cola, W.R. Grace, Levi Strauss, and Union Carbide alone, combined, have lowered their employment in the United States between 1979 and 1994 by over one million workers. And it is no secret.
Chairman LEACH. Mr. Sanders, that will be placed in the record.
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Mr. SANDERS. Thank you, Mr. Chairman.
I think it is no secret to the average American worker who sees every single day, tens and tens of billions of dollars being invested by corporate America in one or another low-wage country, whether it's Mexico or Asia, where desperate people are being hired for 20 cents an hour while they are being laid off. I don't think the average American really believes that corporate America, which, as I understand it is not waging a full-scale lobbying effort here, really deep down, is terribly concerned about the needs of the average American worker. Maybe there is something else going on.
I would also point out the irony that for the last several years we have been hearing about how big, bad Government really should not be asked to protect the needs of America. We've got to get Government out of our lives; Government can't solve all of our problems. Mr. Chairman, we've been hearing a little about that, so that when we have hungry children in America, we workers who are unemployed—we have 40 million people with no health insurance—we are told, ''Government can't solve all of your problems.'' And our corporate executives tell us, ''Government can't solve all of your problems; you've got to stand up on your own two feet.''
But suddenly, after these same corporations have invested tens and tens of billions of dollars in Asia, have made huge profits, but are about to lose money, suddenly, I guess, government can solve all of our problems. They're here, by the busload, telling us how we have to make sure they receive back 100 cents on every dollar that they lent out in Asia.
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Now one of the points, Mr. Chairman, which we hear all the time, is that those of us who have concerns about the IMF and with the replenishment of the fund, we are in favor of world depression, as if that's really what we want to do, to sink Asia, to sink the United States. Well, I would respectfully suggest that that is not the case. I think there is an alternative between replenishing the IMF, bailing out the large banks which have invested so heavily in Asia, bailing out General Suharto who is worth some $30- or $40-billion, and world depression. I think that there is an alternative, and I would respectfully suggest that for a start, maybe these businesses who have made billions of dollars in recent years do what every bank in this country historically has done when it loses money, and that is: it sits down with its debtor and it works out a mutually satisfactory agreement. And you know what? They may not get 100 cents back on their dollar, but that's what happens when you make bad investments. That's what happens when you speculate when you shouldn't.
Mr. Chairman, I would also like to touch on another issue, and that is, basically, United States law. In 1994, Barney Frank and I, who are both on this committee, through this committee, passed legislation which is very simple and straightforward. And it says that representatives from the United States on the IMF must urge the recipient countries through our voice and our vote, that these countries provide internationally guaranteed workers' rights.
Now, I have a real concern that in Indonesia, the leader of the Free Union movement there, Mr. Pakpahan, is now rotting in jail. And this is not just a human rights issue, this is an issue of basic democracy for Indonesia. Right now, Indonesia is suffering very, very hard times. People are losing their jobs, unemployment is going up. Who is representing those people? How do they fight back? How much power do they have in determining the policy of Indonesia if their leadership is currently in jail?
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Another point that I would like to make, Mr. Chairman, and I would not quote from my favorite newspaper, the Washington Times, but I think I would quote from it today also, that when we talk about what is happening, I think this point needs to be made, when we see who benefits from current IMF policies. And the February 2 Washington Times says, and I quote, they said that, ''The IMF's explicitly stated intention to restore confidence in South Korea already has been realized. Word is out that the economic bleeding has stopped, the won has stabilized, the market was up last week, and investors are wading back in.'' Here's the point, ''General Motors and Ford already are on South Korean shopping sprees, spurred by the won's depreciation, to buy into cash-hungry Korean companies at fire-sale prices. 'That's the way the system should work,' Mr. Rubin said.''
So, with what we're talking about here, the reality that large, financial institutions need to be bailed out by the taxpayers of the United States after they lost money, but lo-and-behold, these very same institutions have ample funds to go in and buy Korean or other Asian banks or businesses at fire-sale rates. Maybe some of us have a concern about that process.
Furthermore, in terms of the issue of transparency, we all talk about transparency. I think the time is now to make the IMF transparent. How successful has the IMF been in recent years? Should we continue to do what we did years ago? I think if you studied the record, you will find that time after time, it is the poorest people in countries that were involved with IMF austerity programs who are suffering rather terribly.
And do we want to continue that process, to make the rich in those countries richer, to increase unemployment, to lower wages, to cut back on subsidies for food, for housing, for education and healthcare. Is that what we want to be identified with? I think that the people of the United States want our Government to play a role which protects American workers, that does not encourage our companies to run to China and Indonesia and Mexico, and, at the same time, we want to do something to uplift the poor people of the world, not make them worse.
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I think Mr. Paul indicated, or somebody else indicated, what's going on in Mexico after the IMF bailout; unemployment up, wages down, child hunger, children working in the fields. I don't think that's a success.
So, my point, Mr. Chairman, is, there are so many issues that we've got to discuss, and we'll have our disagreements. But we should at least be in agreement that now is not the time to rush forward. The average American worker has seen a significant decline in his or her wages over the last twenty years. Despite all the talks about the economic boom, the average American today is working longer hours for lower wages. The global economy has not worked so well for the middle class. It has worked well for corporate America and the wealthy, but not for the middle class.
So, Mr. Chairman, let me simply conclude, we have our differences, there's no question about that. But I think, given the complexity of the issue, and the enormity of the issue, now is not time to rush forward. Let's have serious debates about many of the issues that my colleagues and you and others on our committee and throughout this Congress have raised.
Thank you very much, Mr. Chairman.
Chairman LEACH. I want to thank this entire panel, and we have a long list of witnesses today, so it's my hope that we will not address many questions to this panel.
There is one, however, comment of Mr. Sanders that, as Chairman of the committee, I feel obligated to address, and that is to make it absolutely clear that he is not speaking for himself alone, when he says that the Indonesian government should release Mr. Pakpahan.
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This is absolutely wrong, for any country to jail any leader for advocating internationally-sanctioned labor rights. And Mr. Pakpahan should clearly be released and this would be an extraordinarily welcome signal in the United States Congress and, I'm sure, within the United States Government.
Mr. SANDERS. Thank you very much for those thoughts, Mr. Chairman.
Mr. LAFALCE. Mr. Chairman.
Chairman LEACH. If I could yield. First to John, and go ahead.
Mr. LAFALCE. Thank you very much, Mr. Chairman.
First of all, it's always a pleasure to hear from my colleagues. I don't think this is a black or white issue. I don't think you can just be blindly for or blindly against; there are relative risks involved in action and in inaction. And even the strongest proponent of the Administration's request for either the NAB or the quota increase would have to share a good many of your concerns, as, I believe, the Administration shares a good many of your concerns.
The question is, how do we deal in the present context, how do we get from here to there?
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I address specifically now my colleagues on the Banking Committee, Mr. Paul and Mr. Sanders. Ron, I really want to work with you to deal with this issue of excessive credit expansion. Given the global flow of money today, and the obviously excessive credit expansion that we witness, is, what do we do about it? Now, you have an approach which I think is exclusively, if not primarily, dealing with the monetary, the currency situation. The Chileans have had a certain approach—George Soros has suggested a certain approach which I think is fraught with difficulties, too. And so to what extent do we deal with the problem by giving guidance without engaging in either United States or IMF gross micromanagement? To what extent can we give guidance to these countries so that they can adopt mechanisms of their own that would be appropriate? And I look forward to working with you on that.
Bernie, you and others have been clarion voices for the promotion of international labor standards, and I think that this is an imperative. Either we're going to help bring the standards of the world up, or they're going to bring us down. Now, whether we're going to be able to do this using the IMF as the vehicle, well, maybe to a certain extent we can, but it's certainly not going to be enough. I don't want to see it as such a precondition that it brings the IMF down either, but clearly, we have to have, at the very least, a much stronger parallel track for the promotion of international labor rights than we've had.
I've suggested as a start, the United States itself could begin the ratification of conventions that have been agreed to by the ILO. There are about 150 or so, I've forgotten the exact number. Most European countries have ratified about 70. I think the United States has ratified fewer than a dozen, most of the those have been technical, minor ones. All we have to do is look to the Papal messages in Cuba, where he talks about the right of every person to a job, the right to associate with his or her fellow workers, the right to bargain collectively, as inalienable rights. And we need to hear more of this from Alexis Herman, we need to hear more of this from Bill Richardson, we need to hear more of it from President Clinton and Vice President Gore.
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But I, again, don't think that we're going to be able to solve all of these problems. There are some things that can be done and can be done quickly. The release of the Indonesian labor leader can be done by the end of the day today. There are other things, too. We have a request for the NAB, we have a request for the quota increase. I'd like to do both immediately. But, if politically, we can't, we've had the NAB outstanding for a year. We reported it out of our Banking Subcommittee last March of 1997. We could pass that and then, as part of the fiscal 1999 budget, work on the quota increase and the other parallel issues that you and I and Ron, and so many others are so concerned about. And there are many, many others to, but I look forward to working with all of you on these issues.
I thank you.
Chairman LEACH. Thank you, John.
Mr. FRANK. Mr. Chairman.
Chairman LEACH. Does anyone on this side wish to be recognized? If not, Mr. Frank.
Mr. FRANK. Mr. Chairman, I want to thank you for that statement you made about the prison situation in Indonesia. You said that would be a very strong signal, and let me say that I think your statement was a very strong signal, and I hope some people are in the receiving mode. Thank you. I think making that statement could help us move this thing to a good point.
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Chairman LEACH. Thank you.
Mr. VENTO. Would the Chairman yield?
Chairman LEACH. Yes, of course.
Mr. VENTO. I appreciate your statement. Mr. Chairman, I just wanted to call my colleagues' attention to the fact that the three agreements which have been most prominent with regard to Asia, Thailand, Indonesia and Korea, the disclosure of those has been made voluntarily, albeit voluntarily, so that those documents are available. I think that should be the policy in terms of disclosure. I get a little confused when you use the world ''transparency,'' because most of us use that in regard to investments and other purposes. But disclosure of these documents has been made.
So I would direct your attention to it in Indonesia where it deals with the issue of the environment, and it deals with the social safety net, and deals with the issue of deregulation and privatization and, specifically, with cronyism. And in Korea, it deals with some of the issues being raised with regard to opening the markets and eliminating subsidies and so forth. There are specific clauses in there with regard to trade, but I know that you're all good students and you're going to do your homework on this carefully.
And I agree, we shouldn't rush into this. As I said, this one measure has been before us for a year. The other one is necessary, and looking at the scale of things, I must say I have never ascribed to this ''invisible hand'' theory, Mr. Sanders. I've been sort of an unrestricted federalist with regard to what we ought to be doing. I admit that so I don't have to, I expect, do penance for now suggesting the IMF in a global economy of tens of trillions of dollars has a small amount of dollars that it plays with.
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Realistically, they provide, or try to restore, what really causes this, and that's the evaporation of confidence when these problems have occurred, so they try to get people around the table. I hope we can push them to do as much positive with regard to the issues of their voice and vote as possible, and certainly consistent with our views and values.
So, I appreciate what you're suggesting, and I would hope that we would be dealing with the documents and be able to advance this, but it is very important in terms of just looking at it from our own dollars and cents, but I think there's a lot more to it than that, and that we ought to try to understand and achieve those goals through this means. The IMF, as I said earlier, isn't the problem. The IMF is a solution. If you have a better solution to deal with and avert these crises, any of my colleagues, I hope you'll bring them here. I mean, that's what we're all about, is the competition of ideas to deal with this particular issue, and I'd be most willing to look at better ideas and better solutions. That's the justification for us meeting about every year. We haven't quite finished our work yet.
Thank you, Mr. Chairman.
Chairman LEACH. Thank you very much, Mr. Vento.
The Chair would like to move as quickly as possible to the next panel, but I'd like to recognize Mrs. Roukema, briefly.
Mrs. ROUKEMA. Thank you, Mr. Chairman, I only have a brief observation. I want to say that I appreciate all the panelists. They reported very honestly and directly as they see things, either from their local State perspective or from their philosophical one. I appreciate that.
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I would simply want them to know, however, that our experience in our part of the country, and definitely in New Jersey, is quite a different one. I think people need to understand how important exports are to the U.S. economy. We're not just talking about big money center banks, we're talking about 25 percent of the exports in the New Jersey economy go to these particular countries, and I think there should be an understanding of that balance. We don't have time to discuss that here, but there are important economic concerns, not in terms of foreign aid, but in terms of our own economic self-interest in certain regions of our country with very significant corporations and job markets. This really comes down to job markets.
Thank you, Mr. Chairman.
Chairman LEACH. Thank you, Mrs. Roukema.
Let me thank our panel for their extraordinarily thoughtful interventions. Thank you very much.
Let me introduce our next panel of extraordinarily distinguished witnesses, and we've tried to make an effort to have perspectives from a wide variety of sources. Our first witness—I'll introduce each momentarily—is Mr. Raymond Bracy, who is President of Boeing China, which is a division of the Boeing Corporation. Mr. Bracy manages and coordinates sales and support activities in China, Japan, Korea, Taiwan, Singapore and Thailand.
Our second witness is Mr. George Becker who is the Sixth International President of the United Steelworkers of America. Since assuming the presidency of the Steelworkers, he's restructured the union by reducing the number of United States districts to 9 from 18, he's led the successful merger with the former United Rubber Workers into the USWA, and he's reached an agreement with the Presidents of the United Auto Workers and International Association of Machinists to unify into a union by the year 2000, which is a very impressive record of leadership.
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Our third speaker is Mr. Steven Appleton who is Chairman of the Board and Chief Executive Officer and President of Micron Technology, Inc. Mr. Appleton has served on the board of directors for Semitech and was appointed by the President to serve on the Semiconductor Technology Council. He also currently serves on the board of directors for the Semiconductor Industry Association.
Our next witness will be Mr. Dean Kleckner, who is President of the American Farm Bureau Federation, one of the most respected spokespeople for farm issues in the country, and also a distinguished producer himself.
Our next witness is Mr. Joe Russo who is president of IPSCO Steel, Inc., which is a substantial manufacturer of steel products in the United States and Canada.
Our next speaker will be the Honorable W. Henson Moore, who is currently the President and Chief Executive Officer of the American Forest and Paper Association, and obviously a former colleague of ours who has many, many warm friends in this body.
Our next speaker is Mr. John D. Cohn, who is Vice President for Global Strategy Development of Rockwell Collins, a company that exports for itself, and through companies like Boeing, a substantial amount of products to the Far East.
And our final witness will be Mr. Donald A. Hilger, who is Assistant Vice President of the Cargill Grain Division of the Cargill Corporation. He's been a senior economist of Cargill Grain since 1982, and he has over twenty years experience as short-run market analyst, long-range projection studies, and agricultural policy. And we appreciate the perspective that he will bring from that of an expert on agricultural products.
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Well, let me begin with our first witness, who is Mr. Bracy from the Boeing Corporation. Please proceed.
STATEMENT OF RAYMOND W. BRACY, PRESIDENT, BOEING CHINA, INC.
Mr. BRACY. Thank you, Mr. Chairman and Members of the committee.
My name is Raymond Bracy. For the past year, I have managed the Asian Pacific sales portfolio of the Boeing Company's Commercial Airplane Group. Again, thank you for the opportunity to share the Boeing Company's perspective on how the current Asian financial crisis is affecting Boeing's current and future airplane deliveries. I also want to share some thoughts on how the United States can develop a comprehensive response to the turmoil in Asia.
Before proceeding further, on behalf of the Boeing Company, I would like to make an important point. We believe that the Asian crisis is not a ''Wall Street'' issue, or a ''corporate America'' issue, or a ''big bank'' issue. It is simply and plainly a ''Main Street'' issue. How the United States addresses this crisis will dramatically affect the fortunes of millions of regular Americans across the country in terms of their jobs, their purchasing power, and their security.
In forecasting the affects of the crisis on Boeing, we look at both future orders and the effect on our near-term delivery schedule. Over the next ten years, the Asian Pacific region is expected to be the fastest growing market for air travel, and for new commercial airplanes, it will also be the fastest growing. We anticipate the carriers in this region will purchase approximately 30 percent of the world's orders for commercial airplanes. This would be equivalent to approximately $150 billion, and we estimate that for every billion dollars, we create 11,000 jobs in the United States. Based on these estimates, it's easy to see why continued access to this market is important.
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Mr. Chairman, if I may, I'd like to offer additional information for the record. We have a pamphlet here we call ''The Invisible Exporters,'' that has a sample listing of some of our suppliers. There are about 2,500 suppliers all around the United States, large companies as well as small companies, that indicates in a little bit more detail where jobs are created as a result of sales. I'd like to offer that for the record.
Chairman LEACH. Excuse me, let me say, without objection, all of the statements will be fully in the record, and any addendum material, such as cited by Mr. Bracy.
Mr. BRACY. Thank you, sir.
I'd also like to add that 86 percent of the commercial airplanes built by the Boeing Commercial Airplane Company are of content in the United States. So, 86 percent of the content is U.S.
So, these future sales will not occur, in our view, if we stand by and let the economic crisis in Asia continue.
Mr. Chairman, the Boeing Company forecasts the demand for aircraft as a function of growth in economies around the world. As economies grow, businesses prosper, trade prospers, individual wealth occurs, and people begin to travel in support of their pleasure and also in support of their business. As air traffic grows, airlines prosper, and eventually this leads to the demand for new aircraft.
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We actually see air traffic in this region slowing down significantly. As a result, we've revised downward our forecast for new airplane deliveries. To put things in context, we have over 300 deliveries to Asian customers in the next three years, including this year, 1998, 1999, and 2000. This represents nearly one-fifth of our total production. Our most recent analysis shows that we can reasonably expect 60 fewer deliveries as a result of this crisis.
For the most part, airlines are indicating that they'll take deliveries scheduled for 1998. This implies that most of the vulnerability to our production planning process resides in 1999 and 2000, perhaps beyond. It's primarily limited to two product lines, the 747 and 777. The demand for those aircraft in other parts of the world is robust, and we have confidence they'll be at levels of production in the next three years that we now enjoy. Additionally, those deliveries in 1999 and 2000 that are at risk offer us time to be pro-active, to manage our production cycle.
Mr. Chairman, as you have clearly recognized, the key element of the U.S. response must be to provide sufficient resources for multilateral institutions such as the IMF. The psychological impact of the failure by the United States to provide financial support for the IMF would, in our view, be very damaging.
But IMF funding is not sufficient. We need to work with countries in the region to rebuild their economies in a manner that strengthens our ties and relationships. We need to think more broadly about the U.S. response to the crisis. For example, we need to acknowledge and reinforce the critical role that China is playing in the Asian crisis by integrating China more deeply into multilateral institutions such as the global trading system. We need to maintain U.S. support for open trade and resist the temptation to adopt trade restricting policies to accommodate the anticipated influx of imports into the U.S. market. It's important that we state this should not be misconstrued as a blank check for countries to export their way out of this crisis. Balanced economic policies are key.
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We need to ensure that the Eximbank has adequate funding and competitive programs to correct gaps in the private marketplace. The alternative is to lock ourselves out of these markets for decades to come.
Finally, relationships are key in Asia and we need to work closely with Asian countries to develop policies to reinforce the difficult steps required to recover from the crisis.
Mr. Chairman and Members of the committee, there is no doubt that if the United States Government does not respond forthrightly and deliberately to the problems in Asia, the Boeing Company's sales in the region and the jobs of American workers will be adversely affected. The stakes are high. The United States must recognize our fortunes and those of the Asians are indeed linked. American workers' jobs, including the workers at Boeing, will be definitely affected by either the success or the failure of U.S. policy in the region.
Thank you very much.
Chairman LEACH. Thank you very much, Mr. Bracy.
Mr. Becker.
STATEMENT OF GEORGE BECKER, INTERNATIONAL PRESIDENT, UNITED STEELWORKERS OF AMERICA
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Mr. BECKER. Thank you, Mr. Chairman.
My name is George Becker, I'm president of the United Steelworkers of America, but in addition, I'm Chairman of the Economic Policy Committee of the Executive Council of the AFL-CIO.
Last Thursday, on January 29, the Executive Council of the AFL-CIO passed a resolution on this subject. I'll submit that resolution and a more detailed record of my comments later.
I appreciate the opportunity to be here today on behalf of the 13 million working men and women of the AFL-CIO. We in the labor movement are well aware of the financial crisis now roaring through East Asia, and the profound consequences for working people all over the world. We stand in solidarity with the working people of Asia, and urge the IMF and U.S. Congress to put the interests of workers and communities at the top of their priority lists as they take steps to address this crisis. The concerns of workers, not bankers, not financiers, or multinational businesses, should drive public policy.
American workers will not accept the use of their tax dollars to finance the destruction of their own jobs. Insult is added to injury when these tax dollars are used to rescue banks and speculators from the consequences of their own poor decisions. Deep currency devaluations, in conjunction with austerity programs, will cut wages and purchasing power in South Korea, Indonesia, and Thailand. The United States will be pressured to act as importer of last resort, absorbing cheap Asian goods while at the same time Asian markets for our exports will dwindle.
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In the aftermath of the crisis, the U.S. trade deficit is projected to grow by about $100 billion in 1998, resulting in a loss of approximately one million jobs, or potential jobs, some 70 percent or more of them in the better paying manufacturing sector. Job losses will be heavily concentrated in industries such as steel, electronics, apparel, and automobiles, in which East Asia is a large producer. Export-intensive industries such as aircraft and capital goods, will also suffer as domestic spending in these countries is curtailed.
Without fundamental changes in the structure of international finance markets and institutions that regulate these markets, we can expect continued volatility in the future crisis of growing severity.
Contrary to the view of some, we firmly believe that the present moment of crisis is exactly the time to press for necessary changes in the international financial system, particularly in the positions imposed by the IMF in exchange for the bailouts it gives to countries that have exhausted all other sources of credit. The United States should condition further contributions to the IMF on fundamental changes in the IMF's program. The clout in leverage exercised by the IMF must serve a broad set of social and economic goals. Currently the IMF defines its mission narrowly, protecting the interests of international capital.
The IMF requires debtor governments to raise interest rates, cut public spending, deregulate financial markets and weaken labor laws that facilitate massive layoffs and deep wage cuts. These terms may solve some short-term credibility problems with foreign investors, but will inevitably increase the tensions, inequality, and instability of the global economy. Such policies are short-sighted and must be fundamentally altered.
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The United States, which is the single largest contributor to the IMF, must use every means at its disposal, both formal and informal, to change the way the IMF operates. The AFL-CIO will support Members of Congress in efforts to ensure that the IMF programs reflect the following principles:
One, commitment to and vigorous enforcement of international labor and human rights. Countries that receive IMF funds must commit themselves, in an enforceable way, to respect for internationally recognized worker rights. If necessary, this would involve modification of laws and practices to comply with ILO standards and human rights. Strong and independent labor unions play a crucial and irreplaceable role in ensuring that the benefits of economic expansion are equitably redistributed.
Two, domestic economic growth and development, not austerity and export-led growth. The model that led to this crisis glorifies export expansion as a preferred development path. This model leads to destructive, low-road international competition and worker impoverishment, and is ultimately unsustainable as the current crisis demonstrates. While export-led growth may be a viable for some countries for a period of time, it cannot work for all countries at once. The United States has neither the capacity nor the will to absorb unlimited exports, thus the rescue plan for East Asia must not rely exclusively on the premise that we will do so. The United States, Europe and Japan must work together to stimulate domestic demand in the developing economies, and avert a dangerous tendency toward global deflation.
Three, reduction in the volume of destabilizing capital flows. Over the long run, it is essential that policies to regulate short-term borrowing and to dampen speculative flows of capital be implemented.
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Four, transparency and broader participation in determining IMF policy. The IMF must consult regularly with labor unions and other broad-based organizations, not just with business and financial institutions, in the development of structural adjustment programs and emergency loan packages. Program documents should be made publicly available. By recognizing that workers must be included in developing a response to economic crisis, the tripartite commission, including representatives of labor, business and government established in South Korea is a promising step.
Five, ensure that speculators pay their fair share. The banks, corporations and individuals who profited from risky investments during good times must not be shielded from losses during downturns. Banks must reschedule their debts with long maturities at appropriate terms, ensuring that financial losses fall on those who made poor decisions. This must be an explicit and widely understood condition for future IMF funding, as well. Asian and American workers and taxpayers must not be asked to foot the bill for a party to which they were not invited.
Even if we move toward reform of the international financial systems, concrete steps must be taken to stop the destabilizing flood of cheapened imports which have already been unleashed by this crisis. Strategic intervention by the United States and Japan could help the embattled currencies of Indonesia, Thailand, and South Korea to stabilize and regain some of their lost value. In the United States, steel, autos, electronics, apparel, and other threatened industries face an immediate threat which requires specific trade actions to maintain import shares consistent with pre-crisis levels in order to protect the jobs of these workers.
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Thank you for the opportunity to share the views of the labor community on this important subject. We look forward to working with the Members of this committee to structure solutions that adequately express these concerns.
Chairman LEACH. Well, thank you, Mr. Becker for that exceptionally thoughtful statement.
Mr. Appleton.
STATEMENT OF STEVEN R. APPLETON, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, MICRON TECHNOLOGY, INC.
Mr. APPLETON. Well, I guess since it's officially afternoon now, I'll say good afternoon. My name is Steve Appleton. I am the President, CEO and Chairman of Micron Technology of Boise, Idaho. Before continuing, I want to thank Congressman Crapo for his positive comments about myself and Micron Technology earlier.
Micron is the largest and, in fact, the last remaining United States producer of Dynamic Random Access Memory, which is better known by most as DRAM, and recognized as the key memory semiconductor used in everything from computers to defense systems to satellites.
Micron is the second largest and lowest cost DRAM producer in the world. We are the ninth largest maker of personal computers in the United States. We employ more than 13,000 people; we have significant operations in Idaho, Utah, Minnesota and North Carolina.
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I appreciate the opportunity to testify here today regarding an issue that has been threatening the existence of my company for over a decade. I think we all realize the financial situation in Asia and its ramifications for the United States economy are complex issues, and I applaud your efforts to ensure there's input from all sides. I hope Congress will not subscribe to the notion that if we merely divert enough funding into the Asian market we will avoid a global economic meltdown. The Administration put forth an admirable effort to place conditions on the initial money provided by the IMF to South Korea. As we move forward, greater control will be required to ensure needed reform.
We have an opportunity with any new funding to require well defined and enforceable reform measures. More specifically, I have several points that are critical to achieving this.
Number one, the United States and IMF must specifically insist that no IMF funding, World Bank, Asian Development Bank, or bilateral funding be provided to protect or save Korean producers. I raise this issue, in part, because the Korean DRAM producers are telling their equipment suppliers that when IMF funding occurs they will be able to accept delivery of new capital equipment purchases.
Number two, neither the Korean government nor the IMF should be permitted to guarantee or underwrite the private loans of Korean manufacturers. This is analogous to the U.S. Government guaranteeing Micron's debt.
Number three, neither the IMF nor the United States Government should pressure private institutions to rollover current loans on more favorable terms. Such pressures imply that there is an obligation by the Government to help make these loans good. It also encourages banks and financial institutions to make poor lending decisions without any penalty.
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And number four, steps must be taken to speed up the adoption of reforms by the Korean chaebols. The IMF economic program for Korea that accompanied the standby credits contains a variety of required structural reforms proposed by the Administration. If implemented properly, and on a timely basis, these reforms could result in positive market-based restructuring.
In this way, the United States can remain a good partner but insist on a more enlightened path that may not be recognized as such. Without adequate conditions, it would be better by any measurement to provide no money at all. We simply would be rewarding and perpetuating unsound economic practices that have created the current crisis. Mr. Chairman, the inevitable wreck next time will be far more costly than this one.
Micron has been involved in several dumping cases regarding the non-commercial predatory practices of Asia. I have testified on the topic of international trade before both the House Ways and Means and Senate Finance Committees. I've watched one U.S. company after another forced out of this important product area by unfair trade practices. It is those very same practices that have brought Asia to the brink of economic disaster.
The unsound practices were well identified by both economists Dr. Lindsey and Dr. Sherman during last week's testimony. They include crony capitalism, loose banking practices, and unsustainable debt structure. The South Koreans pursued export-led strategies in the markets that could not possibly absorb the huge amount of overcapacity.
I want to explore for a moment how these practices exhibit themselves within the industry.
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In the late 1980's, the three largest Korean chaebols, encouraged by their government through subsidization and non-commercial directed lending, embarked on an ambitious plan to penetrate the DRAM industry. Through rapid expansion and an export target of 90 percent, they were able to corner 40 percent of the world market in a just a few short years. DRAM became the country's single largest export product, accounting for approximately 15 percent of total exports. During the last two years, a period which is now recognized as the worst downcycle in the history of our business, the three Korean producers, Samsung, Hyundai, and L.G. Semicon, continued to add capacity, and, in fact, two of them are starting to ramp up new DRAM manufacturing plants as I speak.
This expansion is occurring despite the reality that three companies combined over the last 24 months have had negative cashflows approaching $8 billion. The result of this additional Korean capacity has been a highly leveraged, sustained, worldwide glut of semiconductor memory selling for prices far below the cost of production. To put this in perspective, the selling price of the industry's primary product has fallen in the last 24 months from $50 down to $2.
It does not take a financial wizard to figure out why the chaebols cannot pay back their 400 percent debt-to-equity levels. Nor is it difficult to understand why no institution in its right mind would loan them any more money without government guarantees.
It appears no lessons have been learned from this economic catastrophe. According to statements by the Korean government in Korean companies, they are planning on increasing output and exports at an alarming rate. They still plan to spend billions of dollars in 1998 and double their chip output over 1997 levels. We cannot allow them to export their way out of this problem to the detriment of U.S. companies. Normal market forces would eventually eliminate this unwise investment. In this case, it was delayed by government intervention, but, ultimately, even governments run out of resources as we are now witnessing in Asia. And just when market forces would address the economically flawed, predatory practices of governments, the world is stepping in to alter artificially the outcome.
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Unfortunately, good companies are being destroyed in this process. I will not dwell on the nine U.S. companies that are no longer producing DRAM, but suffice it to say, that none of them received IMF assistance to remain in the business. Our industry lost thousands of very skilled, high paying jobs, and even though Micron still remains, we continue to be squeezed by unnatural market forces. This is a good example of what can happen when a government in concert with private industry decides to subsidize and manipulate a specific market. It would be devastating to permit U.S. tax dollars to be spent on bailing out Asian manufacturers particularly when their irresponsible and non-commercial actions led to this crisis. It is a mistake to provide funding to save insolvent industries. Until we stop rewarding poor economic practices which are clearly harmful to all, we will continue to experience future crisis events.
Mr. Chairman, let me conclude by restating the four points I made earlier. We must insist that no U.S. funding is provided to protect or save Korean producers. We must insist that neither the Korean government nor the IMF be permitted to guarantee or underwrite private loans of Korean manufacturers. Number three, we must insist that neither the IMF nor the U.S. Government pressure private institutions to roll over current loans on more favorable terms, and number four, we must insist that steps be taken to speed up the adoption of reforms by the Korean conglomerates.
I have a board member by the name of J.R. Simplot. He will be 90 years old this year, and he continues to be one of the most successful businessmen in the country. As you can imagine, he has witnessed a lot of economic cycles in his lifetime. He made a comment at our last board meeting a couple of weeks ago that I thought pretty well summed up the Asian crisis. He said, ''Son,''—he always calls me 'son'; calls everybody 'son'—''it's simple. They overborrowed; they overbuilt, and somebody has to pay the price for it.''
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Thank you for your time today.
Chairman LEACH. Well, thank you, Mr. Appleton.
Our next witness is Mr. Dean Kleckner of the American Farm Bureau.
STATEMENT OF DEAN KLECKNER, PRESIDENT, AMERICAN FARM BUREAU FEDERATION
Mr. KLECKNER. Thank you, Mr. Chairman. I am Dean Kleckner. I'm a corn, soybean and hog farmer from northern Iowa. I'm now serving as President of the American Farm Bureau Federation, which is not only the United States', but as far as I know, the world's largest organization of farmers. We have members in all 50 States, and we grow everything that's grown in the United States, all 280 or so commodities that are produced. I want to thank you for holding this hearing, Mr. Chairman.
The most important partner in most farming operations is our banker. Just as our bankers at home are important, your role in shaping the direction of trade programs, such as with the IMF, will have a major impact on the economic stability of American agriculture in the Asian marketplace.
The financial crisis in Asia is of paramount importance to our members. I hear it at every meeting I go to, they ask me, ''What do you think? What's going on?'' We depend on international markets for 30 percent of our income. The Asian market accounts for over 40 percent of all agriculture exports worldwide. This totals up to over $23 billion in export sales from agriculture in 1997; that's just about what agriculture contributed to the overall balance of payments of this country in a positive way.
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The events in Asia are already affecting sales of agriculture goods in the ten Asian markets that have seen their currencies devalued. Devalued currencies result in increased consumer prices, which then directly translates into less market demand. Less sales mean lower income for our producers and economic pressures on rural economies and rural communities. Current USDA estimates show a reduction of about $500 million in sales to Asia so far this year; that's not going to be enough. The total impact may reach $2 billion or $3 billion before the crisis is over.
Let's look at some specifics. According to experts in the Asian offices of the U.S. Meat Export Federation, the financial crisis has induced a frugality in South Korea. This includes calls for consumers to buy domestic instead of imported. This has resulted in many Koreans avoiding fast-food franchises which are major users of U.S. value-added products. The Indonesian rupiah's drop against the U.S. dollar currently means 30- to 35-percent reduction in consumer purchasing power. USMEF's Asian manager reports that sales of U.S. beef in Indonesia's five-star hotels dropped 10- to 15-percent, and he estimates that the crisis in Indonesia will last another two or three years. The hotel food and beverage businesses have also slowed. Major U.S. chains have reported a 10- to 15-percent decrease. Importers are stocking less as they are experiencing credit problems. Banks are reluctant, or are unable, to issue letters of credit for imported goods.
Each country's situation is unique—and we've heard that here this morning from our previous witnesses—but stable currency is needed for viable, long-term markets. The arsenal of tools needed to help our trading partners in Asia to resolve the crisis must be fully utilized. These tools include developing and putting into place sound monetary practices coupled with credit guarantees and programs like the USDA export credit guarantee programs and the IMF assistance plans. I believe that for IMF programs to be successful they must be adequately funded and focused on requiring the recipient countries to make the long-term internal adjustments that will lead to sound, domestic economic systems—we've heard that also this morning. These include stable currencies, stable taxes, and upholding of private property rights.
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I want to call to your attention, all of you, a January 27 Senate letter to Secretary Rubin which is attached to my testimony. I won't read it. I'd just say I support these Senators in their request for greater access to foreign ag products as a part of these countries' reform packages. This has not only been our fastest growing market, but also one of the most difficult in which to attain market access. I say to you that IMF loans are not an expense to the taxpayer, but an investment. The USDA has projected that agriculture will lose, at the very least, 3- to 6-percent of our hard-earned market share in Asia even with the IMF programs in place. These loan programs are an investment in our future as well as that of our trading partners. Where do we go with our product from lost market share and normal production growth in the meantime? Where do we go? As these programs take shape, we must also look to expanding existing market access and opening new markets. Our negotiators must have Fast Track negotiating authority to do this. The stakes are too high to allow inaction. A loss of 30- to 40-percent of our agriculture export market would destabilize our industry. Farmers would be dead; we'd be dead without this export market.
IMF-led assistance programs are critical to the overall economy in the region, and Fast Track is critical to picking up lost market share and expanding access to worldwide markets. Ours is truly a global economy. When our strongest customers face grave fiscal and financial crises, agriculture is the first to feel the effect as our customers lose purchasing power. The U.S. agriculture's ability to gain and maintain market share is based on many factors, including; one, good trade agreements; two, the Administration's ability to negotiate freer and fairer market access with Fast Track; three, sound monetary policies; and the fourth one, the ability to utilize market stabilizing tools such as a properly functioning IMF.
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I believe an IMF that lives up to its original charter, number one, and, two, Fast Track negotiating authority are critical tools that the Administration must have to protect and keep the U.S. economy stable. It's extremely important to U.S. agriculture and the Nation's economic strength that you do the right thing and pass both of these trade measures early in this session of Congress. I urge you to provide the funding necessary for the IMF to address the needs of our trading partners in Asia, and later this spring to then grant the Administration the Fast Track authority to continue to open markets for all sectors.
Thank you, Mr. Chairman.
Chairman LEACH. Thank you, Mr. Kleckner.
Mr. Russo.
STATEMENT OF JOSEPH D. RUSSO, PRESIDENT, IPSCO STEEL, INC.
Mr. RUSSO. Thank you, Mr. Chairman. My name is Joe Russo, and I am President of IPSCO Steel, Inc. We operate a new, 1.2-million-ton-per-year steel mini-mill in Montpelier, Iowa that produces both flat-plate and hot-rolled steel coils. We have invested $450 million in land, buildings, equipment and working capital for this greenfield facility.
Our sister company, IPSCO Tubulars, Inc., operates pipe facilities in Camanche, Iowa and Geneva, Nebraska, and is currently constructing a facility in Blytheville, Arkansas. As well, IPSCO has a coil processing center, PaperCal Steel Co., in St. Paul, Minnesota.
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We employ between 800 and 1,000 employees at these locations and create thousands of additional jobs through the construction, supply of materials, services, and transportation of products to and from our mills.
This morning, I am testifying on behalf of three steel trade associations which IPSCO belongs to, they are: the American Iron and Steel Institute (AISI), the Steel Manufacturers Association (SMA), and the Committee on Pipe and Tube Imports (CPTI). Together these organizations account for almost all carbon steel production in the United States, and collectively their members employ 217,000 people nationwide.
Mr. Chairman, our Iowa plant is one of the lowest cost producers of flat-plate and hot-rolled coils in the world. We fear no fair competition, domestic or foreign. We are here to express our concerns about unfair foreign competition and government-distorted trade policies that continue to threaten our industry and our workers. We want to ensure that the IMF package to Korea and other Asian countries stabilizes the region, but most importantly ends the government lending and subsidy practices which in the past have favored targeted industries, such as steel. Its enforcement is critical to our industry's future.
I'd like to begin by addressing the Korean steel industry. Today, Korea ranks in the top six of global steel producers. In fact, Pohang Iron and Steel Company—POSCO—which was founded by the Korean government in 1967, is projected to be the world leader in steel production this year. Today, POSCO still has government ownership, 36 percent to be exact. The Korean government has had a long history of supporting strategic industries. This was proven when Korea's second largest steel producer, Hanbo Steel, entered into bankruptcy in January of 1997. In fact, I believe that Hanbo is truly the poster child of the current Asian crisis. Hanbo was given preferential treatment by the Korean government through preferred lending practices. A total of $5.8 billion was directed to Hanbo to build a new 9-million-annual-ton steel complex in Tangjin, Korea.
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The financial facts were clear at the start. Hanbo was an uncreditworthy company, yet it received loans as a result of government-directed lending practices. These were all efforts of the Korean government's industry policy to expand the country's steel industry. The result was the collapse of the company and the sentencing of numerous officials to jail for bribery. What is most disturbing is that the government continued subsidies after Hanbo filed for bankruptcy. Korean government officials were quoted saying that it was important to keep the Hanbo plant operating for the national economy.
These practices are unfair, unacceptable, and violate global trade rules. Furthermore, today, nearly a year after the bankruptcy, Hanbo continues to operate, creating overcapacity in the Korean market with the assistance of the government. It is unclear to us if the bankruptcy trustees are free from government control to fairly represent the creditors and others who lost out in this deal. The critical issue is to ensure that the conditions of the IMF package are enforced and that the Korean government, through its new leadership, is held accountable to these terms.
I can comfortably say that we are quite satisfied with the conditions attached to the IMF funding which included broad reforms of its bank lending practices, the end to government directed lending, and the end of subsidies or special tax privileges used to rescue corporations.
The real question is after the dust settles, will the Korean government adhere and comply with these guidelines so that there may be fair trade between Korea and the U.S. for the first time? Or will it revert back to its previous unfair practices?
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In closing, Mr. Chairman, we are all concerned that neither the IMF nor the Treasury Department have the resources or the resolve to monitor the critical trade aspects of the agreement which are so vital to our industry and other U.S. manufacturers. We must make sure that the parties involved are aware of the global trading disciplines which apply to subsidies. In particular, IMF president, Mr. Camdessus, stated to the Wall Street Journal that he ''wouldn't object to special loans to the export sector...'' to assist Korean exporters. Quite frankly, this is troubling, because this would violate the World Trade Organization's Subsidies Code.
Mr. Chairman, as your committee and the Congress prepare to consider the request for additional IMF funding, I leave you with the following suggestions:
First, make sure there is strict enforcement of the IMF conditions and require quarterly reports from the Treasury Department and the Department of Commerce that verify that no U.S. or IMF funds are being used to subsidize Korean industry.
Second, if the IMF allows the Korean government to use IMF funds for export subsidies in direct violation of the Subsidies Code, the U.S. Congress should refuse to appropriate more funds to the IMF.
And last, Congress should urge the Administration to pursue WTO dispute settlement over past Subsidies Code violations concerning Hanbo Steel, and to aggressively police and prosecute all Subsidies Code violations by our trading partners.
Mr. Chairman, thank you for the opportunity to testify here today.
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Chairman LEACH. Thank you for that excellent statement.
Mr. Moore.
STATEMENT OF HON. W. HENSON MOORE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, AMERICAN FOREST & PAPER ASSOCIATION
Mr. MOORE. Thank you, Mr. Chairman and Members of the committee. I am President and CEO of the American Forest and Paper Association, which is the national trade organization representing the domestic industry producing wood building products and paper. The U.S. forest products industry is the largest producer of forest, wood and paper products in the world. In the case of paper, we're bigger than the next three producers worldwide combined.
We've had a long history in Asia, a history you've heard some of the previous speakers address. We've been subject to tariff barriers, non-tariff barriers, discriminatory standards, cronyism, you name it, I think we've seen it over the years.
While I realize that current sales are an issue, I'd like to take a different tack, if I could. The advice of our industry's experience in that part of the world would be simply this: We're going to have the same problems over and over again unless structural changes are made in their economies. It's just that simple.
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According to our brief analysis, the Asian problems today could be traced right back to the fact that they don't have the competition of open markets. They don't allow competition, or they've got ways of fixing things to avoid the marketplace, which seems to sort out these matters in economies like ours. So, don't make the mistake of doing something or not doing something that will cause us to be right back here with these kinds of problems in the future. Meanwhile, of course, many of our industries suffer in that long process in between.
So, our advice would be to take a long-range view, see to it the United States Government—in its negotiations in the current crisis and also through its vote in the IMF—ensures that structural changes are made in those economies. I'm led to believe that some structural changes are being offered up, but that's not—and this is where I think our testimony may bring a little different picture dealing with tariffs.
The APEC countries, 18 countries including the United States, in November of last year, met in Vancouver and agreed by June of this year to negotiate the reduction down to zero in tariffs in 15 different sectors, including the sectors that I represent, and all of the countries currently in Asia applying for IMF aid were part of APEC, and their trade administrators agreed to do that.
We're fearful that now that we've had these problems going on in the Asian economies, that many of those countries, or some of the other countries that aren't having problems, may use this as an excuse to say, ''Oh, we can't do that now. We need to retreat back behind protectionism, tariffs, a little while longer until we get out of our current economic crisis in Asia.'' We would hope the United States Government and IMF would not do that and would connect—and I'm led to believe in a meeting last week with officials for the Administration that they are not now connected—that the IMF aid and the United States Government separate aid is not connected to these APEC tariff issues.
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The Administration did a fine job in negotiating the reduction of these tariffs in these 15 different areas. It seems to me there ought to be a connection between our trade negotiating policy and our international economic policy. To me, I think they're inextricably intertwined. For some reason, they don't seem to be connected at the present time. When you talk about changing the structure of another country's economy, tariffs have to be part of that equation if tariffs are a problem, and certainly they're a problem in that part of the world.
Mr. Chairman, Members of the committee, that's our simple advice that we would offer from our years of experience in that part of the world. Look at this tariff situation as well as the other things people have been talking about as structural changes that part of the world needs to make. In our opinion, the United States cannot continue to stand alone as a market of first and last resort, in the face of predictable floods of Asian imports. Right now, the devaluation of their currency is to the point that we know we're not going to be exporting much to that part of the world with the strength of the dollar, and we're fully braced for what we expect are going to be tremendous increases in imports as many of those countries are strong competitors of ours in the products that we make. We're going to see strong levels of imports of their products coming in. We know there's not much you can do about that in the short term, but we can darn sure see to it that we change the structure of how those economies operate including their tariffs. The APEC countries tentatively agreed last November to take tariffs down to zero by the year 2002 in the case of paper and 2004 in the case of wood products, and other dates in the other areas. We can darn sure see to it that that's a condition, or a part of what's going on, and they not be allowed to retreat from that tariff liberalization commitment.
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The tariffs in the United States are already at zero on wood and paper, and the same thing is true for Canada. Basically, I think that's something the committee ought to look at, and that would be our advice for the committee. Certainly the countries that are in trouble and need IMF's help need to do this, but other countries that are part of that region who are also a part of APEC, Japan and China as well as Korea, need to do their part, too.
Thank you.
Chairman LEACH. Thank you for that good advice.
Our next speaker, John, please go right ahead. Mr. Cohn.
STATEMENT OF JOHN D. COHN, VICE PRESIDENT—GLOBAL STRATEGY DEVELOPMENT, ROCKWELL COLLINS
Mr. COHN. Thank you, Mr. Chairman, for the opportunity to testify today before your committee. My name is John Cohn. I am Vice President, Global Strategy Development of Rockwell Collins.
Rockwell Collins, whose primary focus is communication and aviation electronic products and systems, is an operating entity of Rockwell, a global electronic controls and communication company with leadership positions in industrial automation, avionics and communications and semiconductor systems. Our Collins business, as you know, Mr. Chairman, is headquartered in Cedar Rapids, Iowa.
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You have asked us, today, to address issues related to the Asian financial crisis with particular attention to the appropriateness of advancing a replenishment of the IMF. I am pleased to have that opportunity to give you Rockwell's perspective on these important issues.
Rockwell has just completed a major transformation. With the divestitures of our aerospace and defense and graphic systems businesses, as well as the spinoff of our automotive activities, Rockwell has become a sharply focused global electronics company, serving markets around the world. Rockwell sales were nearly $8 billion in our fiscal year 1997.
Rockwell's international sales have grown steadily during the 1980's and 1990's. In 1983, for example, international sales accounted for approximately 13 percent of our total revenues, and today it is more than 36 percent. We have been, and will continue to be focused on regional expansion of our business activities in Asia, Europe, and Latin America, and view them as important growth markets for our businesses. Asia Pacific specifically represented about 13 percent of Rockwell's total sales volume in 1997, Europe accounted for about the same, and Latin America, a lesser amount. In the future, Asia Pacific, which includes three of the four most populous countries—China, India, and Indonesia—is expected to represent significant growth opportunities for our company.
With this in mind, we believe that it is important that efforts be made to stabilize the economies of our Asian trading partners and recognize the future potential that Asian markets represent not only to Rockwell, but also to our major OEM customers such as Boeing. Although the Asian situation to date has not had a detrimental impact on our first quarter, and we do not expect a significant impact during this calendar year, we believe it would not be in anyone's best interest if we allowed any of the Asian economies to fail. We further believe that our Asian customers are looking for our support and leadership during this difficult time. We should recognize this and exert influence to help restore stability to our Asian partners and put them on a strong economic footing with strong underlying fundamentals. This is in the best interest, we believe, of the United States, particularly in the competitive, global business environment in which we operate today.
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Another area of concern, related generally to the U.S. economy, is that falling currency values and weakening economies in Asia could harm U.S. competitiveness as Asian products become less expensive and Asian producers look to export markets to replace falling domestic and regional sales. Further, failures of developing countries in Asian could have a contagious effect on other countries and other regions and could have depressing impact on the business conditions in the U.S. Obviously, we are continuing to monitor this situation and its potential impact.
The IMF plays a central role in promoting global economic stability. In fact, it would appear that the IMF is the best suited institution to respond effectively and deal with the Asian economic situation and help get these countries back on track to economic growth. I say this for three principal reasons.
First, as a multinational organization, the IMF is able to require an economically distressed country to accept conditions that no contributing nation could require on their own.
Second, the IMF has the credibility and the resources to design and implement effective reform programs and possesses a unique capability to contain damage from financial shocks while directing domestic reforms to help prevent future crises.
Third, the IMF advances U.S. interests. Its activities support the activities of global trade, global growth, and employment while ensuring that the United States does not bear a disproportionate burden in securing world economic stability.
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The IMF, therefore, allows the U.S. to pursue its economic and other national interests in a positive fashion. Failure to provide the IMF with adequate resources, we believe, poses significant risk to the global financial system and to American interests.
Based on the above, support for our pledge to the IMF and support for a new emergency fund, the New Arrangements to Borrow, to supplement the IMF's resources to deal with the Asian economic situation is necessary to enable the IMF to respond effectively, if this crisis in Asia were to spread and intensify and to deal with future crises that could similarly affect the interests of the United States.
In conclusion, the U.S. providing its share of IMF funding will ensure that our country has a full say in any discussions on IMF policies and programs, and, to me, this is a role that we should want to have in the global, competitive environment. The United States has always played a leading role in the IMF. In our view, it should continue to do so.
Mr. Chairman and other Members of the committee, thank you very much for allowing me this opportunity to testify today.
Chairman LEACH. Thank you, Mr. Cohn.
Mr. Hilger.
STATEMENT OF DONALD A. HILGER, ASSISTANT VICE PRESIDENT, CARGILL, INC., ON BEHALF OF THE NORTH AMERICAN EXPORT GRAIN ASSOCIATION
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Mr. HILGER. Thank you. Mr. Chairman and Members of the committee, I am pleased to appear here before you today on behalf of the North American Export Grain Association to outline the significance of trade with Asia for American agriculture.
My name is Don Hilger. I am the Assistant Vice President of Cargill, Incorporated, based in Minneapolis, Minnesota. The organization I represent, NAEGA, is 76 years old. It represents the companies and cooperatives that are leading exporters of U.S. grains and oilseeds to customers around the world.
I have prepared a detailed statement of NAEGA's views on the Asian crisis. I ask that it be included in the record of today's hearings.
Chairman LEACH. Without objection.
Mr. HILGER. Thank you.
NAEGA supports authorizing $3.5 billion for the new account for New Arrangements to Borrow and $14.5 billion to cover the U.S. share of the international quota increase to replenish funding for the International Monetary Fund. Both are necessary to meet the demands of the current financial crisis in Asia. We urge the Congress to approve both tranches of funding promptly to deal with the immediate situation Asia and the world economies face from the current financial crisis. For the long term, Asian, and indeed global, economic growth and stability will come from commercial ties and competitive disciplines emanating from trade liberalization. There is no getting around the absolute need for the United States to be fully engaged and providing leadership in regional and multilateral trade negotiations. That requires the approval of Fast Track negotiating authorities by this Congress. NAEGA urges the passage of Fast Track as soon as possible.
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Financial panic and currency devaluations have clouded the economic and political outlook for a number of countries. At the minimum, the stalling of the Asian economic engine will slow Asia's growth and affect the global economy for the immediate future. The IMF package of financial carrots and sticks and the speed and level at which the IMF program is implemented will shape the depth and the length of the crisis. Acting affirmatively is in our own interest.
Asia is a major customer for U.S. food, fiber, and forestry products. In fact, it is the single largest market for farm goods, accounting for 40 percent of total U.S. agriculture exports. Asia has been the fastest growing market for U.S. agriculture.
Behind the rate of growth are a number of factors as the two charts attached to my statement show. Asia is more densely populated than other continents, and its population is growing faster. Asia has experienced tremendous economic growth in recent years, and its people have followed the same path followed by hundreds of millions of others acquiring income, and that is they improve their diets. Asia must rely to a larger degree on trade to supply more and better quality foods. Land, water, and other resources needed to produce additional food aren't readily available in many Asian countries.
With currency instability and devaluation, American agricultural exports to Asia have slowed in recent months. When currencies are in a free-fall, it is impossible for buyers to open the letters of credit to sustain regular commerce. Once currencies are stabilized, but with buying power reduced by as much as 40- to 70-percent in devaluation, the buyers, generally, must reduce their reliance on imports.
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We already are feeling a slowdown in exports, but the affects in agriculture may not be as great as other exporting sectors may face. In countries where financial problems are concentrated, we are likely to see a reduction in higher value agricultural exports. In other words, we may export less processed foods, meats, fruits, and vegetables. However, reliance on basic U.S. agricultural products is strong in these countries where grains and oilseeds, cotton and hides are staples or inputs to manufactured goods. Despite the financial crisis, there will continue to be imports of vital goods to maintain food supplies and to keep the industries running. Trade, facilitated by the extension of USDA GSM credit guarantees, is resuming as IMF programs take hold.
No other institution can play a role that the IMF must in this crisis to end the downward economic spiral and to achieve the reforms that will strengthen the economies of the affected Asian countries. The agreements it has achieved in recent weeks address the cronyism, the open market competition, and to meet a number of liberalization goals that U.S. companies have been seeking for years. We believe that progress should not be encumbered with the conditional funding from the United States.
But IMF funding is only the first step. Unless it is followed with the important initiative of trade reform, the United States will not reap as many benefits from the IMF program as our competitors who are committed and active in trade negotiations. Let us be clear about this, as other nations conclude free trade agreements amongst themselves, U.S. products become less competitive in those markets. The extent that we exclude ourselves from participating in the formulation of new trade agreements, the U.S. priorities such as efforts to lower trade barriers, rely on sound science to guide health and safety regulations, and market distortions and apply principles of fair commercial trade are all placed at risk.
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NAEGA members strongly urge you to match IMF funding with prompt approval for the United States to enter and provide the leadership in specific trade liberalization efforts. We support broad, clean Fast Track authorities. U.S. leadership at the negotiating tables, where the rules of trade are to be defined, is critical to American agriculture being able to compete and to prosper in the years ahead.
Thank you, Mr. Chairman.
Chairman LEACH. Well, thank you, Mr. Hilger, and we appreciate all the statements that have been made before us.
I would just like to begin with a couple of comments.
First, several of us have returned from a trip to Asia, and one of the things that we pressed on each of the governments is pretty much the obvious coming from a number of your testimonies, and that is that there is going to be great pressure in the trade balance this year. We stressed as strongly as we could that Asian governments are going to have go out of their way to give the benefit to U.S. imports and as broad a range of products as possible.
Second, and particularly with some comments from Mr. Russo and Mr. Becker, we met in Korea with Kim Dae Jung among others, and I raised this whole issue of policy-based lending that is the interaction of government and private sector decisionmaking, and I was very interested with his response, because it went over to a second issue that we're all concerned with and that is the degree of corruption in the region. And Kim Dae Jung responded that he's had a long-term policy of his political party, among other things, against some of the policy-based lending, because of its interaction with corruption. That is if governments make decisions on who to loan to rather than the market, obviously, one tries to influence the government to make those decisions. And Kim Dae Jung pledged to us that there would be a transition in Korea on this issue.
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Now, obviously, there is proof in the pudding rather than in the pledge, but I think it's a very important pledge, and I personally think Korea is enormously fortunate in the new election circumstance that is Kim Dae Jung is committed to a new direction. But I still recognize this is going to be very difficult for companies like Mr. Appleton's and Mr. Russo's, because with or without policy-based lending, the new currency relationships are going to give Korea a competitive advantage that's rather extraordinary for the near term.
And so, one of the questions is do you have intervention that tries to not allow these currencies to fall so far that they can take enormous advantage of the U.S. market, or try to bring them back up into a fair competitive position? So, it's not at all clear-cut whether the concerns lead to no IMF, or an IMF with substantial conditionality, and my own view is that the American workforce is probably advantaged with strong conditionality rather than a cold-shouldered approach.
Finally, let me just go to a term of ours that's more in agriculture than any other field of American commerce, and that's this term whether one is a ''first- or last-resort purchaser or seller.'' My impression is as we look to the future, one of the great questions will be, will Asia look first to the United States to buy products, or last to the United States to buy products?
You take Mr. Bracy's company. Everybody in Asia knows there's a two-headed competition between, in effect, America and Europe, and whether it be Airbus or Boeing—although we also have other manufacturers as well—but, principally, those two issues. If the United States appears to turn its back on Asia at this time of crisis, I have no doubt in the future people will first choose Airbus over Boeing. Second, I have no doubt that they'll choose Australia over U.S. farmers and that one of the great questions is, how one responds in a way that best helps the long-term future of America's competitive position in this region, and I think we have to be very, very concerned about simply turning our backs.
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On the other hand, the precise issues raised by Mr. Russo, Mr. Appleton, and possibly Mr. Becker, we're going to have to be very attentive to too, and that is, if they don't have reform in these countries, if the IMF doesn't insist upon it, then I agree with Mr. Becker when he says this is a good time to insist; not a bad time, a good time; that we're going to be better off as a society.
Well, anyway, I don't have any questions. I just want to suggest to all of you that I think there is enormous truth in every statement, even when those statements are a little bit in contrast, and there's something that this whole committee is going to have to figure out and put together.
Mr. Vento.
Mr. VENTO. Thanks, Mr. Chairman.
I had to leave during some of the testimony, but I read most of it, and I've been trying to look at these standby agreements for credit, for instance, in Korea and Indonesia, and I haven't read the one from Thailand as thoroughly, but, you know, one of the points of contention, Mr. Becker—and I very much appreciate your statement and position today as well as that of others from my colleagues who are concerned about the social and the labor impact—but, one of the big celebrated clauses in this has been this issue ''to facilitate more flexibility enhanced by easing dismissal restrictions under mergers and acquisitions and corporate restructuring.'' Sounds like war to me.
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You know, I came from a little more working background than most of the guys up here. I was a union steward for the machinists and the teachers, that was my scholarship program while I was going to school. In any case, it was during the good years in the 1960's, I'd say. So, that it isn't exactly music to my ears or to anyone else's, but there's a comma, and then it says, ''which continue to rely on time-consuming court rulings. To ease the burden of layoffs and expedited reemployment, the employment insurance system will be strengthened and private-job placement agencies and temporary employment agencies will be allowed to operate.''
In fact, when we were in Korea with Chairman Leach and other Members, there was an effort to try to change, because in law they have a provision where it says you cannot lay off individuals, which sounds, again, pretty good except if you listen to Kim Dae Jung and others talk about it, they don't put it quite in the same context that you and I might understand it. They treat it as if it's more paternalistic, where the company is the father in the family, and you're a member of that family. In any case, we don't normally have quite that cozy a relationship here in terms of our role as workers or as management, and so they don't look at it that way. In other words, this change is really a cultural change as much as it is a legal one.
But, the point I'm trying to make is that they propose to, in other words, change the law that would provide for layoffs, but that the legislature, the governing body, was not going to do so until they put in place at the same time the shock absorbers, the unemployment and the other types of benefits that would be available to workers that would be laid off or would lose their job as a result of mergers and acquisitions. Now, we know in terms of the economy that some of that is going to take place, it's a question of what is the response. So, this is in the body of the document.
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Now, one of the things that's clear—and I think all of you mentioned this—it says, well it's fine to have these statements, but what is the fidelity to these? You know, are they going to follow it up? Mr. Becker, did you have a comment?
Mr. BECKER. Do me the favor of framing that just a little bit clearer. Let me tell you, I have one—I missed some of what you said. I have spent too many years in a foundry.
Mr. VENTO. That's all right. A lot's going on here in terms of——
Chairman LEACH. He said he's sympathetic to labor, Mr. Becker.
Mr. BECKER. Pardon?
Chairman LEACH. He said he's sympathetic to labor.
[Laughter.]
Mr. VENTO. Well, I'm very sympathetic, but I'm talking about specific provisions in the agreement, and the question is it's fine to have all of the statements in here—there's even some on the environment in the document dealing with Indonesia.
Mr. BECKER. We did not comment on the environment.
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Mr. VENTO. It's in the document in Indonesia in terms of environmental land-use questions, in terms of how they're used and whether bonds are put up for activities—but the question really is how do we implement these? The way that we implement the agreement is by, sort of, doling out the IMF money over a period of years, and if they are, in fact, implementing the economic restructuring or other policies in these agreements, then the enforcement mechanism, as it were, in these agreements is that the IMF supposedly could stop the flow of dollars.
Mr. BECKER. Well, Congressman, I don't quite know how we eliminate it. Let me see if I can hit on what you're talking about. I don't know how we implement this. What I can tell you is what's wrong with what we're doing right now. This is taxpayers' money that's going in there to support this bailout, and working people are providing this money. It's going directly to compensate the financial institutions for the loans that would be defaulted. In turn, the IMF is using the leverage of the bailout money to squeeze the worker; to force the companies to compress what workers get in the way of wages, benefits or pensions, health care; to drive them down so that they can be more economical. At the same time, the IMF is saying, ''Curtail domestic spending,'' which is going to dry up exports from the United States. A hell of a lot of jobs depend on exports here in the United States, and we're inviting them—we've got the market, and we're inviting them to import into the United States which is going to dry up the jobs here at home. Someone has to do something to straighten all this out. You have the power to do that, we don't.
Mr. VENTO. We are doing it, and these agreements do have the specific principles in them. We are going through a transformation, I think, of those economies. I think your example of the model of production of products that are over capacity, whether it's steel, fiber 6-to-1 capacity to produce steel in the global market. I mean, they've obviously closed up steel plants in Europe, and we've had to close a few of ours, unfortunately.
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Mr. BECKER. We lost 65 percent of the steel industry through the 1980's. We were accused at that time of being inefficient and steelworkers were overpaid. The whole industry was revitalized and coming out of that we built the strongest, most profitable, efficient steel industry in the world. Today, financiers and speculators go into these non-market economy countries and build excess capacity, they build capacity for the United States market. They build for our market when there is no market capacity available. They are perfectly willing to shut all or part of the steel industry down in the United States. Now, with the currency fluctuations, it's——
Mr. VENTO. Well, I don't——
Mr. BECKER. I don't know if this Asian crisis ''steel imports will constitute dumping'' or not. This is why I believe there needs to be some kind of quota based on a pre-Asian crisis level. We can't wipe our steel industry out. We can't and shouldn't have to take another hit like we did in the 1980's.
Now, let me say one other thing here. Sure, there's another way to fight this; the steel industry can file dumping cases. But that's after the damage is done to the market, the economy and jobs. And if there's any compensation as a result of dumping, it's paid to the Government. It doesn't go to the workers, it doesn't go to the industry. But what about the workers that foot the bill at the beginning? The workers that are providing the tax money that's going into the IMF bailout?
I mean, it's always the financial institutions. It's always corporate America, the business institutions. Where's the third leg on that stool? Where does the worker fit into this thing?
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Mr. VENTO. Well, under a different page number, here—I'm trying to look at my page number—the second one by the standby agreement and number two and point two under ''Restructuring the Reform Issues,'' says it—''that clear principles on sharing and losses among equity holders and creditors will be established.'' So, there is, in fact, of course, some loss in terms of stock. There are some losses in terms of banks, but I think the issue of shared burden is enormously important within Korea and to those that have in fact invested.
What I'm suggesting to you is that some of these principles that you've talked about that are important to you and me and to the Members of the committee and to the people in this country, in terms of extending this guarantee that we extend through the IMF—we've never lost any money through it so far, but it is an extension, and we have to realize that the $50 billion is so that the United States will have as a guarantee against this $300 billion, in an economy made up of tens of trillions of dollars in the world, we could lose that, and so far, so good.
But, the issue is that the principles, or many of them, are in here, and the question is how do we enforce them once they're in here? Is the mechanism that we have for enforcement adequate? I think we can maybe do something along that line and, of course, continue to try to——
Mr. BECKER. There are only two ways that I know that you can force people to do anything on that. This is the market they want, so I think that's a lot of leverage right there. We either give them access to our market, or we deny them access to our market. That's a lot of leverage.
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Second, is the money. They've got their hands out now; they want money. You control the money. So, certainly, if you can't move it with those two, then I don't know if it's worth moving.
Mr. VENTO. Thank you, Mr. Chairman.
Chairman LEACH. Thank you, Mr. Vento. Thank you, Mr. Becker.
Mrs. Roukema.
Mrs. ROUKEMA. Mr. Chairman, I'm going to defer to Mr. Castle, but I would simply like to make one observation, because you and Mr. Vento really focused on my concerns about conditionality. I would only add that I do recognize what Mr. Moore said in terms of the tariff question. I don't know how we can deal with that in this context. Mr. Moore seems to want to respond to that.
Mr. MOORE. Yes, I would like to.
Mrs. ROUKEMA. Please go right ahead if you don't feel that's been covered.
Mr. MOORE. I think the way to deal with that is the fact that these negotiators are already working, as we speak, to agree on 9 of those 15 sectors by June of this year. What we're fearful of is if our Government is not pushing them to continue to do that as part of these talks about restructuring economies, they are liable to fall back and say, ''Wait a minute, because of all the problems we're having, we ought to keep our tariff barriers.'' And so I think that this committee can be of help by speaking to the Executive branch of our Government—and make that a condition of their continued talks and negotiations with those countries.
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Mrs. ROUKEMA. But it can't be directly imposed on the IMF agreement. It has to be parallel in terms of other trade agreements that the Administration is negotiating now. Isn't that correct?
Mr. MOORE. They could have been together.
Mrs. ROUKEMA. They could have been?
Mr. MOORE. This I don't know. If the negotiations are largely complete with all of these countries, it's too late to come back to the table now, I would assume, and say, ''Oh, by the way, we'd like to add these tariff issues.'' They could have been part of it; should have been part of it, and where the negotiations are not complete, they ought to be brought in.
Mrs. ROUKEMA. All right. Well, thank you. That provides some context to your concerns. I think this issue should receive more study. I thank you very much.
Chairman LEACH. Do you want to yield to Mr. Castle?
Mrs. ROUKEMA. Yes, I'd be happy to yield.
Mr. CASTLE. Well, I thank the gentlewoman for yielding, and I will take this time. I'll have a little bit of time later. But, you know, this is all very interesting. I happen to chair the subcommittee that looks at this problem, and, frankly, I have mixed feelings about what we should do too, but I was just reading something—I guess it was in the Wall Street Journal—looks like a Wall Street Journal, today—which is an OpEd piece by George Shultz, William Simon, and Walter Wriston. It seems that those who've been in power in a position sometimes seem to have a clearer view of life when they leave and they go back. We have people who've been cabinet secretaries who say to get rid of those departments after they leave, and that kind of thing goes on. And here are these gentleman—George Shultz, of course, was the Secretary of State and Bill Simon was the Secretary of the Treasury. Walter Wriston, of course, was the CEO and Chairman of CitiBank/CitiCorp, and they all say that we should get rid of the IMF. I am sure that the President—I know that the President's Secretary of the Treasury who sat right here just a few days ago is one of the strongest advocates for the IMF. I'm sure the Secretary of State is too, and I'd be willing to bet that the present chairman of CitiBank/CitiCorp is too, if I had to place a guess on that. So, it's sort of interesting how we have these great views.
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I was wondering about your views. Within a few weeks, this committee is going to be marking up the legislation that you're really here testifying on—and thank you for being here, you've been a wonderful panel, and I think you've helped us a great deal—but we're going to be asked to mark it up, and, essentially, as you know, we're being asked to look at additional funding for the IMF and maybe for the New Arrangements to Borrow. We are part of the IMF. As you know, it's sort of a fix-it lending operation to some degree, but we have about a 17 percent interest in it. We have certain veto powers over it, that kind of thing, but we can't just dominate it.
Having said that, Mr. Moore, you mentioned structural changes, although you talked about tariffs most of the time, but you didn't detail the structural changes, and Mr. Appleton had four good suggestions but very specific, mostly in terms of Korea, mostly in terms of his industry to some degree. Now, others of you made some suggestions, but I'd be interested, if you were up here with us, sitting where we are, and you were getting ready—I'm going to ask the question now, and you'll answer it when I get my five minutes here in a few minutes, and you can be thinking about this—but if you were sitting up here and you were dealing with what you would be able to put in as American Members of Congress adding additional funding to this in terms of structural changes, in terms of restrictions, in terms of fee arrangements which have been discussed to some degree, I'd be interested to anything specific you might suggest. Now, you may say also get rid of the IMF—I'm not sure any of you really suggested that, but some people have—but assuming we're going to continue it, what do you think specifically we should be looking at in terms of inclusion in terms of legislation which we might pass? Now, if any of you want to—one of you could start now, perhaps, then I'll take my other five minutes for others if any of you are willing to try that.
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Mr. Appleton.
Mr. APPLETON. Well, I think that the ailments, if you will, have all been identified. The panel last week, there was a great deal of discussion identifying what the problems are, so it would seem to me that the real concern is how do we install, implement accountability that those reforms are taking place? Now, the IMF is really, I think, fundamentally a bank with a lot of board members, and a banking institution whether it's for my company or any others have conditions they place on money that they will loan to you. What we need to make sure occurs is that normal market practices are implemented and that there's accountability. I think if we can look at allocating whether it's $50 billion or $100 billion and whatever our share of that is or will be, certainly we could afford to have some individuals that look at the accountability of what happens with that money, and I think that's critical. I think that the essence of it is installing accountable forces that will make sure that the money is appropriately used with respect to the money that's being loaned, and there has been in recent weeks a lot of controversy about what we should have the right to ask for or not.
But let's face it, if an institution is loaning money, they can ask for whatever they want or they don't need to loan the money. We all have to face that in real market principles.
Mr. CASTLE. Just a comment and I'll yield back, and that is that the principles you're talking about and the banking principles and the economic principles you're talking about and actually in the objections you made in terms of Korean practices now, you're dealing with the practices that exist in those countries now, be it any one of those countries which are vastly different in some cases than our practices with which we disagree, and I don't know—you know, I'm not sure that we're capable of making all those changes now in terms of the IMF and in terms of our additional funding of the IMF, and I'm concerned about what we could do now to start down that road. I mean, I tend to agree with your saying that we need more transparency. We need more of these structural changes put into place, but I'm not sure what we could get done at this point. But let me suspend there and yield back to the Chairman. Maybe we can pick up the conversation again in a few minutes here.
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Chairman LEACH. Well, thank you very much.
Mr. Sanders.
Mr. SANDERS. Thank you, Mr. Chairman, and I want to thank all of our guests for their thoughtful remarks.
Let me ask Mr. Becker—let me comment on Mr. Becker's presentation and then ask him a question. As I understand it, Mr. Becker, essentially what you are saying is you want the bailout, and you want IMF policy to represent the interests of the vast majority of the people in this country and Asia rather than just the banks and big businesses here and abroad. Is that essentially what you're saying?
Mr. BECKER. We're saying that first of all the bailouts occurred, the money's already been given. We're talking about tying some conditions for refinancing and the possibility of additional money. So, we're looking at this just a little bit different.
We believe there has to be some fundamental changes in there. We want the inclusion of core labor standards—core labor rights to go in these agreements. Now, why do we want this? It's just not a cliché, and it's not something that won't be effective. We believe that if workers are enfranchised to build a free trade union movement in these countries, the freedom of association, the right to be recognized as a union of choice of workers in these plants and these companies that they will have the ability, then, to negotiate with the companies, international companies, from the United States or wherever. They can share in the fruits of the wealth they helped create. We believe this brings about a democratic process in these countries in which they will have some say into how their country is structured and how the financial institutions and everything operates in these countries, and we believe that's essential for this all to work in the end.
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So, when you say we want these as a condition for the IMF, certainly, we want these as a condition. We think it already should be there. We think that many of you have tried to secure legislation that would guarantee that this be done already. It didn't happen, but we have a chance right now to do this, and this is what we're focusing on.
Mr. SANDERS. As the author of the Sanders-Frank Amendment, I obviously agree with you, and I agree with, by and large, your other concerns about the need for domestic economic growth and development in Asia, reduction in the volume of destabilizing capital flows and transparency and broader participation in determining IMF policy and ensuring that speculators pay their fair share.
Let me ask you this question—maybe you don't want to answer it, maybe you do. We were able to defeat Fast Track because we thought a vast majority of the American people do not think current trade policy is working for them. As you know, in your union now there's been a significant decline in your membership, because steel companies all over this country have closed down their factories. Workers today are working longer hours for lower wages, and while corporate profits are high and the CEOs make tremendous salaries, the truth of the matter is that the global economy has not worked particularly well for the average American worker, and I think that was the concern of the AFL-CIO, conservative environmental groups, family farm groups, and a majority of the Members of the House.
Now, let me ask you this question: If, in fact, the recommendations that you are talking about—you're here representing 13 million workers in the AFL-CIO—if these recommendations are not incorporated into the embellishment agreement that we are going to be working on in a few weeks, can you tell us what the AFL-CIO's position will be? Will they be supportive of firm policy or would they not be supportive if these types of recommendations are not incorporated?
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Mr. BECKER. Congressman, the easiest thing would be to say we would not support it, that would be the easiest thing. I think it's much too early in the process to do this. We're very hopeful that you and others are going to persevere in getting the changes that we're needing. I was reading in a paper today, yesterday, that there seems to be an easing of this crisis over there. If so, I hope it is, and if that's the case, then I think it maybe gives us a little bit of a window of opportunity for this committee to function. We've given you the kind of changes that we think ought to be in a reform of the IMF, and we hope that you all can run with this, and we'll work with you on this. It would be my intention that these changes will be in there, and so we'll be supportive.
Mr. SANDERS. Good.
Mr. BECKER. In the end, we are determined that they're going to be in there, and the AFL-CIO is going to just work very hard and persevere to see that this is done.
Mr. SANDERS. Mr. Chairman, do I have time to ask Mr. Bracy a short question or would you rather me not?
Mr. BECKER. Pardon?
Mr. SANDERS. No, no, I'm talking to the Chairman.
Chairman LEACH. Excuse me, your time has expired, but because of the seriousness of the—if it's one question, I'm happy to allow it.
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Mr. SANDERS. Thank you very much.
Mr. Bracy, when we talk about democracy—and Mr. Becker was making this point—I wonder if you could give us an assessment. In Indonesia right now—you do a lot of business in China. The workers can't form unions, can't elect their leadership. There are no dissidents. People work for 20 cents an hour. In Indonesia right now there are tremendous austerity programs being imposed, tremendous increase in unemployment, poverty, human misery, and because that country is a dictatorship the workers have nothing to say. Mr. Suharto signed an agreement with the IMF which is going to cause massive human suffering, but the vast majority of the people had nothing to say about that agreement. How do you feel about that?
Mr. BRACY. Well, let me first of all say that as a spokesperson for the Boeing Company, we support all of the U.S. Government's initiatives for human rights, for environmental affairs, for free trade, for open markets, and it's really not our intent to suggest that you sort of blindly go forward and accept the tenets of the IMF agreement as it is today without those conditions, but we would also say that we think it's important that your work should not be prolonged or attachments or holding the IMF proceedings in such a way that they're held hostage for human rights. Inaction, we believe, can prolong the recoveries and may precipitate the spread to other regions.
As I've indicated, GDP growth is inextricably linked to our business, so if this spirals down and we have economic downfall in places such as Europe, North America, we'll suffer more loss of business.
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Mr. SANDERS. Thank you. I was just curious if Boeing had a concern that the vast majority of the people in Indonesia have nothing to say about a policy that their government has just signed on to?
Mr. BRACY. Well, sir, our view is that by promoting the IMF bailout, you'll provide financial stability and growth in those markets, and, over time, that will create an environment that will change those kind of things, the economic viability of the government, of the region, and of the individuals in that it will provide an environment for those people to prosper and for those conditions to change.
Chairman LEACH. The time of the gentleman has expired.
Mr. Castle again.
Mr. CASTLE. Well, thank you, Mr. Chairman.
Actually, what Mr. Sanders asked just sort of underlines one of my fundamental concerns in how we deal with this, and that is you're dealing with countries which have vastly different practices than we have here in America, political, some cases religious, labor practices, suppression of individuals and groups, environmental. I mean, a whole variety of things. Then you have different business practices—and that was a conversation I was having with Mr. Appleton—they just don't approach it. They're used to the government coming in and supporting their banks and their businesses or whatever, and then we're dealing with the IMF, of which we are the most significant contributor, but just one contributor. Then we have to go into these countries and deal with them, and then we, in Congress, have to make a decision here whether we even support this, and if we do, what are the conditions going to be? That's why I think this is one of the most complex matters we've ever had to handle, certainly on this Banking Committee in the few years I've been in Congress.
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And I go back to the question I really asked before and that is do you have any specific thoughts in terms of the methodology of doing this; the structural changes, restrictions, fees, or anything that you think you want to underline? There were a lot of you that mentioned various things, and I just ask that question again; maybe we can get some short answers from various people. We could just see if we could put some on a list. We'll start and go across the table if we could.
Mr. BRACY. I'll start first by saying that I think the opportunity for enforcement of the issues—and Mr. Vento and Mr. Becker talked about it—is, in our view, key. What I'd also like to offer in support of the Chairman's remarks about what may happen in this region and one of the complexities that occurs in the Asia Pacific region is issues around relationships. It is clearly a key point to understand when dealing with Asian businesses that we hear over and over again in our 75 years of doing business that relationships transcend the business deal in Asia.
Mr. CASTLE. But we can't really put that in the structure of what we're doing shortly, can we? It's a good point.
Mr. BRACY. No, the point I'd like to make here, sir, is that to the extent that we try and impose our ways always to them, it can create enormous anti-American sentiment, and airplanes, in particular, are libel to be used by the government to take advantage of that anti-American sentiment, and they will, indeed, to support the Chairman's remarks, buy from Airbus. So, I'd offer a word of caution not to attach a lot of structure.
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Mr. CASTLE. Its' a two-way street, though, because our constituents sometimes don't like to hear that particular answer.
Mr. Becker.
Mr. BECKER. Yes, sir. I think the United States Government should immediately express its concern and insist that core labor rights should go into any agreement and be a condition of extension. When I say core labor rights, I expand that to mean human rights, child labor, prison labor. Unless you can build a free democratic trade union movement in these countries, we're never going to achieve what we feel is absolutely essential in building, supporting and advancing the kind of democratic governments that we need throughout the world.
The other thing we should insist on is the enforcement, strict enforcement, of their existing laws. In many cases, these countries have existing labor laws and prohibitions against prison labor and child labor and exploitation. They just simply don't enforce them. So, I think we should make that as a condition of any kind of further aid.
Mr. CASTLE. We're going to have to go fast here. I don't know who else—Mr. Appleton, you wanted to comment?
Mr. APPLETON. Just a real quick comment since we've already had a dialogue.
First of all, I think we have to recognize that the Asian countries, in particular, Korea, as I mentioned before, have a great deal of resistance to any change under any conditions, and the fact that we've already won dumping cases and it still has not changed their behavior, eventually led to the crisis that we have today. So, we're only asking that in exchange for our assistance, we want some proven, sound, economic, environmental, human right issues to be considered. That's all we're asking for, that in exchange for our assistance, we have an expectation that these will be addressed, because they are proven, sound practices, and we have to keep that in mind.
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Mr. CASTLE. Mr. Kleckner, I don't know how far we'll get here, but let's see what we can do.
Mr. KLECKNER. Well, real quickly, I'm in agriculture. I agree with what Mr. Appleton said. If I can be critical of Congress, Mr. Chairman, it seems to me that——
Chairman LEACH. You're an American citizen.
[Laughter.]
Mr. KLECKNER. It seems to me that over the years Congress has not done the oversight that they should do. You pass laws. Regulators, in general, write the regulations, and whether it's intentional or not, internally you go on to other things. You're busy. You're overbusy. You can't keep up.
I have some concern with—I agree with Mr. Becker's comments on labor and so forth, but if we try to impose all those standards as a condition for keeping those economies afloat, it ain't going to happen. I don't think they'll accept it, and I think we have to be very careful about that. Mr. Appleton, I think, answered it best. The one thing I think we ought to insist on that's fair is reciprocal access going both ways. They ought to let ours in as we let theirs in, and that's just common sense, it seems to me.
Mr. CASTLE. Thank you.
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Mr. Russo, and Mr. Moore, I know, at least, wanted to comment.
Mr. RUSSO. Yes, first, I'd like to say that we are in favor of stabilizing their currencies, because already today we've seen a great influx of Asian materials and Asian steel products, coming into the West Coast and the Gulf Coast. I think what's important to us is to ensure that if we give this money, or we loan this money, I'm sorry—if we loan this money, that the conditions that are already in place are truly enforced and that is don't subsidize failed corporations and stop government-directed lending practices.
Now, a problem I have is that even though the proof may be in the pudding, I'm a little bit concerned as to whether or not what the people of Korea would tell us is indeed true. I'm also concerned about having the IMF watch over what's going on because we've got the president of the IMF already stating that it would be OK for these loans to go to export subsidies. I guess what I would suggest is that Congress enact legislation to have, perhaps, the Commerce Department as well as the Treasury Department do a quarterly analysis on, indeed, whether or not Korea is living up to the conditions, and if they're not, or if they start subsidizing these exports like keeping Hanbo Steel operating, then the loan just gets cut off.
Mr. MOORE. Congressman, it's our experience in our industry this is not a cultural thing. I think any businessman, if you said, ''Hey, look, I've got a deal for you. You're not going to have any competition, and I'm going to see to it you make a profit,'' many businessmen would succumb to that siren song, and that's what's going on in that part of the world in our experience.
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For instance, Indonesia is a big plywood producer and the biggest tropical plywood producing country in the world. They've got a law there, an export tax—they did have until this IMF reform got to it—you couldn't sell the raw material outside the country, essentially. And so they captured the raw material in the country, therefore, seeing to it that they had that ability. They also had tariffs to prevent any kind of imports coming on the finished product. In the case of paper, just recently in 1994 in Malaysia, they built a world class kraft mill, a kraft liner-board mill—that's the inside lining of a cardboard box—promptly erected a 20 percent tariff to protect that mill from any kind of competition.
And so, basically, I'd say it's not a matter of culture. It's a matter of these people understanding how to make a profit, and they're in league with their government to secure a way to do that. What would you do to break that down? Four things.
First, require an opening of the markets, and that starts with eliminating tariffs. Make the elimination of tariffs and trade restrictions part of the definition of structural economic change. It's not in this current proposition, and it should be.
Second, crony capitalism—you've heard that term—that's a matter of cartels. Indonesia's had cartels. Other countries have had cartels. We got rid of that a long time ago. They should, too.
Third, non-tariff measures, subsidies, direct subsidies to keep a business going and prop it up. We've gotten out of that business. They should as well.
Fourth, have the IMF—as they continue to grant funding, and they dribble it out as Congressman Vento indicated, and they send it over time—watch what the banks in those countries are doing with the money. If they're putting it right back into sheltered investments, building increased capacity for which there is no market, whether it's in steel or in paper products or whatever, and they're hiding behind tariff walls, then have the IMF stop giving the money, and say, ''You are not changing the way you do business.''
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And so those are the specific things we'd point out that simply say we're going to have this problem again, and over and over again as long as they're hiding behind these kinds of things which are different than the way we do business.
Mr. COHN. I don't have much to add beyond what has been said at the table, but when I sit back and look at the reality of the situation, it really is a question of political will on the part of the leadership in these countries which is complicated by the linkage of policy-based lending and the corruption that has ensued in these markets which is fairly well reported.
Having said that, it's very difficult to deal in an environment where those things are so interlinked. So, that's the kind of area I would specifically target and make sure that we enforce what is already there in that vein.
Mr. CASTLE. Thank you all very much. Sorry to take so long, Mr. Chairman. I yield back.
Chairman LEACH. Thank you. I'm not sure, is it Mrs. Maloney or Mr. Frank? It's up to you.
Mrs. Maloney.
Mrs. MALONEY. Thank you, Mr. Chairman. I would like to be associated with some of the comments of my colleagues on the other side of the aisle, Mr. Castle, and I'd like to put in the record the news article that he mentioned, ''Who Needs the IMF?'' I was intrigued with it today, and it was written by two former Secretaries of the Treasury—Shultz also, in addition to being Secretary of State was Secretary of the Treasury—Simon and Shultz and a former head of one of our Nation's largest banks, and in it he argues, ''When will we ever learn?'' He argues—or rather all three of them argue that by continuing IMF prop-ups that we will ensure in the future of having bigger—so they say—bigger bailouts.
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Chairman LEACH. Without objection, that will be placed in the record.
Mrs. MALONEY. In some of the comments of some of you, Mr. Moore, Mr. Cohn, and Mr. Russo, you were talking about crony-based lending and policy-based lending, and my question to all of you—I'd like to ask each of you to answer or pass if you would not wish to answer—but in the article, they try to make the point that there has to be some pain to the investors and lenders, otherwise, there is no incentive to, shall we say, clean up their act. If they know that their actions are going to be supported by United States dollars, IMF dollars—United States dollars through the IMF, then there's really no incentive for them to clean up their act. So, I would really like everyone to comment on whether you think—and I'm just referring to the investors and lenders in this—whether you think the investors and lenders should be made whole, and if they are made whole, should we do it privately or through the IMF? What type of structure would you put there to make sure they don't do it in the future?
These two former Secretaries of the Treasury and a former head of one of our Nation's largest banks argue that we are throwing bad dollars toward bad policy that only hurts the economies of these countries and our country and the world. I thought it was a very powerful article, I hope all of you will read it. But I'd like to ask, and if you'd like to go down the line, do you think these investors or lenders should be made whole publicly or privately? Do you think we should? I'd like your comments.
Mr. HILGER. Just to make a quick comment—I haven't read the article, so I can't comment on that at all—I think it's important that the IMF have the flexibility to address some of the issues that you are bringing up. I mean, they're very critical that change does take place, and I think IMF has had some——
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Mrs. MALONEY. Well, we all agree change has got to take place, but the article says that the changes that we're asking, they're not doing, and they're saying the way to get them to change is not to give them money. Then, they won't be building two of the tallest buildings in the world that no one wants to live in and making very poor investment strategies. Here in America, if you give out a bad loan, you're going to pay for it. Over there, if they give out a bad loan, Big Brother America's going to come in and prop up their economy, so—and then they're going to hate Big Brother America, according to them, because we'll be blamed for the structural changes—the hard medicine that has to take place to really correct the poor management in these countries.
So, specifically, do you think that the lenders and the investors should be made whole publicly or privately? Or no comment?
Mr. HILGER. I would say that, no, they should not be made whole. I think there should be reforms and changes taking place. There's also a crisis going on, and I think it's very important.
Mrs. MALONEY. So, how much do you think they should be made whole? Fifty-, seventy-five-percent?
Mr. HILGER. I couldn't answer that, I'm afraid.
Mrs. MALONEY. OK.
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Mr. HILGER. Pass it on.
Mr. COHN. I do feel the slight disadvantage having not seen the article and not having had an opportunity to consider it.
Mrs. MALONEY. Well, why don't we make copies of it, and hand it out to the panel? That might be helpful. It's an interesting article.
Mr. COHN. I'm not sure of my personal qualifications to answer the lending aspects of it. I think banks have been hurt. I think they should be made accountable. I don't think that the IMF support in this area is going to necessarily allow all of them to be made whole. I think the losses that have taken place and reported in the latest quarterly earnings releases will continue to have an impact on financial institutions with exposure in Asia.
But I would just like to turn your question around a little bit, and I think one of the major concerns that we have from a U.S. industry point of view is if we don't do it—participate—and our European or Latin American competition does, where does that leave us? And that is a question that I think we wrestle with all the time.
Mr. MOORE. A lot of the investors are competitors of ours. They've gone to their governments and, through some fixed deal, gotten money, and so it would be real easy for me to say, yes, they ought to be made to pay the price. We've not done an analysis of that. I think what we're talking about are the structural changes to prevent that from happening in the future. If this Congress determines that's the decision you've got to make, how you deal with this, no money or money with conditions, I don't know. I can't give you advice on that, but the system has to change.
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You can't do what the thesis of that article is, to just go in and give—that's what I'm here trying to say—otherwise, you're going to be right back here again. It is going to fail again. As long as you're building capacity for which there's not a demand—and that's what happened in our industry over there—and something happens somewhere down the line, that's going to collapse, because it's not built on the market. They build it to protect it to move in somebody else's market. And so anytime you have that kind of economic expansion, it's bound to fail. I think that's what you're seeing happen over there. Changes have to be made. Now, how you choose to do that is a decision you've got to make, but, certainly, changes have got to be made.
Mr. RUSSO. It's my understanding that this bailout is a loan, and as a lender we can—or I would at least impose my conditions, and if, indeed, the time is right today, and if, indeed, there's any possibility that through this IMF loan we can bring about any type of change in the kind of practices that are currently rampant in Asia, then I would say, yes, that, indeed, we should go ahead and proceed. However, as I said in my statement if, indeed, the conditions are not met that we set, it would be like anything else, you pull it back. Thank you.
Mr. APPLETON. Well, Representative Maloney, I don't need to read the article to answer that question. There's no question that we should not be bailing out or making whole the institutions that loaned the money, and that was your specific question. Coming from an industry that invests billions of dollars each year for capital equipment that's only good for about three to four years, I think I am somewhat qualified on that particular aspect and making whole those institutions today only encourages them to throw good money after bad. There's no question there has to be accountability for bad investments. Had those investments, today, been returning a higher rate of return associated with the risk, you wouldn't be hearing all of the discussion we're having now. The fact that those investments have not turned out to be very productive, you hear a lot of crying wolf, if you will. Somehow they want to get their money back. There's no question that they should not be bailed out.
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Mr. BECKER. Yes, thank you. Certainly, I'm not qualified to deal with a part of it, but let me—I could ask the same question of the Federal Reserve, and who needs the Federal Reserve? I'd put it in the same category. We bailed out Mexico without the IMF, and the only difference is this is shared by some other countries.
In my life, I've run into business people, financiers that seem to make money when you have a weak market or a strong market, they make money when things are going up, and they also make money when things are going down. Fortunes are made in that manner. The only comment I would make, specifically, is that the lenders should suffer or at least share in the losses. I have a problem with them being made whole. I have a problem with the banks not restructuring and stretching out the loans and doing what they can on a self-help basis. It's a bit of a joke that the banks privatize profits and yet they want to socialize their losses. And I think that is what the banks and the IMF are doing in Asia today.
I would like to take advantage—I don't know if I'll have an opportunity to make any other comments, I just want to stretch this over into one other thing—I was concerned about the imports that are going to be coming into the United States. In the last couple of months, steel imports have increased somewhere in the neighborhood of 130 percent. If you talk to the leaders in the steel industry they'd say, ''The steel is on the water; it's on its way; it's coming.'' I made reference to the fact that we lost 65 percent of the industry through the 1980's. I think we should take extraordinary steps to see that this doesn't happen again. The Asian workers are being depressed, they're producing cheaper and cheaper—it's not even ''dumping'' most likely. It's probably not being sold below cost, and the workers are being driven down even harder, so everything is at risk. I think whatever controls or help is offered through the IMF, we should make damn sure that we don't give our industry, our industrial base in America away in the process.
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Mr. BRACY. Well, I don't think the IMF should make these investors whole. This is a crisis in Asia that is the result of many things. It's certainly been exacerbated because of structural problems and banking regulation and oversight and many things of the like, and I think going forward we should insist on reform. We should not bail them out. I think Mr. Moore is absolutely right. In this way just as in other ways, tariffs—he specifically brought out in his statement, if we make the same mistake by bailing people out, whether they are private or public, this will happen again; you can almost count on it. So, we need to look for reform over the long haul.
Mrs. MALONEY. My time is up. Thank you, Mr. Chairman.
Chairman LEACH. Well, thank you, Mrs. Maloney.
Mr. Manzullo.
Mr. MANZULLO. Thank you very much. I wish that—I don't have to because—each of you has heard what the other one has said, but what's going on here is very interesting. Dean, 44 percent of Illinois' raw fiber is exported. Add on top of that the processed food.
The district I represent has the number one county in cattle production, dairy production, oat production, hay production. In addition, we have the two fastest growing counties in the State, and, in addition, we have Rockford, a city of under 150,000 that has a thousand factories. Fifteen percent of the machine tools exported from the United States come from the district that I represent. We have a Hormel plant that ships 44,000 pounds of boned pork to Japan—it's either every week or every other week. We have the Sunstrand Corporation which make the APUs for Boeing.
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If these markets dry out, highly paid union workers for both Boeing Corporation and Sunstrand Corporation and hundreds of companies that feed Sunstrand will lose their jobs. Nobody's even talked about the impact upon pensions here. If 55 percent of the world's people are placed in the position where the market is so adversely impacted, what's going to happen to the working man's pension when that pension portfolio many times holds a large amount of shares in that person's own company and in mutual funds, 20- to 30-percent of which are invested overseas. So, I mean, this thing is a lot more complicated and the repercussions are much deeper than many of the individual sectors here have the ability to express because it's all tied in.
We have Kelly Springfield which is the United States' largest manufacturer of agriculture tires. If 40 percent of the markets dry up for agricultural products in the State of Illinois, that means 17 percent of our farmers could go out of business. That backs up so that they won't buy John Deere and Caterpillar equipment, and that backs up so the people at Kelly Springfield, which is a union operation—they're great guys over there and ladies—they'll lose their jobs.
I mean, this is a downward spiral that somewhere along the line has to be stopped, and if everybody in his or her own individual sector insists upon having this particular statement or that particular statement, I think that's fine, but I don't really look upon this as an issue of bailing out banks. American banks have made loans over there, but American banks have also made loans to American manufacturers who have products that are shipped to Asia, and if those markets dry up, you're going to find American manufacturers defaulting on their loans to the same banks. So, as I try to figure out exactly what's going on here and see the impact upon the men and women that work the lines at the 1,400 industries in the district that I represent, I think there has to be an agreement between management and labor on these things. The IMF situation is not the place, it's not the forum to bring in all the arguments on Fast Track and MFN and GATT and NAFTA. There are plenty of opportunities to do that, because the situation is so critical.
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The second point is that it's almost a matter of language that the advances that the United States makes as our quota share are backed by $40 billion in gold. We get a liquid document in exchange for the amount of money that we put in to the IMF; that's a pretty good investment. It's an investment because we're not talking about Asian markets, we're talking about the future of manufacturing and agricultural production in this country, and, Mr. Becker, I appreciate your remarks. I also appreciate the fact that you have a spirit of flexibility. You understand the bigger picture because the labor unions are involved in all different types of industry, and I would encourage you to try to work with Members of Congress and us coming up with the language that's acceptable to all of you here, because you've all done a fantastic job in representing your own interests and in representing this Nation. Thank you.
Mr. KLECKNER. Mr. Chairman, could I make a quick response?
Chairman LEACH. Absolutely.
Mr. KLECKNER. Mr. Congressman, I agree with what you said, virtually, entirely on the importance of trade and you're going to go out and probably fix your district, but—not in response to you in particular, but with this whole area—it seems to me that these defaults and what's going on that's wrong in Asia is not because there's an IMF. There are structural changes wrong over there. They need to make changes. We ought not to bail them out—I didn't answer the question before—I don't think we ought to make these companies and these banks whole again. But it seems to me that this won't be the end of this problem if the IMF disappears or whether it doesn't. There will still be changes—there will still be mistakes made in businesses and banks around the world that will happen whether there's an IMF or not, and somebody in the end, it seems to me, will attempt to bail them out in some way for their own reasons. Whether it's the IMF with public funds or whether it's private funds, I don't know.
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You'd think that the world would begin to recognize and know now that after Mexico and after Southeast Asia that they've got to do things differently. The people of Mexico were hurt. We bailed—there was a group of entities that bailed out Mexico, and there were—as Mr. Becker said—certain people that got rich in that process, but the people in Mexico are deprived by half. When the currency devalues a half, they're worth a half of what they were before. It was taken out on the backs of the people, and it will be taken out on the backs of the people in Southeast Asia, I believe, when the IMF does the bailout that they're doing.
But whether the IMF disappears—and I'm going to read this article; I read the Wall Street Journal anyway—I'm not sure we need the IMF, but if we don't there will be something that will come in to take the place of it for future occasions like we have here, hopefully, not as severe and, hopefully, much less often than we've had with Mexico and Southeast Asia.
Mr. BECKER. Yes, Congressman, I'd like to respond just a little bit. I don't want to beat a dead horse when I keep saying core labor standards. I don't know whether everybody really appreciates what we're talking about that. This is not just something that's an ideological thing to the unions.
The difference between Mexico and the United States—I can pick American employers, I mean, world class employers in the United States. When you figure their entire costs here, wages, hours, pensions, health care, all the other fringes—everything that goes with it, everything that goes to help build a middle class, you're talking in the mid-$30's; $30 an hour for the companies. The same company builds a plant in Mexico just right across the line in the maquiladoros; a state-of-the-art plant with all the advanced technology; everything there that you could possibly want; a beautiful plant. Those people in that plant get 34 pesos a day for 9 hours a day. Nine hours, not eight, 34 pesos. That equates out to about $4.50 an hour. There's no way we can compete against that.
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When we talk about core labor standards, we're talking about these people having the right to form a trade union movement; the freedom of association without beatings, without being thrown in jail, without being killed; the right to be able to bargain with an employer to share in the wealth; the right to be able to form alliances with trade unionists in the United States. Business crosses the border. Business makes alliances. The same companies work in the United States and Mexico, yet the workers that represent those unions can't cross the border and work together with that common employer. Financial institutions have that protection. This is the same thing in the Asian countries. The trade union leaders are imprisoned; they're killed; people are repressed.
Mr. CASTLE. I understand, Mr. Becker, but the only reason I made the statement is that because of the urgency of the situation over there, I would trust that at least as to this IMF situation—I agree with a lot of things that you say, because they do make sense—I'm active in human rights—but if that is to be a condition for IMF, it's not going to pass Congress, and I want to see something get passed here. You know what I'd like to see at the minimum: at least a mutual opening of markets. If we could all agree on that, that would help out the labor unions, that would help out the people who work that are not employed in labor unions, that would help out companies, that would help out everybody. What I'm suggesting is that if you pick the strongest argument among what you have, which I think is the mutual opening of markets and agree on it, let's put that into the language and go forward on it and get this thing passed and get on. Then the arguments that you made, Mr. Becker—I really appreciate the eloquence with which you do—those can come up when we're talking about MFN or Fast Track or something like that, but at least for now, let's try to come to some kind of agreement.
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Mr. BECKER. Permit me to focus on that point. It's precisely because of the urgency of this that we have an opportunity to put those conditions in there. I'm going on the assumption that we tried to put those conditions in in their normal times, but the legislation that was passed and all of the fine statement about what the IMF should do, none of this was accomplished. It's because of the urgency that we have done this. Suharto in Indonesia said that he wasn't going to accept the conditions of the IMF, but he did, didn't he? He had to, because of the urgency and the fact that they needed the money. I'm saying put—that same hammer in there. If that's the only thing that's going to move those governments into recognizing human rights and labor and the rights of people to have a democracy, then let's use that hammer that we've got now precisely because it is an urgent matter and a crisis is at hand.
Chairman LEACH. Will the gentleman yield briefly?
Mr. CASTLE. Sure, my time has expired. You make an excellent argument for your cause. I appreciate it.
Chairman LEACH. Will the gentleman yield?
Mr. CASTLE. Of course.
Chairman LEACH. Let me just stress that I think his point about opening markets we're going to have to emphasize more in the statute, but the draft statute that we have before us, that I have introduced, states the following with regard to some of Mr. Becker's concerns. It states that, ''The U.S. Secretary of the Treasury shall instruct the United States Executive Director of the International Monetary Fund to use the voice and vote of the Executive Director to do the following:'' and one of the points is, ''ensure that the International Monetary Fund policies and procedures endeavor to support internationally recognized worker rights such as freedom to join an independent trade union and bargain collectively including by: A, considering labor policy, market policy in the context of achieving macro-economic stability and providing the foundation for sustainable growth; B, further enhancing collaboration between the International Monetary Fund and the International Labor Organization; and, C, encouraging recipient governments not to discriminate against guest workers.''
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And the only point I'm making is that I think this Congress, as we look to the future which is what we're really looking at with regard to replenishment of the IMF, does have to make a stand on international labor issues, I think, in the context of internationally agreed upon labor rights. We're not saying that America's Taft-Hartley Act shall be transferred to another society. We are saying that internationally-recognized labor agreements should become a basis for the policies of this nature, and I think, frankly, that's a very appropriate approach to take. I also think it's thoroughly appropriate to emphasize the approach the gentleman just stressed of market reciprocity, which I think this is the time to do that. And I apologize for lengthening the gentleman's time, and I certainly will be generous with the time for Mr. Frank.
Mr. FRANK. Thank you, Mr. Chairman, and I will pick up some on where you left off, but I got to read the Wall Street Journal article, and I do notice that it takes two positions: One, we should abolish the IMF; but only after we pass this bailout.
[Laughter.]
It reminds me of our Judiciary Committee Chairman, Mr. Hyde, who has from time to time invoked the plea of Saint Augustine, ''Lord, make me chaste, but not yet.''
[Laughter.]
What this says is, this must be the last time that the IMF acts in this capacity. So they get one more bite under the tough regimen.
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And the problem is, Mr. Schultz and Mr. Simon have a certain advantage now over some of us here; they're not now in office, so they don't have to deal with some of the tough issues, because their response is, OK, give them this money, but never again—on the assumption that if we vote this bill out, apparently, and then abolish the IMF, they will improve their behavior. I think that's less likely than they think.
But I do want to follow up on what I think were the important issues we were just talking about. I guess I would say in American labor, Mr. Chairman, I think you'd probably find the AFL/CIO willing to join you in not exporting Taft-Hartley. An earlier version they might be willing to export. Taft-Hartley, I think they'd be willing to get rid of even here, much less export it.
But what I was struck by, I've been arguing for protecting labor rights, and one argument I just heard upstairs—and I apologize for being back and forth—but the Institute for International Economics has sponsored today a panel on Fast Track, which is covering many of the same issues. Because, as the gentleman from Illinois pointed out, there's currently some overlap here.
One of the representatives from Texaco said, well, in effect, you're exaggerating the extent to which corporations go to places just because it's cheaper or because there's less regulation. I'm unpersuaded of that, and I do notice that four of the business statements here—three that were delivered by Mr. Russo, Mr. Appleton, and by our former colleague, Mr. Moore, and one by Andrew Corid all complain about unfair competition to some extent, in which the host countries rig things against Americans, and you correctly point out that those cause disadvantages. Well, I agree with that, but those same things cause disadvantages for working people and for advocates of the environment. It is not the case it is only businesses that suffer this disadvantage. I think this is one of the issues that we got to the other day.
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I guess I would disagree. People say, well, yes, the labor rights are important, and I recognize that's an improvement. They used to not to be important; now they're important, but not now—not when we're in a crisis. Well, I've got to say to some of my colleagues, I've been around here and I've seen some of your negotiating. I never yet saw any of my congressional colleagues say, this is very important, and you have something you want badly, and therefore, I won't press for it now because it would be inappropriate. It's been my experience around here that we generally understand that the more leverage you have because somebody else needs something, the more you press for it. The notion that there is some inverse relationship between the importance of what you care about and the leverage you have doesn't apply. And I see from the nods of our former colleague that he remembers that you don't give this away.
So maybe we don't get everything, but, remember, there are two rebels here. We're not sure what we get from Suharto, although I do want to stress—again, I read in the paper last week, and let me repeat this, a point that seemed to me to emerge last week: The IMF is telling South Korea, which is a fairly well-governed country, which just had an opposition candidate elected president, which has labor unions—South Korea does not fail on many of these human rights and labor rights and democracy standards, but we're holding up aid to South Korea, I read in last week's paper, the IMF is, until they give autonomy to the central bank. Now I asked Mr. Rubin, Mr. Greenspan, Mr. Summers last week, because, see, on the one hand, we're told we can hold up this program until South Korea agrees to give the central bank autonomy, in effect, to create a Federal Reserve-type system, but we can't ask Indonesia to do something about labor rights. I don't know if there are many people who would tell me that the National Labor Relations Act had more of an impact on the American economy than the Federal Reserve Act. Most people would probably figure recently the Federal Reserve has had, unfortunately, from the standpoint of many of us, more of an impact on the National Labor Relations Board.
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So when I'm told that we can insist as a condition that South Korea has to cut loose the Federal Reserve, in effect, the central bank of South Korea, but we can't make a similar push on labor rights, I'm troubled.
And I think here's the situation, and this is part of it: I realize we can't do it all at once, but we are in this difficult situation, and many of the business people here reflected; we are increasingly in a global economy, but we don't have global rules of governance. We have a global economy, but we have local governance. In fact, if Tip O'Neal were back today, I think we would have to ask him to amend it. All politics is local, but all economics is global. And what we're dealing with here, as we are in Fast Track and elsewhere, is an element of that disconnect, of the disparity between global economic forces, to which Micron and IPSCO are subjected, and local politics, which dictates a fixing of the rules of competition, and we have to deal with it. But we have to deal with it both for business and for labor, and we have to recognize that there is a need to move.
Now I don't think we can resolve all of this here, but I think we have to begin this. We're not talking about the specific interest of a specific group.
By the way, here's the final problem I have, and this is why I think we're told we can do it for the central bank, but we can't do it for the National Labor Relations Act, and I'll just take another minute, if I could, Mr. Chairman. In the absence of any kind of government that can deal with this, the shots are called by the owners of capital. Now that's not irrational. What we're being told here is that we had better figure out policies in this current crisis that assuage the fears and concerns of the owners of capital, because they will otherwise withdraw their capital; they'll demand that their loans be repaid. And we're being told that we have to guarantee loans, roll them over, raise interest rates. Everything we are being asked to do goes to reassuring the owners of capital that they will be well-treated, and that's not irrational; you do need capital.
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The problem is, take all this together, and you have a situation where the owners of capital get everything, and everybody else gets nothing, and that may include the manufacturers; that may include—because we're talking about capital in the freer sense. That's what we have to resolve.
I don't expect us to be able to do it all here. I do think we have to insist on both reforms of the IMF and some substantial improvements in terms of market opening and labor rights. They both are equally important.
And the only last thing I would say, Mr. Chairman, is that I appreciate your opening comment with regard the Indonesian labor leader and the language you have in your bill. That's a substantial advance to me. But I have to say, the track record is such that I'll need more than just language in our bill. I will need some signs that the IMF, in fact, is going to pay attention. I don't expect them to solve it all right away, but I do expect some serious acknowledgement of that.
I thank you, finally, because I think this panel, by the very wide scope of the different concerns people have with the unfairness of the rules, helps illustrate the need for that.
Mr. KLECKNER. Mr. Chairman, may I be excused?
Chairman LEACH. Yes, of course.
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Mr. KLECKNER. I'm supposed to be chairing a conference that started six minutes ago.
Chairman LEACH. Of course.
Mr. KLECKNER. I hate to leave, but——
Chairman LEACH. Mr. Kleckner, please.
Mr. KLECKNER. Thank you.
Mr. FRANK. Well, I thank you for sitting through me, Mr. Kleckner. That was very kind of you.
[Laughter.]
Chairman LEACH. Mr. Jackson.
Mr. JACKSON. Mr. Chairman, let me first associate myself with everything that Mr. Frank, the gentleman from Massachusetts, just said, and first request of my colleague and see if he needs any additional time. Mr. Frank, did you have anything else that you wanted to add? I'll be glad to yield you the time, and then I do have just one question.
Mr. FRANK. Oh, thanks, Jesse. No, I ran down.
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[Laughter.]
Mr. JACKSON. Mr. Chairman, during the eleven days that we spent in East Asia with Chairman Leach, I met and spoke with a number of people whose lives this committee will be affecting and whose fate this committee ultimately will be deciding. I found a lot of what Mr. Becker said to be very convincing. I also found it to be very true, and I certainly appreciate the spirit within which he presented it.
Some American businesses, contrary to what many of the panelists have said today, have done quite well under crony capitalism. As long as they had some advantages in terms of low-wage workers, that has just been the reality. If not, they'd be here in America, where they have all the legitimate capitalists that they want. But the workers here have strong protections that include a minimum wage and child labor laws, and other various protections.
I met with the American Chamber of Commerce in Hong Kong. One of the members of the Chamber said that we pay, and I quote, ''better than the average wage,'' according to their standard, but not a competitive wage, according to our standards. We are not, as far as I'm concerned, following Henry Ford's very basic principle, that we ought to pay our workers well enough to be able to buy his cars—or our exports, our cars, or even, for that matter, Mr. Bracy, once we sell them airplanes, the average worker in Indonesia cannot afford a ticket, which is the basic fact and reality of this trip.
One of the things that I came to appreciate is that we cannot truly measure the Asian financial crisis in purely financial terms, but also human terms. The first hit in South Korea are the women. They're the first to be fired. They're being asked to give up their gold to help their country with their payment problems. The economic situation in East Asia is far more serious than anyone, I think, in our own country can possibly imagine.
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I think the first mistake that we make—and I wanted to indicate to one of my colleagues on this side of the aisle to be very careful to keep referring to the crisis as an Asian financial crisis; it's a financial crisis that happens to be in Asia. We should not Asianize or racialize the crisis, but globalize it and work assiduously to improve the condition of all people affected by the crisis. ''Over there,'' ''over there,'' ''over there'' was mentioned several times, but in the internet-globalized world ''over there'' is right here. That is the whole point of the notion of globalism.
Second, I am convinced that any course this committee endorses needs to be flexible and tailored to individual countries. The IMF solution of one-size-fits-all will provide a short-term solution to entrenched institutions and governments that need real reform to promote long-term stability and prosperity,
And, third, I'm afraid, Mr. Chairman, if we don't act, we could truly have a human tragedy occur, which we have right now the ability to prevent. I have no proof of it, no justification for it, but I have plenty of reason to believe that since I've been in Congress—and I noticed in our last hearing that the Secretary of Defense, who was present here, pretty much knows that, and this situation obviously has the attention of our Defense Department because of, quote, unquote, ''vital U.S. interests'' that are at stake.
We looked at three scenarios while we were there. This Congress can authorize an unconditional bailout, encouraging moral hazard for speculative investors while the laborers in East Asia obviously service that debt. Any downward pressure on their income, some $2,000 a year, some $3,000 a year, could create social unrest. We could also authorize no bailout, which would promote deeper despair and widespread civil unrest, leaving the workers of East Asia to fend for themselves. This solution, I believe, is counterproductive, producing even more suffering in East Asian workers and American workers via contagion, high interest rates, and the possibility for recession.
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Here's my question: We should authorize, from my perspective, a third solution, a solution that ensures some of Mr. Becker's concerns, overwhelmingly most of Mr. Becker's concerns: internationally recognized worker rights, especially for women and children; prevents the deterioration of the environment and natural resources, and promotes corporate and fiscal responsibility.
I'm interested, from our distinguished panel, how we can arrive at the third solution, where workers in Asia, so that we don't end up bailing them out again, are the beneficiaries of other American values, not just the ability to make a buck or profit, but we consider child labor laws, environmental protection, paying workers a decent, safe, and affordable living, as an American value as well.
Any response that you may have to that third scenario, I'd be more than appreciative of. Thank you very much, and thank you for your time, Mr. Chairman.
Chairman LEACH. Well, thank you, Mr. Jackson.
Does anyone want to respond to Jesse's comments?
Mr. BECKER. I'm going to walk on water here for just a second. I think the——
Chairman LEACH. When you're with the Jackson family, you must.
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[Laughter.]
Mr. BECKER. All too often, we see companies go into other countries and they immediately go to the lowest common denominator, whatever the law provides, the very basics of it, and nothing else. That's not the case in all companies, though. Some companies carry the traditions and the values that they have in the United States or Sweden or other countries, and they take them with them. In those cases now—and I've looked at this in Mexico; I've talked to workers there—they come under a tremendous pressure from the other companies that build, other foreign companies, sometimes from the government, because it's the old story: If a nail sticks up, you pound it back in; you don't want anything that would be any different or set a different pattern.
So the defense of some companies that I've talked to here in the United States is that they just can't pay any more; they can't give a higher standard of living or human rights, or anything else, other than what the other companies do in that country.
I'm a believer in the ILO conventions. I think we need to be looking for a worldwide standard. I think we need to be pushing this at every avenue, every opportunity, when we can. I think the United States should be a leader in this. I think there's other countries that expressed an interest in doing this, like France and other countries that have a social conscious that's out there. I think we could do a lot. I think Congress could do a lot by pushing this. I think it's almost criminal that, with our feeling of democracy and human rights that we have in this country, that we don't push this throughout the rest of the world in a real way. I think we could do that.
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Chairman LEACH. If the gentleman would yield. I would like to express to Mr. Becker, on this trip to Asia, Mr. Jackson advocated precisely what you are suggesting and represented, I think, the views that you've expressed very well and very thoughtfully.
Mr. JACKSON. Thank you, Mr. Chairman.
Chairman LEACH. All Members have been heard from. We have a guest colleague that we're delighted to have with us. Dr. Ganske, you're free to ask a question or questions.
Mr. GANSKE. Thank you, Mr. Chairman. I appreciate your indulgence in allowing me to sit in on your hearing today.
I think both panels have been excellent. I have learned a lot. I came in early from Des Moines, caught the 6 o'clock flight, in order to listen and learn, because I think this is going to be one of the most important issues that we're going to vote on in the next month or two.
I would, I guess, ask your indulgence to make a statement or two, and maybe ask a question.
First, I do have a statement that, with the committee's consent, I'd like to have inserted into the record.
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Chairman LEACH. Without objection.
Mr. GANSKE. Thank you.
Well, I see this whole issue as one significantly different from whether one supports Fast Track or not. I think this is a different issue. I'm a Fast Track supporter. Quite frankly, I'm undecided at this point in time what the best course is to take on this issue of further funding for the IMF. I think, as members of this panel pointed out, the deal is already done; the question is whether more will be necessary and whether this, in fact, in order to replenish the IMF funds, is a good time to use that leverage to effect some needed changes.
I think this issue is different from Fast Track. I don't think a Congressman's vote should be for funding on the basis of whether exports are important to their district. I think the real question should be, what policy is best to prevent this crisis from getting worse, and in the long run, what's best for our economy as part of the world economy? So I'm trying to come to some understanding of this issue, and I'm sorry that Mr. Kleckner had to leave early because I really wanted to ask Mr. Kleckner a couple of questions. If there's any representative of the American Farm Bureau here, maybe you can relay my question to Mr. Kleckner.
Mr. Kleckner basically said that he would not support ''making whole'' the lenders who had made risky loans. I want to know if the American Farm Bureau is going to support further funding for the IMF if that is not an explicit part of the deal?
Then I would say I'd just like to ask this panel—every one of the members of this panel talked about the problems with the currency devaluations. In my mind, that is maybe the major problem with this whole crisis.
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Mr. Kleckner had to leave, but I can tell you, representing a farm district, that you're going to have ships turning around in mid-ocean if you've got currencies that are devalued the way that they've been overseas, if that hasn't already happened.
Now I want to ask every member of this panel this question: If Mr. Greenspan or Secretary of the Treasury Rubin allowed the U.S. dollar to devalue the way currencies have been allowed to devalue in some of the Asian countries, what would you think of their job performance? Let's just go right down the line. Would you agree with it? Maybe keep your answers just brief.
Mr. BRACY. Well, I think just quite naturally we think their job performance would be unsatisfactory. As it is, if you look at one airline that's been written about and referred to in one of the comments, written remarks from one of the people on this panel, Gruda Indonesia is having trouble financing its aircraft that they're buying from the Boeing company. In effect, their airplanes are five times—or excuse me, three times—more expensive than they were when they ordered them some two years ago.
Mr. GANSKE. Well, let me just shorten this. Is there anyone on this panel who would say that it isn't of utmost importance to support your currency? In other words, to prevent a devaluation like we've seen in Southeast Asia? OK, I don't see anyone saying that they think it's OK to do that.
Now let me ask you the next question. If the IMF——
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Mr. BECKER. Let me—excuse me—let me—I'm certainly not an authority in this field, and don't project to be, but I think it would be—I would have a great hesitancy and would want to know a hell of a lot more about it before I would—I don't want any implication that I think we should just let it float or fall.
Mr. GANSKE. That's what I mean. That's my point.
Mr. BECKER. I have a big problem with that.
Mr. GANSKE. You would have a big problem with that? OK.
Mr. BECKER. I think so.
Mr. GANSKE. So would I, and there are two examples that we've seen in South America. We saw Mexico, which devalued, and we saw Argentina, which did not. They protected their peso.
OK, it is my understanding that the IMF has actively advocated allowing those currencies in Asia to float. Is that, in your opinion, a wise policy for the IMF to have taken? Would anyone care to answer that? I mean, we're talking about providing additional funding to the IMF. The reports that I read are that the IMF is actually advocating allowing those currencies to fluctuate, to float, to devalue. Is that not part of the problem? Anyone care to answer that question?
Mr. MOORE. Certainly when a currency goes down in value against the dollar, it exacerbates our trade situation. I'm not sure how to answer your question, Congressman. I don't know what the IMF is doing on currency. I can't answer that question.
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What I do know is that if a government purposely lowers the value of its currency to obtain a trade advantage, that's the kind of thing I think that the Chairman is speaking to in Section 1623 of his bill. That should not be allowed.
Chairman LEACH. Mr. Appleton.
Mr. APPLETON. Well, I think we have to look at the reality of artificial factors. I mean, the value of currencies tend to fluctuate with the strength of the economy. I mean, let's not forget that the Japanese yen was considerably different in value compared to the dollar not that long ago, and, in fact, has fluctuated 50- to 100-percent. However you want to look at it, currencies inevitably end up where they are based on the strength of a country's economy. So the problem is artificially manipulating the currency. That's really the problem—to artificially manipulate, up or down, and that's really what should be addressed.
Mr. GANSKE. Mr. Russo, on a related issue, you pointed out that the Chairman of the IMF is basically advocating that these countries export their way out of this trouble, and the way that they can do that, as I think every member has pointed out, is by lowering the value of their currencies, making it vis-a-vis the dollar very attractive then for exports.
Mr. VENTO. If the gentleman would yield.
Mr. GANSKE. Yes.
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Mr. VENTO. This Member didn't point that out. I think that the immediate effect of the devalued currency means that, as Mr. Becker said, there's steel on ships. People had traded in it, and the immediate effect is that Korean steel will be cheaper, as well as other products coming from some of the nations we're talking about in this instance. But the fundamental issue in terms of their currency deals with the strength of it, and the systemic problem is, of course, in terms of changing the economy. That's what the IMF agreements or conditions do, is they basically are aimed at, yes, they do provide the currency to flow, to find its market niche, but also, systemically, they're trying to deal with the economic restructuring to strengthen the economy and eliminate some of the problems that have, in fact, caused the weakening of the currency. There are many factors that do that. Of course, the most immediate issue is that most governments there don't have the resources to buy up enough won or yen or other type of currency in order to increase the value of it.
On the other hand, we're not advocating that they do that; simply that we're talking about trying to find a market position for that, so it would be on solid ground.
Mr. APPLETON. Congressman, can I make one more comment?
I think we have to recognize that the fundamental premise of the problem is not the value of the currency; it's that the countries have pursued uneconomically sound practices, and that you cannot go forward in time for decades on a path that effectively gives away money, if you will. So when these countries pursue practices that are predatory in pricing, there's a cost of doing that. That has been the root of the problem. It's not the value of the currency; it's the fact that they have unsound economic practices.
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Mr. GANSKE. But a currency devaluation can make the situation significantly worse. I mean, I think that you can look at the example of how Argentina basically supported their currency, which was significantly different from the way that Mexico handled its crisis, and they're doing much better today than Mexico is. Some of that is, what I want to get at is, the advice that the IMF is giving on that issue.
Well, Mr. Chairman, I don't want to prolong this panel. I just want to thank the panel for some very interesting testimony today. I learned a lot.
Chairman LEACH. Well, I thank the gentleman. Last Friday, let me inform the gentleman, we had two panels, one being the Administration; the other being a group of economists. In an endeavor to have balance, we had an economist representing the minority of opinion of the American economics profession, which was Dr. Hanke of Johns Hopkins, who argued that the best approaches are what are called currency boards, which Argentina has. The vast majority, however, of the American economics community probably leans in the direction of more flexible exchange rates. When you move to precisely inflexible exchange rates, among other things, governments can lose huge amounts in taxpayer resources of their own states to protect these. Given the fact that currency flows today are in the $2-trillion-a-year range, there's hardly a government in the world that has the resources to do it.
Now Argentina and Hong Kong, Hong Kong with the PEG, Argentina with the Currency Board, haven't achieved that, although one might argue each is vulnerable. Argentina, as you may know, did take IMF assistance to maintain its position, but these are issues in the economics community of rife debate. Many argue that the IMF is stressing, for example, which Dr. Hanke is not an advocate of, but the vast majority of the American economics community are, that you have independent central banks in countries around the world, and that the underlying basis of macroeconomic policy within a country will have the most to do with whether or not currency values are of a reasonable nature.
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In any regard, I would only stress that whether the IMF is right or wrong, it's probably consistent with the majority of the American economics community, left and right, today, which argues that currencies in a free market are no different than goods in a free market, and that they ought to be subject to market discipline.
Mr. VENTO. Will the gentleman yield?
Chairman LEACH. Yes, of course.
Mr. VENTO. I think, just to make a point on the Chairman's statement, and that is that the goal is the same. The goal is not fundamentally different, and that is to have a fair exchange rate that reflects the basic markets. It's a question of whether the bank can do it, a monetary authority can do it, or whether it should be done on a floating basis with structural economic changes that underlie and buttress it.
Mr. BECKER. Mr. Chairman. I'm very sorry, I'm going to have to excuse myself.
Chairman LEACH. Please, of course.
Mr. BECKER. I have people waiting now.
Chairman LEACH. And let me say, Mr. Becker, we appreciate your testimony, your appearance. We'd asked other representatives of the labor community to balance this out. You've played a very important role and have made a very important contribution to this subject matter, and it's very much appreciated.
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Mr. BECKER. I thank you for that, and I want to thank the committee for giving me the latitude that you have in order to express myself. Thank you very much.
Chairman LEACH. Thank you, sir.
Well, let me also say that we have two representatives of industry that are, in effect, facing a double-whammy, and that is the microprocessor industry and the steel industry, because you've had intervention in the economies of particular countries that was described as policy-based lending. Then when the economies at large collapse and the currency ratios go down because of the internal misallocation of resources, one is left with an industrial investment that exists, and for that particular industry, the advantage of a weaker currency for exporting to other countries. That's a double-whammy situation that is particularly perplexing. As those economies move, as they hope is the case, toward less policy-based intervention, still those investments stand. So it's a particularly awkward circumstance for those two industries.
Mr. MOORE. Mr. Chairman, make that three and four; paper products and paper, we're in the boat.
Chairman LEACH. I apologize. I apologize.
Mr. MOORE. The same boat.
Chairman LEACH. Three industries in which you have the same kind of circumstance. What happens in the world sometimes is certain industries have different things happen to them; others don't. Psychologically, for example, the whole world thought that every country ought to build a steel company, unrelated to market demand, and that's an absolutely nutty proposition. Probably the same thing is happening in some countries in microprocessing and other countries in paper and wood, and so that's an understandable situation.
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Well, let me thank you all very much. Let me also alert the panel that we are tentatively looking at mark-up of legislation on the 25th of this month. That is a very tentative date. There will be further notifications, and it's a date that may well shift, but I think it's something that people ought to be alerted to.
I also want to say that I am personally appreciative of all of you for taking the time from your particular lives to present perspectives that have been exceptionally thoughtful, and I thank you all.
The hearing is adjourned.
[Whereupon, at 2:33 p.m., the hearing adjourned subject to the call of the Chair.]