SPEAKERS CONTENTS INSERTS
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43–215 CC
1997
TRADE PRIORITIES IN THE CLINTON ADMINISTRATION
HEARING
BEFORE THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
JUNE 10, 1997
Printed for the use of the Committee on International Relations
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
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WILLIAM GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
HENRY J. HYDE, Illinois
DOUG BEREUTER, Nebraska
CHRISTOPHER SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
MATT SALMON, Arizona
AMO HOUGHTON, New York
TOM CAMPBELL, California
JON FOX, Pennsylvania
JOHN McHUGH, New York
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
JERRY MORAN, Kansas
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KEVIN BRADY, Texas
LEE HAMILTON, Indiana
SAM GEJDENSON, Connecticut
TOM LANTOS, California
HOWARD BERMAN, California
GARY ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
PAT DANNER, Missouri
EARL HILLIARD, Alabama
WALTER CAPPS, California
BRAD SHERMAN, California
ROBERT WEXLER, Florida
STEVE ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
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FRANK RECORD, Senior Professional Staff Member
CAROLINE G. COOPER, Staff Associate
C O N T E N T S
WITNESSES
Hon. Charlene Barshefsky, U.S. Trade Representative
APPENDIX
Opening statement by Chairman Benjamin A. Gilman
Prepared statement of Hon. Charlene Barshefsky
Responses to additional questions submitted for the record
Questions and responses from Congressman Robert Menendez
TRADE PRIORITIES IN THE CLINTON ADMINISTRATION
TUESDAY, JUNE 10, 1997
House of Representatives,
Committee on International Relations,
Washington, DC.
The Committee met, pursuant to notice, at 10:13 a.m., in room 2200, Rayburn House Office Building, Washington, DC, Hon. Benjamin A. Gilman (chairman of the Committee) presiding.
Chairman GILMAN. The Committee will come to order.
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It is a great pleasure today to welcome our distinguished witness, U.S. Trade Representative Charlene Barshefsky, before our Committee to discuss the Administration's trade priorities.
Having ably served as Deputy Trade Representative with impressive negotiating credentials in the areas of intellectual property and information technology, Ambassador Barshefsky is especially qualified to address some of the key trade policies before the Congress today.
To a surprising degree, both critics and supporters of the Administration's trade policy agree that the trade policy agenda has lost its primacy in our overall foreign policy. Earlier enthusiasm for NAFTA and for opening markets in Japan has now given weight to budget cutting and a strongly domestic agenda. And while the members of our Committee hold a variety of views on many of these issues, we are all looking to the Administration for leadership; leadership in articulating a vision of the global economy as well as to implement a strategy to open markets, to create jobs in our Nation, and to advance overall U.S. foreign policy objectives.
It has been said that maintaining momentum on trade policy is somewhat like riding a bicycle. One must keep pedaling or risk falling over. Yet, to a large degree, so long as the Administration delays congressional consideration of the fast track process, the Administration's trade policy has no long-term goal or direction. It is difficult to perceive how the Administration can now lay claim even to having a firm grip on the handle bars of its trade policy bicycle—much less that it is pedaling in a positive direction considering that our own trading partners have signed more than 100 trade agreements without us since the fast track authority expired.
As Ambassador Barshefsky will be noting in her own testimony prepared for this hearing, governments in the two fastest growing regions of the world, Asia and Latin America, are forming preferential trade arrangements around us rather than with us. And here I quote the Ambassador, ''creating new exclusive trade alliances to the potential detriment of U.S. prosperity and leadership.''
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Increasingly, we seem to be reactive rather than proactive in setting our own trade priorities. This morning we hope that Ambassador Barshefsky will be able to share with us her insights on just how to reverse this trend, and we look forward to the prompt transmittal of fast track legislation and for an invigorated trade strategy that will help us lay the foundation for a new transatlantic and transpacific trade agreement based on common interests and on values with our key trading partners in Europe and in Asia.
And as we debate granting Most Favored Nation trading status to China, let us keep in mind the unequal nature of our current trading relationship with China. The latest figures from the Department of Commerce indicate that our trade deficit with China was some $2.6 billion in March. So far this year our exports to China are down 7.7 percent, while China's exports to the United States are up some 24 percent.
Our overall trade deficit was over $38 billion compared to $28 billion a year ago. In fact, our trade deficit with China has more than doubled since 1992, when it was just over $18 billion.
If the Administration considers such a trend to be a path to success, we wonder just how they would be defining failure. We must be certain that all the facts about our trading relationship are fully discussed in the upcoming MFN debate. With U.S. tariffs averaging 6 percent and Chinese tariffs averaging 23 percent, it would seem that the Chinese exporters enjoy a considerable advantage over U.S. exporters.
I believe that the key to a successful policy of engagement is reciprocity, and China seems to be failing on all counts in that regard.
By renewing MFN for China, the President is discarding a key principle of his 1993 policy of constructive engagement where our trade relations are carefully balanced with our overall policy toward China.
Before hearing from our witness this morning, I am going to turn to our ranking minority member, Mr. Hamilton, if he has any opening statements, or any of our other members who may wish to comment.
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Mr. Hamilton.
Mr. HAMILTON. Thank you very much, Mr. Chairman.
I want to express my appreciation to you for having the hearing because I think it is an important one and, of course, we welcome Ambassador Barshefsky before the Committee. May I extend my congratulations to you on your confirmation as U.S. Trade Representative? It took us awhile to get it done, but we eventually got it done, and I am sorry you had to become involved in such a complex process. But I am pleased, of course, that our Senate colleagues saw fit to confirm you.
I also want to express a word of congratulations to you and to your colleagues at USTR because of what I think really was a superb handling of the negotiations that produced the landmark information technology and telecommunications agreement earlier this year. Those agreements are going to have immense benefits to American workers and to American industry and to American consumers, and I think you can be quite proud of that accomplishment.
It does seem to me those negotiations underscore two facts that are terribly important in our discussion this morning. One is how effectively multilateral trade agreements can promote international prosperity, and second, how essential it is to have U.S. leadership to bring those talks to a successful conclusion.
I, of course, like my colleagues, will have questions for you, but I do want to express as a supporter of fast track my disappointment with President Clinton's decision to delay putting forward a fast track proposal until this fall. I think we all appreciate the way this town works and that is that things are not going to begin in ernest until the President weighs in and puts his proposal on the table. I think the fast track proposal is a defining moment for this President.
I think his first term was marked by a great deal of aggressive leadership in putting trade as one of the central features of his foreign policy. And I must say I share some of the concerns expressed by Chairman Gilman here about the loss of momentum on these trade issues.
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I am not confident that a debate that begins in September will provide enough time for the President to prevail before the end of this legislative session in 1997. As you know, the Congress does not come back until almost the middle of September, and we are confronted with overwhelming problems during the September-October period on budget reconciliation and all the rest.
I think you would agree with me that we are going to have a very tough fight to get fast track approved. And the President is going to have to weigh in, as he did on GATT and NAFTA, if we are going to be successful at that.
Fast track, from my perspective, is not some arcane trade policy. It is nothing less than a very critical tool for the President of the United States in the conduct of American foreign policy. And without that fast track authority, I think our relations with Latin America are going to suffer. I think our market—opening efforts with APEC will come to a halt, and I think U.S. leadership in East Asia will be diminished.
The United States will not be able to continue leading the multilateral trade process that, in my view at least, has boosted prosperity and reenforced world stability for the past 50 years.
You, I think, have a very eloquent statement for the Committee today. You emphasize that fast track is essential to the continued strength of the U.S. economy, and I certainly agree with that. There is no more effective way to generate new jobs in our economy than to increase access to trade markets.
I was a few minutes late here this morning because I was meeting with a group of agricultural leaders on the importance of renewing MFN.
Mr. Chairman, I may have some difference with you on MFN, but I support MFN renewal for China, and I think that without fast track the United States will not be able to lead planned global talks on agriculture and on services which are two sectors in which U.S. producers are hurt by very widespread trade restrictions.
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I do not underestimate the complexity of this issue. If I understand appropriately, you are the Administration's point person on negotiating fast track. We all know that what has held up fast track are the difficulties on labor standards and environment. I want to hear from you more on that in a few minutes.
Let me conclude simply by saying that I think there are very, very few issues that I can think of that are more important for the second term of President Clinton than fast track. I think it is a defining issue in his second Administration, and I think he will have to exercise his very extraordinary powers of persuasion. We all know he is a very gifted person in articulation of public policy. He is going to need to explain how fast track will empower him to open foreign markets, create American jobs, provide profits for American industries, and how to turn our trade leadership into foreign policy leadership, and I think he needs to do that now rather than September.
And so I am going to do everything I can to help you get fast track authority, but I see it as a very tough fight in the Congress, and one where all of us had better get engaged sooner rather than later.
Chairman GILMAN. Thank you, Mr. Hamilton.
Are there any other Members seeking recognition at this time?
Mr. Clement.
Mr. CLEMENT. Madam Ambassador, I probably look at it a little differently than Mr. Hamilton. Mr. Hamilton and I agree on practically everything, and I respect him so very much. But I really do not think the votes are there right now for fast track, and I think the Administration was probably correct in postponing any proposal until this fall. There are many of us that voted for NAFTA that are not necessarily on board yet when it comes to fast track authority again. We want a lot of questions answered about how NAFTA is really working.
I know at home and other places people want to blame NAFTA for the loss of many jobs and opportunities when many of those jobs and opportunities may not have been there anyway whether NAFTA had become a reality or not. That is why we need to look at the ramifications of fast track, how it is going to work. Is it going to be a continuation of what we have now, which is a lot of confusion, maybe misinformation about what NAFTA means to the United States and to our trade opportunities in Central and South America, and our trade opportunities in the world.
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And I think all of us are going to have to just work that much harder to have a better understanding from your office, as well as the Administration, about trade and how it will benefit the United States for the 21st century.
Thank you.
Chairman GILMAN. Thank you, Mr. Clement.
Any other members seeking recognition?
Mr. MARTINEZ. Mr. Chairman.
Chairman GILMAN. Yes?
Mr. MARTINEZ. I was not going to chime in here but——
Chairman GILMAN. Mr. Martinez.
Mr. MARTINEZ [continuing]. I think I am obligated to now.
I voted against NAFTA, and I will vote against fast track and against any extension of NAFTA, and I will tell you why.
Until we have better ways to resolve the differences that arise for the average person doing business in these countries that we make these trade agreements with, I do not think we should be putting our jobs at risk, which is what has happened. But let me give you a couple of for instances.
When the President of Mexico was here and we met with him over at the White House and we talked about NAFTA and some of the agreements there, a little simple thing like resolving what a small package is to a large package cannot be resolved for them. So that in accordance with the agreement that a company like UPS could take their big semi's down into their delivery points, they cannot do it. They have to off-load at the border and load onto Mexican trucks, and that is not in keeping with the agreement.
And the whole thing about big package/small package is a very simple thing to resolve. If one man can lift it with no strain, or even a woman lift it with no strain, it is a small package. If it is something that takes two or three people to move, it is a big package. But they do not want to come to that understanding because by falling back on the pretext that they cannot come to a resolve on what is a small package and a big package, they can keep from implementing it.
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I understand the Administration has suspended that portion of NAFTA that deals with truck freight back and forth. That is what it comes to.
Now, let me give you another couple of examples. Under the Free Trade Agreement, there was an engineering company in my district that went down to establish a sanitation district for them, to pick up their wastes, actually transport it and dispose of it in a sanitary landfill, and they designed this whole system for about $3.5 million. And when it was complete there was a new city council. But even before that they were told that in order to have a firm contract they had to negotiate with the Federal Government.
They negotiated with the Federal Government and got a contract with the Federal Government. The local government still did not recognize it. And after completion and a new council was selected, the mayor decides that his brother-in-law wants to run the landfill, and they disposed these people from the landfill with police. And then when they filed a case in court, the court tells them they have not got a case.
And, fortunately, through negotiating with Ambassador Jones, when he was the ambassador at that time, we were able to get it into court. But the resolve was so unsatisfactory that these people took what they could get out of the deal, which was at a loss, and left.
There was another company that started a communication company in one of the cities down there that upon the completion of the system it was seized by the Mexican Government, and claims of nationalizing which, as we know, were not true, and it was after some negotiating we were able to get that company back for that woman. But that is the unusual thing.
We have a situation where a car was stolen from one of our dealers in our district, and was taken to Mexico, and the Federal Government seized the truck, and immediately started to use it as their own personal vehicle, and have to this day refused to return that even though in our trade agreement there is an agreement by which they have to return that truck, and this has gone on several years now.
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And I am wondering, why do we want to have a trade agreement with a country who will not enforce their aspects of the trade agreement? And one of the problems with Mexico is that their government is in disorder and disarray, and I do not care how many Presidents claim to reform it because before the present President, President Zedillo, there was a claim of firing 250 corrupt officials, and I have people that are doing business with Mexico out of my district that can tell you that none of those 250 people were fired. They were all transferred to different positions, different locations, and the corruption is still there in the government all the way down to the local level.
And, you know, even though they called them the ''fedarales'' in different districts, the fedarales are their own government, independent of their Federal Government, even though they are employed by their Federal Government. And so it is a corrupt system. And until we have some assurances that a lot of that is going to be cleaned up, and if you go to some of these other countries, they are certainly some of the other countries their democratic government is more stable and we would be more able to do business with them in a more fair and equitable way, but we ought to be very selective of that, and we ought to be very sure of the government and their stability before we start entering into agreements with them.
I, for one, have not been happy, and I think that any further extension of NAFTA or any attempt at free trade ought to deal with some of the environmental problems that we have, and some of the labor problems. Mexico's labor protections are in their Constitution, but they do not enforce them. And if you look at what has happened since NAFTA, when you look at the maquiladoras, they were prospering real well, at least there was some control of quality because they were on the border, and now all of those are moving inland because Mexico has a very funny situation in that they have wage zones, and the farther you get into Mexico the lower the wages are. And so some of these American companies that were paying better wages close to the border have moved their companies down into the central part of America.
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The problem there is that when they have set these places up they have built beautiful facilities, beautiful factories, and this we ought to be able to control through our business people requiring the Mexican Government to adhere to the labor laws. And those American companies themselves implementing some of the better living conditions for the people, I have got pictures in my office that I am willing to share with you that show you the shanty towns built of crates that one of our companies have sold. They were surplus crates and they were surplus pallets that they did not give them to the people to build their little shanty town. They sold them to them. They sold them their surplus drums in which they stored hazardous waste materials, and for these people to use as storage for water without any other cleaning up than the citizens can do themselves.
There are some deplorable conditions that are existing, and we are partly responsible because we have allowed this to happen under the agreements that we made. So I am very disappointed with the way this thing progressed, and I was reading part of your testimony that we can claim this and that and the other, and we have done this and we have done that. But if it is not being implemented at local levels of government in those countries, it is not being implemented period.
Thank you, Mr. Chairman.
Chairman GILMAN. Thank you, Mr. Martinez.
Now we will hear the testimony from Ambassador Barshefsky. You may submit your entire statement for the record or you may summarize it, whichever you see fit.
Ambassador Barshefsky.
STATEMENT OF THE HONORABLE CHARLENE BARSHEFSKY, U.S. TRADE REPRESENTATIVE
Ambassador BARSHEFSKY. Thank you, Mr. Chairman and Members of the Committee.
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I appreciate very much the opportunity to appear before you today. I have submitted a written statement for the record which outlines the scope of our trade agenda and its primacy to overall U.S. economic objectives and strategic interests. Let me focus my remarks today on the importance of trade to our economic prosperity and economic security, and the importance of renewed fast track authority to pursue successfully our trade agenda on a bipartisan basis.
Trade is essential to our domestic prosperity and our long-term security. It is both a pocketbook issue and a strategic issue. More than 11 million Americans now work in jobs supported by exports. These jobs pay 13 to 16 percent above the national average wage. Our global exports are at record levels across the board. Over the last 4 years manufactured exports have increased 42 percent; high-tech exports, 45 percent; agriculture, 40 percent; and services, 26 percent. Virtually every State has contributed to this record performance, and has benefited from it. Exports from California are up 45 percent; Michigan, 68 percent; Illinois, 64 percent; Indiana, 55 percent; Ohio, 42 percent; Texas, 40 percent; Nebraska, 54 percent; North Dakota 76 percent; Montana, 52 percent. I could go on and on.
Over the last 4 years, trade has accounted fully for one-fourth of the growth in our GDP. Export growth is one of the reasons the American economy today is strong and sound. Over the past 4 years we have created about 12.1 million new jobs. The remainder of the G–7 countries combined created only 600,000. Unemployment is at its lowest level in 24 years. Inflation is down to a low of 2.5 percent. At the same time family incomes are up significantly. Home ownership has hit a 15-year high. The growth of our industrial capacity is at its highest since 1970. Business investment has been stronger than at any time since the 1960's.
Our current economic expansion has been investment-led, which establishes a firm footing for an even greater climb. As the President has said repeatedly, the best way to continue this prosperity is to give our workers and businesses a full and fair chance to tap into the global economy. This is essential. Ninety-six percent of the world's population lives outside the United States, and 85 percent of them reside in developing countries. These are the large growth regions.
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Last year, the developing world imported over a trillion dollars in manufactured goods from the industrialized countries, and this is a tip of the iceberg. Over the next decade the global economy is expected to grow at twice the rate of the U.S. economy. Asia and Latin America will grow at three times the rate of the U.S. economy. We must work to create fair access into these expanding markets.
This is not merely a matter of short-term economic gain, but implicates our long-term economic security. Trade alliances play a vital role in defining strategic relationships between countries and among regions. Our commercial competitiveness is at stake, but so too is our leadership in the world. Our trade policy must ensure that we are strategically well positioned in the world to advance our economic trade and broader interests, including regional stability through a growing number of enduring trade arrangements, particularly where those arrangements put us at the center of activity.
The principle underlying our trade policy has been and must be to support U.S. prosperity, U.S. jobs, and the health of U.S. companies. The outgrowth of that policy is continued U.S. leadership as the world's indispensable nation, transmitting the values of democracy, market economics, human rights, and the rule of law. We must seize the opportunities of the global economy, and here let's look at the last year for a moment, an issue that Mr. Gilman and Mr. Hamilton have raised.
First, bilaterally, within the last year we have concluded an historic agreement with China with respect to intellectual property rights enforcement. With Japan, we have concluded a semiconductor agreement. I would note that foreign import penetration into Japan in semiconductors is at an historic high.
Sectorally, we have concluded the information technology agreement, and a global telecommunications agreement, areas accounting for more than a trillion dollars in world trade.
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On a regional basis, we have persuaded our APEC partners to join us in utilizing the ITA as a basis for further sectoral market opening. And in the FTAA process, we have agreed with our FTAA partners that we must launch full negotiations in March 1998 at the Santiago Second Summit of the Americas.
As we look multilaterally, we have been successful in the OECD with respect to the criminalization of bribery and corruption. And in the WTO, we have now brought another 18 dispute settlement cases in the last year along, leading to 30 cases that we have brought, and having won some very major cases. We are also at the forefront of the development of new issues in the WTO.
And last, with respect to the developing world, we will seek fast track authority, of course that applies to our whole trade agenda; CBI enhancement, which the Administration supports fully and will shortly put in its bill; GSP renewal; and, of course, a broad-based initiative on Africa.
While we have made this kind of progress in the last year alone, we must also respond and be able to respond to a staggering increase in the number of preferential commercial alliances struck by Latin America, Europe, China, Japan, and others. Arrangements not with the United States, but that go around the United States. We must also continually meet sophisticated and determined international competition.
In order to continue to win in the global market, the President will seek a new grant of authority to implement global, sectoral, and regional trade agreements, fast track authority. In consultation with the Senate leadership and the House leadership, we have determined that proceeding with fast track legislation in September provides the best opportunity for proper consideration and passage of the legislation by year end. Between now and September, we will work with you toward developing legislation that will allow us to continue to move forward.
There is no substitute for our ability to implement comprehensive trade agreements. The absence of fast track authority is a single most important factor limiting our capacity at this time to open markets and expand American exports. Our market is already open. It is already the most open major economy in the world. It is their markets that we must access fully and fairly.
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The scope and breadth of the agenda ahead of us underscores the importance of fast track authority. It also speaks to a future vision of this Administration with respect to the direction of trade policy.
We have three basic uses for fast track authority.
First, multilaterally. In the next 3 1/2 years we will renew global negotiations in the WTO on agriculture, a $526 billion global market; services, a $1.2 trillion market; intellectual property rights; government procurement, a trillion dollar market in Asia alone over the next decade; and financial services. We will also review and try to improve upon agreements on standards, sanitary and phytosanitary barriers to agricultural trade, customs valuation, pre-shipment inspection, and import licensing.
In the OECD, we will continue to engage in negotiations over a multilateral agreement on investment, as well as competition policy and transparency in government procurement. Fast track will be essential if we are to capitalize on the additional market access opportunities presented by the full range of this multilateral activity.
Second, sectoral efforts. We intend to use fast track authority to negotiate agreements in sectors where the United States is most competitive. The recent ITA and Telecom agreements are two such examples. With fast track authority, though, we can tear down more barriers in areas like medical equipment or environmental technology, areas where America leads the world.
Indeed, in APEC in the Quad, we have now achieved agreement among our trading partners to launch the ITA II, in the fall, that is, an enhanced Information Technology Agreement; to expand the ITA in terms of product scope; to enter into the negotiation of non-tariff barriers; and to increase the number of participating countries.
In addition, further sectoral market access initiatives are likely to be announced at the APEC leaders meeting in November of this year.
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Third, our regional efforts. Fast track will be needed to complete regional and sub-regional free trade agreements. Continuing regional initiatives present vast opportunities. Let me name just two regions.
First, Latin America and the Caribbean. This is the fastest growing market for U.S. exports. If trends continue, Latin America and the Caribbean will exceed the EU as a destination for our exports by 2000, and exceed Japan and the EU combined by 2010. Chile is the first step.
Second, Asia. Asia contains the fastest growing economies in the world, with nearly three billion people. Independent forecasters put 1996 GDP for the region at $2.8 trillion, and real growth at 6 to 7 percent annually for the next 15 years, in each and every year for the next 15 years. Market opening agreements with key economies or in key sectors in Asia will provide economic and strategic advantages for the United States.
If we do not act, our competitors will. Other countries are breaking down barriers for their companies and workers. We talk a lot about leveling the playing field, but our competitors are leveling the field and we are on the side lines.
Since 1992, countries in Asia and the Western Hemisphere have completed over 20 free trade agreements, none of which include the United States. In every region of the world this process will continue. MERCOSUR is a developing customs union, with ambitions to expand to all of South America. The EU has begun a process to reach free trade with MERCOSUR; that is, Brazil, Argentina, Paraguay and Uruguay, Canada and others. China's strategic priorities include Mexico, Argentina, Brazil, Chile and Venezuela. Japan has undertaken high level efforts in Asia and Latin America. India and its neighbors are entering a free trade pact. ASEAN, Australia and New Zealand are in discussions, as are ASEAN and MERCOSUR. And individual countries are equally aggressive, with bilateral or plurilateral FTA, countries such as Mexico, Chile and Venezuela.
The costs of an action, of course, are not only theoretical. They are real. For example, Canada has reached a free trade agreement with Chile that will eliminate Chile's across-the-board 11-percent tariff on Canadian products. That means every time an American company tries to sell into Chile in competition with Canada it will face an immediate 11-percent cost disadvantage relative to its Canadian competitors.
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These costs are already being felt. Canada's Northern Telecom just won a $180 million telecommunications contract over three U.S. companies, in part because it could avoid paying $20 million worth of duties into Chile.
Let me close by saying that as we approach a fast track bill, we must develop a bipartisan approach on the issues of labor and environment. We simply must forge a consensus on these issues.
Neither are new issues. Both are grounded in U.S. values and in U.S. trade laws. The stakes are enormous and the cost of an action is absolutely detrimental to our own prosperity and economic security.
Thank you.
[The prepared statement of Ambassador Barshefsky appears in the appendix.]
Chairman GILMAN. Thank you, Ambassador, and thank you for your very comprehensive review of our trade policy.
Is the New York Times writer, David Sanger, correct in his assessment that trade policy is no longer an Administration top priority? And if the trade issues still remain important to the President, why have we not had any proposal for fast track authority?
Ambassador BARSHEFSKY. I disagree vehemently with Mr. Sanger's piece. And as I have outlined just briefly in my testimony, as you look at the last year alone the number of major agreements; (bilateral, sectoral, regional, and multilateral), and the initiatives which we have with the developing countries which I listed, demonstrate that this Administration is as aggressively pursuing trade policy as part of foreign policy, as well as economic policy, as it has over the preceding 3 1/2 years.
The decision with respect to fast track authority is a separate matter. When we go forward with fast track authority, we aim to win. The question is when is the timing best from the point of view of adequate congressional consideration and adequate consultation with Congress before legislation is put forward.
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I am not racing against the clock, nor is the President racing against the clock. He has made a decision on the basis of a recommendation from his Cabinet that in order to continue to lay the necessary ground work so that fast track authority is granted by year end, we should put forward that legislation in September. That is a view with which we have the concurrence of the leadership of both the House and the Senate.
Chairman GILMAN. Madam Ambassador, what is the status of the negotiations to bring China into the World Trade Organization? And can you tell us something about the major hurdles facing those discussions?
Ambassador BARSHEFSKY. As you know, the negotiations for China's entry into the WTO, and before that, the GATT, have been going on for about 8 years. For many of those years, China believed that accession would be a political decision, requiring no economic reform of China's trade regime and requiring no market access commitments on the part of China.
The United States has successfully over the past 2 or 3 years disabused China of the notion that it would enter the WTO on terms different from the other 124 member nations and member economies.
In recent months, particularly in the last year, China has shown, first, an appreciation of the fact that it must make commercial commitments in order to accede to the WTO; and, second, it has evidenced a degree of seriousness about the talks, which is a change from prior practice and has allowed the negotiations to move forward. But we have a very long way to go.
While China has committed in the negotiations thus far to adhere to a number of the WTO rules, some we have not gotten to yet in the negotiation, it has yet to put forward an acceptable series of offers with respect to market access in goods, in services, and in agriculture.
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Market access and China's adherence to the full range of WTO rules, will need to come together before China would be ready to accede to the WTO.
Chairman GILMAN. Madam Ambassador, permit me to change our focus a moment to Japan. Later this summer the World Trade Organization is expected to make a decision on a photographic film case. Structural trade barriers such as Kereitzu relationship and Japan's promotion of anti-competitive behavior affect many different commercial sectors, in addition to photographic film.
If the WTO allows Japan to keep its sophisticated structural barriers in film, how can any other major U.S. export sectors expect to break into that market? Could you please comment on the importance of this case as a precedent for other sectors in Japan?
Ambassador BARSHEFSKY. Let me first say that we have made some significant progress with respect to market access into Japan over the last 4 years, having concluded 24 agreements with Japan and having seen a substantial decrease in Japan's trade surplus with us.
We have seen some disturbing trends in more recent months, in part, because of Japan's imposition of a new consumption tax, and in part because of the swing in the exchange rate, and we have indicated to Japan that we do not expect to see any significant increase in the current account surplus as Japan begins to deregulate its economy.
The film case points up one aspect of the difficulty foreign companies have in entering Japan, and that is, the difficulty of market access. If you have market access, the difficulty is getting on the shelves in stores where your products can be bought. And, if you can get them on the shelves, the difficulty is getting them off the shelves into the hands of consumers.
There are an array of market access, distribution and other related barriers that make it exceedingly difficult to penetrate the Japanese market.
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In terms of the film case, of course, we are talking about film and photographic paper, but the same can be said for many, many sectors. We do not expect a panel ruling on this issue until some time in the fall, and we have confidence that we have put forward an extremely compelling case.
Chairman GILMAN. Thank you, Madam Ambassador.
Mr. Hamilton.
Mr. HAMILTON. Ambassador, you said in your Senate Finance Committee testimony that fast track is the single most important factor—the absence of it, I guess, limiting our capacity to open markets and expand American exports. That is a very strong statement.
Why do you believe fast track is so important?
Ambassador BARSHEFSKY. As you know, Congressman, we have a number of trade tools designed to help us open foreign markets. They tend to be tools that work best when we are negotiating bilaterally with a country, imposing targeted trade sanctions, for example, on China, or Japan, in order to wrest from them important agreements on market access.
As a policy, though, the United States must be in a position to look at an economy or to look at a sector and to pry open markets on a much more comprehensive, sustained, consistent basis, not always using a stick of threatened trade sanctions, but the carrot of a perceived closer relationship with the United States.
Mr. HAMILTON. Suppose you do not have fast track authority. What are we doing? We have gone 3 years without. We have gone a long time without it, have we not?
Ambassador BARSHEFSKY. And have pursued, as you know, a broad array of major initiatives without it, but we are entering——
Mr. HAMILTON. But suppose you do not have it, what do we lose? What are we not going to be able to conclude if we do not have fast track authority? What are the consequences of not having fast track?
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Ambassador BARSHEFSKY. I would rather not think negatively and think positively with respect to fast track authority. Certainly, an immediate casualty will be an agreement with Chile; that is, an immediate casualty will be a signal to our own hemisphere that the United States will not be engaged in as forceful a manner as the hemisphere had hoped. This, of course, impacts our leadership and opens the door to yet additional regional and sub-regional arrangements that go around us rather than operate with us.
Absent, the fast track authority can also have a deleterious impact on our negotiations in the WTO. With respect to agriculture, services, and the array of sectors that I have noted in my testimony, many countries have already indicated that they will not put serious market access offers on the table if they believe the United States cannot implement what is agreed to.
And, of course, on the sectoral side, but for the fact that we had residual fast track authority arising from the Uruguay Round Implementing Act in certain specific tariff areas, we could not have concluded the Information Technology Agreement.
Mr. HAMILTON. Is it your view that if we do not have fast track, that the U.S. enterprises are going to lose a lot of business, and we are going to lose a lot of jobs in this country if we do not have fast track authority?
Ambassador BARSHEFSKY. Certainly, to the extent fast track helps our export performance, which it does, our job growth will suffer if we cannot penetrate these markets in as effective and efficient manner as possible.
Mr. HAMILTON. On the timing of the fast track proposal, I said I would have preferred to have you send it up earlier rather than later. The President goes to Latin America when, in March of next year?
Ambassador BARSHEFSKY. The Second Summit of the Americas is March 1998, in Santiago, Chile.
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Mr. HAMILTON. It is very important for him at that time to have fast track authority, is it not?
Ambassador BARSHEFSKY. Absolutely.
Mr. HAMILTON. So it would be awful if the President of the United States went down to that summit and did not have fast track authority at that point?
Ambassador BARSHEFSKY. Correct, and this is——
Mr. HAMILTON. And that is one of the reasons I am a little worried about this timing squeeze, and I know you are concerned about it too. Your judgment is that you have got to do some things to persuade, Congress, as my friend Congressman Clement was saying. But that is my concern. That, you know, you come in here in September. That is pretty late in the congressional session. A lot of other things are on our calendar at that point. We do not really get cranked up very quickly around here in the second year, and we are often well into January before we begin to meet seriously, sometimes into February, and you are right at that March date. That is my concern. You appreciate that, I know.
Ambassador BARSHEFSKY. I understand the concern. I know I do not need to remind you that NAFTA was done between September 17 and Thanksgiving.
Mr. HAMILTON. Well, I would like to say a few things about NAFTA too at some point, but I will not right now because I want to bring up one other point, if I may, Mr. Chairman.
We all know that the problem on fast track is the differences that exist with regard to labor and environmental conditions. Do you think that lower foreign environmental and labor standards pose a competitive threat to the United States?
Ambassador BARSHEFSKY. Let me put it this way. There is no question that the failure to enforce environmental regulation, the failure to enforce labor standards can put U.S. companies at a competitive disadvantage with respect to their foreign counterparts when they both export into the same market. Certainly U.S. business recognizes those competitive pressures and those cost pressures.
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So, putting any ideology aside or political party affiliation, there is an issue with respect to the competitive conditions that face U.S. companies versus competitive conditions that may face other companies.
The question in my mind is not whether protecting the environment or ensuring that trade agreements do not result in environmental degradation. The question is in ensuring that labor standards are maintained and enforced. Those issues, of course, are important, not only for competitiveness reasons, but also because of the human element and, of course, the damage long-term to the environment.
The only issue, I think, is the question how do we maximize our progress with countries and regions of the world on the full array of issues that form the totality of U.S. interests? How do we maximize our economic interests? How do we maximize our environmental and our labor interests?
Mr. HAMILTON. Right. So when you sit down to negotiate a trade agreement is it appropriate to address these differences in labor standards and environmental standards in the context of the trade agreement?
Ambassador BARSHEFSKY. I think it is certainly important to address those issues that will affect trade with a particular country at issue. I can think of many countries with which the United States would not even think about negotiating labor arrangements because their labor standards are higher than ours, or countries whose environmental standards are higher than ours. With other countries, there may be a need to look at questions of the environment or labor or drugs or the building of civil society or democratization.
Mr. HAMILTON. You take a kind of an ad hoc approach to this question of whether or not it is appropriate to address these issues?
Ambassador BARSHEFSKY. I think we have to look at each country with which we deal, and decide what is suitable and appropriate with respect to that country. There is no cookie cutter approach here that is possible. And the question that you raise is, in what context are those discussions? Must those discussions necessarily be tied to a trade agreement, separated from a trade agreement, proceed in advance of, proceed concurrent with, proceed after a trade agreement? All of those questions are questions that should be addressed, but I can say this: There is not one single answer.
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Chairman GILMAN. The gentleman's time has expired.
Mr. Ballenger.
Mr. BALLENGER. Thank you, Mr. Chairman.
Ms. Barshefsky, recognizing that if there is a country in this world that does not compete with us in any great extent, you ask for comparatively speaking high wage rates, who has a fairly clean atmosphere so that you do not have to worry a great deal about the pollution control, why do you have to have fast track authority to deal with Chile?
It appears to me that if you brought Chile to this floor of this body right here and asked for the ability to open up some kind of trading relationship along the line of NAFTA, you might have a clean shot, rather than having to go through fast track, you are going to be in trouble trying to get it. I will be honest with you. There is a whole different ball game around here playing. You mentioned how you got NAFTA. It is not the same situation as it was before. A lot of people—me being one of them—voted very definitely for NAFTA, that are looking at a little bit different situation.
And yet when you have the opportunity of a country as natural a situation as this is, Chile, far away from us. When they ship goods to us, it is not our production time of the year. Everything seems to be positive as far as negotiating with Chile. And yet you say you cannot get it with fast track.
Ambassador BARSHEFSKY. First of all, of course, fast track speaks to a global agenda, not merely Chile. Chile is important, and we are committed to doing a comprehensive trade agreement with Chile. But there is a far broader global trade agenda which I have already outlined, both on the multilateral side in terms of WTO negotiations, as well as sectoral market opening, like the ITA and the Telecom agreement.
Second, while Chile is a small economy, there are issues that arise, particularly in the agricultural sector with respect to market access into Chile. There are also issues with respect to Chile's investment regime and other matters. So the slate is not entirely completely clean, and indeed on the agricultural side there are some areas of concern.
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Certainly, you may be right, that it might be easier to enact a Chile bill than a fast track for Chile bill if you assumed fast track were only for Chile, which it is not. But the Chilean Government itself has told us that they will not negotiate final agreements without an assurance that Congress cannot renegotiate them, and this is in part because of very sensitive agricultural issues that would arise in the negotiation.
Mr. BALLENGER. I can understand that, but in reality, half a loaf is better than none. And I think as far as fast track is concerned, you have got to realize that the political atmosphere around here in 1993 was very positive as far as the Administration is concerned. It was very positive as far as foreign trade is concerned. I think that atmosphere has changed.
You mentioned also that there is an Administration bill that would include the CBI, some sort of CBI initiative. Where is that bill?
Ambassador BARSHEFSKY. We will be bringing that bill before the Senate shortly, and before the House, of course. It is a bill with a number of conditions attached, to provide essentially parity treatment between the CBI countries and the NAFTA.
There has been a concern that a number of plants formerly located in the Caribbean have shifted to Mexico specifically because of NAFTA. We want to rectify that imbalance to ensure that the Caribbean economies will continue to grow; and more particularly, to continue to diversify.
Mr. BALLENGER. Well, I would agree with you 100 percent, and I have lots of friends in Central America who have been saying over and over again you have got to do something, and they are slowly but surely giving up—and that is one of the reasons I was thinking about Chile alone. They have given up because most of the people in Central America now feel that we are not very sincere in our effort to try to help their economies. And one of the great things that would at least prove something to them is that we would try to do something with Chile.
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I know we made a tour through Brazil, Argentina, and Chile, as well as Central America, and generally speaking, somebody was looking for some action. This was 2 years ago, and it appears that we are just sitting on our hands now. And I realize that politics somehow gets in the way of trade relations with the rest of the world, but I would love to see something constructive come out.
Is the bill in existence right now or——
Ambassador BARSHEFSKY. Yes, it is just going through final OMB clearance. That is all.
Mr. BALLENGER. And how long do you reckon it will be before we see what you have got?
Ambassador BARSHEFSKY. I would think within a week.
Mr. BALLENGER. Oh, that is lovely.
Thank you, Mr. Chairman.
Chairman GILMAN. The gentleman's time has expired.
Mr. Clement.
Mr. CLEMENT. Thank you, Mr. Chairman.
Congratulations again on your new appointment, and I know you will do a great job to represent the United States.
Ambassador BARSHEFSKY. Thank you.
Mr. CLEMENT. The Journal of Commerce recently reported on the increasingly vocal silent majority alleging that wage stagnation in the United States is related to global competition and NAFTA specifically.
What is the Administration doing to address this issue? And where is the usually vocal minority economist, et cetera?
Ambassador BARSHEFSKY. First off, of course, the Administration has focused its attention on domestic economic stability, on job growth, on keeping inflation down, and so on. And the Administration has been very successful in this regard. So point one is that the 12.1 million more jobs now net more jobs than there were 4 years ago. Family incomes on average have risen by a little over $1400—that is disposable income—for every man, woman and child in the United States over the last 4 years. Real wages are beginning to rise again, and we see the beginning of a slight closing of the disparity between high-end wages and low-end wages. We see home ownership at an all-year high. Housing starts, the highest in decades. And so we see very, very strong economic growth, and this is a prosperity which the IMF recently reported in its estimation is now beginning to pervade all income levels in the United States.
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It is a slow process, but the IMF in its most recent April report spoke to this issue quite well.
Second, the IMF has indicated, as it looks at this issue of lower wage countries, that because the percent of U.S. GDP that is reliant on trade with developing countries, it is only about 3 percent of our GDP, it is very unlikely that that trade has had any appreciable effect on U.S. wages. A number of economists have indicated—although there is no agreement on this issue—that they believe the question of the wage gap has much more to do with technology and technological change and the increased demand for higher skilled workers than any other factor.
Certainly, administrative initiatives on education, worker re-training, on initiatives pertaining to elementary and secondary schools, as well as college, are all designed to better prepare the economy as a whole for the next century.
Mr. CLEMENT. But do you discount wage stagnation? You know, we have all seen reports of manufacturing industrial jobs being lost overseas, being replaced by service information jobs that pay less.
Ambassador BARSHEFSKY. I certainly do not discount anything. Certainly, in the last 4 years we have seen a resurgence in manufacturing jobs in the United States, about 280,000 have been added net. We see in the industrial Midwest, which 10 years ago was characterized as the ''rust belt,'' now with the economies that have lower than average unemployment rates. We have the State of Michigan which has an employment rate of 3.9 percent compared to a national average of about 4.6 or 4.7, in that range.
So we see in manufacturing an important resurgence for the United States, and we do not see that trend abating in any respect.
Mr. CLEMENT. Two hundred and twenty-six Members of Congress recently sent a letter rejecting the land transport provisions of NAFTA. As a member of the House Committee on Transportation, I am very concerned with protecting the safety of Americans on our highways.
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What is the Administration's long-term response to this criticism?
Ambassador BARSHEFSKY. Certainly the Administration agrees. The Administration does not take that as a criticism. We have attempted to ensure that before cross-border trucking is opened up, that we fully protect safety of U.S. citizens with respect to trucks coming over the border from Mexico.
Mexico initially had really no uniform safety inspection regime for its trucks. It had no uniform age for the procuring of a driver's license. There were no requirements that a driver that might go from Mexico to the United States be able to speak English as well as Spanish.
So we have worked on this array of issues. Our Department of Transportation has worked on this array of issues with Mexico, to ensure that at such time as safety can be assured the border can be opened fully and we will minimize—of course, you cannot eliminate entirely, but minimize any adverse effect of the additional trucks on the roads.
Mr. CLEMENT. My last question, what is the view of the Africa Trade Development Bill authored by Congressman McDermott and Crane?
Ambassador BARSHEFSKY. As you know, the Administration worked very closely with the Ways and Means Committee members, Mr. Rangel, Mr. Crane, Mr. McDermott, on the Africa bill, and the Administration has put forward a quite comprehensive initiative of its own in respect to Africa, particularly subSaharan Africa, which contains the largest concentration of the least developed of the developing countries; a region in the world that is experiencing negative growth in a world that is moving rapidly forward. You know, 30 years ago Africa was wealthier than Asia. That gives some pause, I think, to what has happened in Africa and to the effect of private investment and better policy choices on economic growth.
We certainly support the bill that was introduced. We would like to see some changes in it, and we will be working with the Committee on that, but we do feel that it is terribly important that we more fully engage the African region, not only because there are tremendous economic opportunities available to us, but because we cannot afford a marginalized continent.
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Mr. CLEMENT. Thank you.
Mr. BALLENGER. Congressman Leach.
Mr. LEACH. Well, thank you, Mr. Chairman.
Just first a comment on fast track. This is the first time in my memory that the Congress of the United States has asked an Administration to lead, and the Administration has in a timing sense abdicated. It is certainly good news that you expect to come forth in another week or two. But I do not think that there is any doubt that every week probably hurts the prospect of passage; and that in a timing sense, the sooner the better, and the better would have been several months ago.
But I would like to turn for a second to the Far East; in one sense, where I think priorities have been imperfect. That is, with Japan, the United States has for a long time pointed out the imbalance of trade and the non-tariff barriers that exist in Japan, and has attempted to do modest initiatives to correct this.
With China, we seem to have spent a lot of time on what is a very important issue with this country and its values, but we have not given much attention to the Chinese disbalance in trade, nor have we given much attention, which we have successfully dealt with in Japan, to tariff barriers themselves.
The Chinese tariff barriers are extraordinary, and this should, it strikes me, unrelated to all the issues that we have outside the trade area itself, be the highest priority for our Trade Representative. And yet I hear very little attention in a public way, and in a private way, quite frankly, on the Chinese trade barriers.
If China is going to want to export a great deal to the United States, one would think China would welcome a substantial increase in American exports to it, and China would recognize that tariff barriers have to come down. And here I find it very interesting that people like Vaclav Havel have really come out against trade barriers and argued the old infinite industry's argument as a pretty frail reed, and this is the one that China kind of hangs its hat on.
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I am wondering what kind of priority your office is prepared to give to these formal barriers to trade that exist in China?
Ambassador BARSHEFSKY. Mr. Leach, I have given personally a tremendous amount of time to the China question over the last 4 years; first as principal deputy and then acting USTR, and now as USTR. There is no more important strategic interest for the United States than developing a stable, a secure, a predictable China, and certainly our trade relations with China as the vehicle through which a substantial amount of our contact with China occurs plays a critical role in this.
We have, as you know, tried to address non-tariff barriers by enforcing the 1992 Market Access Memorandum of Understanding under which China has in fact lowered tariffs on a broad array of products, as well as removed over 1,000 non-tariff barriers. We have concluded two landmark intellectual property rights agreements with China, as to which we are now making very significant progress. We have concluded two textiles agreements with China, which reduced their exports to the United States and punished them for fraudulent transshipment of textile goods. But in a most recent agreement we also now have a market access accord with China so that for the first time our apparel and textiles will be able to enter the Chinese market.
On agriculture, we have made some progress, in apples, in cherries, just 2 weeks ago in grapes; progress on live animals; progress on poultry. Of course, they are a major purchaser already, as you know, of wheat, cotton, a number of other commodities. But we have very grave concerns about their continuing use of sanitary and phytosanitary barriers, and in part for that reason I have elevated our agricultural office at USTR and appointed a special senior negotiator for the purpose of dealing with China and other agricultural barriers.
And then, of course, we have spent a lot of time on WTO negotiations with China because those negotiations present the best opportunity in a comprehensive manner to address the range of market access barriers that we face. Plainly, a goal is to bring our trading relationship with China into better balance. Europe, Japan, also are both running significant trade deficits with China. Japan's deficit is about $19 billion, Europe's is about $17, but ours is $38, and I do not think that the United States ought to bear the brunt of China's development in that respect.
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So, there is no question that the goal is to better equalize the conditions of trade, to better realize effective market access into China so that we see a closing of this very substantial trade deficit that we have with China. But I view China trade issues as a personal priority. I have viewed it that way for the last 4 years, and am proud of what we have achieved thus far, although it is slow going.
Mr. LEACH. Thank you, Madam Ambassador.
Mr. BALLENGER. Mr. Davis.
Mr. DAVIS. Thank you, Mr. Chairman.
Ambassador Barshefsky, I would like to follow up on some of the very healthy discussion that you and Secretary Albright had with the Democratic and Republican freshmen members a few weeks ago.
Ambassador BARSHEFSKY. Yes.
Mr. DAVIS. Secretary Albright had some opportunity to describe how she thought continuing MFN status and improved trade relationships would enhance the ability of our country on both a short- and long-term basis to deal with some of the other concerns such as human rights.
I wonder if you could comment on how our continued engagement with China would present those opportunities and exactly what opportunities exist on these other important issues.
Ambassador BARSHEFSKY. There are a variety of critical issues that we face with China, and I will detail those, but let me make a preliminary comment.
Our relationship with China must be a strategically based relationship. That is to say the issue is not, and should not be, should we trade with China or not. If we do, does that mean we support human rights or not? If we do, does that mean we support goals with respect to nonproliferation or not? These are not tradeoffs.
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The question is, what is the overall framework in which U.S.-China relations should be conducted? And that overall framework should not be a one-issue framework; not trade any more than human rights, any more than nonproliferation, any more than any of a variety of critical issues. The overarching framework is strategic; recognizing that China is destined to be a world power; that China now has a billion more people than the United States has; that China is an economic powerhouse; and that the way in which China defines its own greatness, will affect the security of this country because it will affect the security and stability of Asia, as well as the predictability of its relationships with trading partners and strategic partners around the world.
To suggest that our ability to influence China's direction is in any way enhanced by severing our economic relationship with China, which is what MFN revocation is, it is a severing of the economic relationship, is to fool ourselves into believing that we can influence in a manner compatible with long-term U.S. interests China's policy by taking that very draconian action; action designed indeed not only to sever the economic relationship, but to sever the political relationship as well.
With that having been said as a backdrop, if we look at specific areas that would suffer were MFN to be revoked, we can see immediately, not only would the trade interests suffer, that is self-evident, but international cooperation would suffer. China has been quite cooperative with us with respect to its joining of the nonproliferation treaty, and the test ban treaty. They are an original member of the Chemical Weapons Convention. They are helpful with respect to the Korean Peninsula, trying to work with us and Japan so that four-party talks may resume. We have substantial programs with China to combat alien smuggling, narco-trafficking and terrorism. All of these areas would suffer, and this is a broader point—as would the development, the encouragement and the development of a rule of law in China, which is obviously a critical part of a strategic policy toward China.
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Second, Hong Kong, more than half of China's trade flows through Hong Kong. To sever that trade will do substantial economic damage to Hong Kong at exactly the time we should not be introducing any destabilizing element in to the situation there.
Hong Kong authorities estimate that its trade will fall by $20 to $30 billion, that as many as 85,000 jobs would be lost, that income to the colony would be reduced by $4 billion, and that economic growth would be cut by 50 percent. It is critical that Hong Kong be strong and vibrant. It is critical that we not do anything to undermine that strength, but MFN denial would do just that. And for that reason, Martin Lee, the chief democracy advocate in Hong Kong, Governor Patten, An Sun Chan, the most senior civil servant, have all urged the renewal of MFN.
Third, of course, human rights and religious freedom. Engagement does not mean endorsement, and human rights issues are raised with China across the board, bilaterally, in the United Nations as you are well aware where we proceeded with the human rights initiative, our support of Radio Free Asia into China and into the Asia region generally, laws against the importation of prison labor products, and a host of other initiatives; none of which would be assisted by a revocation of MFN for China.
The periods of greatest repressiveness in China's history come not during periods of engagement; they come during periods where China believes it is isolated or China isolates itself from the world. Engagement is absolutely critical.
And last, of course, on the trade side, if you revoke MFN——
Mr. BALLENGER. Our time is limited. Could you shorten your answers? I had to do that.
Ambassador BARSHEFSKY. Oh, I am sorry.
I was going to say that if we revoke MFN because of substantial duty increases on China's products, which tend to be low-end consumer goods, shoes, things of that sort, toys, we estimate that American consumers will spend almost $600 million more annually for those goods.
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Mr. BALLENGER. Mr. Chabot.
Mr. CHABOT. Thank you.
Ambassador, the recent ruling in the banana trade case represents our first successful WTO challenge to EU agricultural policy. Our international agricultural disputes are now so numerous, particularly with Europe, that we need to know whether WTO dispute settlement procedures can be counted on to produce genuine relief and full compliance with global trade commitments.
If the disputes settlement process cannot achieve practical results, U.S. producers and consumers will bear the consequences.
Is it safe to assume that the Administration will be doing everything in its power for the balance of the banana action to secure the strongest possible WTO outcome and full EU conformity with the panel ruling?
Ambassador BARSHEFSKY. Let me say, first of all, that we have also recently won the beef hormones dispute in a panel ruling with the European Union, where the panel found 16 separate violations of the EU's international obligations with respect to its ban on our beef where the cows have been treated with certain growth hormones. We are very pleased with that ruling, and that ruling has substantial positive implications for us with respect to other agricultural issues with the EU.
With respect to the banana case, we are very pleased with the panel's decision. We intend to seek a WTO-compatible solution to that issue. We have asked the EU for consultations on the issue. The President has urged them to negotiate a WTO-compatible solution. We would like a negotiated solution if the EU will come forward because of the unpredictability and uncertainty the Caribbean countries feel. As they say when two elephants dance with each other, it is the ants that sometimes get trampled. And the Caribbean countries have expressed some concern about the continuation of this dispute.
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We have asked the EU for negotiations. Thus far the EU has not responded. We intend to pursue the case all the way through.
Mr. CHABOT. I thank you. And I yield back the balance of my time.
Mr. BALLENGER. Mr. Capps.
Mr. CAPPS. Thank you, Mr. Chairman.
I have just come back from California where I spent the weekend, and there is a tremendous amount of talk about the matters that we are discussing here. And I want to thank you for your availability. I mean, this is at least the third or the fourth time that I have had the opportunity to talk with you about these matters.
But the way it came up in a town meeting in the Santa Barbara/San Luis Obispo region of California had to do with the role of sanctions. Somebody said that sanctions clearly work because we applied sanctions in the case of South Africa, and the result of that was beneficial to our trade policy. The retort to that was, but in that situation we did not do it unilaterally. That is, we had other countries involved in that.
Somebody else said in this town meeting, why do we have to apply sanctions at all, and this is a very erudite, learned person who said, ''Instead of flying U–2 planes over countries and doing this kind of surveillance, we ought to be dropping chocolate,'' and he said, ''we ought to be going the other way, and find ways for the people to develop a more positive attitude toward the United States.''
And, now, I was able to respond to the question about whether sanctions work or not. I think in some cases they do, in some cases they do not. But still the key question to the folks that I represent is, if we maintain MFN status for China, what can we do to improve the human rights situation in China? That is, how do we go about it? Because the argument is if we take away MFN and impose penalties, then we get human rights.
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I know that is simplistic, but I would love to hear how you would respond to the question that was put to me. Thank you.
Ambassador BARSHEFSKY. There is certainly no single approach that necessarily works with every country. And the question you pose in its broader sense is how do we affect the behavior of countries around the world. And now I am taking a page out of Secretary Albright's book. She and I both testified together this morning at the Senate Finance Committee. There is no one approach. Oftentimes the approach will depend on the country involved. It will depend on the particular issue involved. It may depend on the status of our relationship with that country or phase of our relationship at that particular point in time. We simply need to remain, of course, always flexible and always creative so that we are able to move countries in the direction compatible with U.S. interests to the maximum extent possible.
I think there is no question but that the assumption that severing the economic relationship will promote human rights in China is a presumption without any particular foundation that we can see.
First off, of course, the situation with China is totally different than with, for example, South Africa where the world condemned the apartheid policies that had previously existed. Here, the only country who debates every year the question of whether we should continue normal trading relations with China is the United States. This debate does not occur anywhere else in the world.
As a result, the rest of the world will continue to maintain normal relations with China, will continue to trade, and all we will have done is to tie our own hands, not only diminishing our own influence with China on human rights and other issues, but, of course, ourselves suffering the full economic consequence of the action.
Mr. BALLENGER. Mr. Houghton.
Mr. HOUGHTON. Thank you, Mr. Chairman.
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Madam Ambassador, thank you very much for being here.
Ambassador BARSHEFSKY. Thank you.
Mr. HOUGHTON. I am a great fan of yours. I think you are doing a great job. As a matter of fact, I really think this type of meeting is as important as any we were having. I will tell you why.
We are now in the Ways and Means Committee talking about Medicare and welfare and tax considerations and costs. Many people know what the cost elements of our budget are, but they do not know what the revenue elements are, and what you are trying to do is to work with private industry, with small companies, with large companies, to increase our revenue, to be able to afford our costs.
And I guess one of the reasons that I like your approach is that you do not treat this as an intellectual exercise. This is good, tough, solid, in-your-face, down-and-dirty, nuts-and-bolts type of business, trying to get revenue, and jobs for people in the United States.
You know, if we assume that everybody is going to be up to our standards, whether it is environmental laws, labor practices, in terms of intellectual property rights or things like that, we are never going to do business with anybody. We have got to keep our standards and we have got to do whatever we can and sometimes recognize when you are going out after customers you must do business on their terms, not on your terms. And if that is the case, we will go back to the old Smoot-Hawley approach.
Now, having said that, I guess the question I would ask of you is that since your job and the job of all of us, to increase revenues, to increase jobs in this country is so important, is it possible that the Administration could put a little more force and back you up, and be out in the papers, be out in the news, help us, who really believe in this concept?
I really feel that maybe a lot more can be done, a lot.
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Ambassador BARSHEFSKY. Let me say this: Certainly I view it as my job to help build jobs in the United States, to help increase our domestic economic prosperity, and to better position the U.S. strategically as we look ahead, 10, or 15, or 20 years.
There is a very interesting study that came out of Harvard recently which made the following point; that before the industrial revolution the locus of global economic activity was in Asia; that with the industrial revolution the locus of activity shifted to the West. But it predicted that by the year 2025, the locus of global economic activity would then shift again to Asia, predicting that as much as 57 percent of global output would come from Asia.
The third task we have is to position ourselves looking ahead. I do not mean looking ahead to next year or the year after. I mean looking ahead. And I know this is the way the President and the Vice President look at it.
With respect to the Administration's views on trade matters, I will send you a wonderful speech that the Vice President delivered, I think it was last week or the week before last, where he indicates there are three critical elements to the future of the United States; one of which was trade, open markets, embracing those markets, getting those exports out the door, creating high paying jobs here at home, bearing in mind that we still also though have a range of interest with these countries—labor, environment, other interests which we will need to find ways to address. It is a very, very eloquent speech, and I will send that to you.
I think you will see as we proceed down the summer more and more activity in this regard with respect to the President's personal time, as well as the Vice-President's.
Mr. HOUGHTON. Yes, and I would just like to ride on that a little bit. It is really important, I think, and I think underneath it all, Mr. Chairman, you feel the same way, that fast track with Chile be enacted, because if we do not do something with Chile they are going to join MERCOSUR, and they are going to freeze us out of that market. This is not just something we can sit around here and say we have got all the time in the world. These are competitive thrusts. We have got to get at them, and a lot of us would like to help you.
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Thanks very much.
Ambassador BARSHEFSKY. Thank you.
Mr. BALLENGER. Mr. Luther.
Mr. LUTHER. Thank you, Mr. Chairman, and again I want to join in the previous comments about your accessibility, and I compliment you on it. And as a relatively new member from Minnesota, I appreciate it very, very much.
It seems there has been increasing discussion recently about these regional trade agreements, and I have heard you address that on previous occasions. Obviously, this is a bit of a separate issue from fast track because, as I understand it, even with fast track authority we would not be included in many of these regional trade agreements.
First of all, what impact are those agreements having on us, and, second, what can we do, what kind of action can be done to at least mitigate the disadvantages that are being caused us on account of those? Or, how do we best deal with this, I guess is my question?
Ambassador BARSHEFSKY. There, of course, are five basic sub-regional free-trade type agreements that already exist in our own hemisphere. The NAFTA is only one. If the MERCOSUR group is still in Argentina. You have the Andean Pact. You have the CARICOM which are the Caribbean countries. And then you have sort of the central American common market. And then on top of that this big architecture, or underneath it, you have all sorts of plurilateral, bilateral and cross-cutting agreements among them, and among some of them looking also toward Asia, looking also toward the European Union.
We have no objection to agreements of this sort provided they do not raise barriers to our exports. But what we see, for example, in the specific instance I cited in my testimony with respect to the Canadian/Chile FTA is that even though neither Canada nor Chile raised their individual barriers against us, the fact that they have a free trade agreement means that goods will flow at zero duty between them, whereas we face going into Chile an 11-percent tariff across the board. That is Chile's tariff structure. That is a competitive disadvantage that we need to rectify.
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We can rectify it by ourselves negotiating a comprehensive agreement with Chile. We can rectify it by working also in the WTO to get overall tariff levels down. But, of course, that does not necessarily help us with respect to the range of non-tariff barriers.
So step one is to have sufficient authority so that we are not economically disadvantaged by the existence of these different agreements.
Second, though, if we look ahead to our own strategic positioning and our own leadership goals, as well as our longer-term economic security, we want to be able to pick strategic partners around the world, affirmatively seek partners with whom we would like to enhance in a more enduring way our trade relations, and fast track authority is important for that, and that obviously has long-term economic consequences.
So I would suggest that these are two ways in which we can help rectify the imbalances that are being created by the existence of these agreements that don't include us.
Mr. BALLENGER. Thank you.
Mr. LUTHER. Thank you, Mr. Chairman.
Mr. BALLENGER. Thank you. Mr. Rohrabacher.
Mr. ROHRABACHER. Madam Ambassador, the last time we dealt with fast track authority here in Congress concerned the GATT implementation legislation and the GATT treaty; is that correct?
Ambassador BARSHEFSKY. I am sorry, sir. It was very hard for me to hear you.
Mr. ROHRABACHER. The last time that we dealt with fast track here in Congress was concerning GATT; is that correct?
Ambassador BARSHEFSKY. Yes. The last time fast track was reauthorized was specifically to conclude the Uruguay Round of trade negotiations.
Mr. ROHRABACHER. Right.
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Ambassador BARSHEFSKY. Yes.
Mr. ROHRABACHER. Now, Clayton Yeutter, who was our trade negotiator at that time? Myself and several others who looked at what came before Congress and what was negotiated in the GATT agreement did not see that the GATT agreement necessitated the United States to change its fundamental patent law. I have a letter from Clayton Yeutter to that extent.
Is not an important part of fast track authority based on the idea that you will only present to Congress those things that are required by the agreement?
Ambassador BARSHEFSKY. The basic theory behind fast track is that legislation to implement the agreements reached would be brought to Congress under fast track authority.
Mr. ROHRABACHER. Right, but nothing else would be included in that package. That is what fast track is all about, right?
Ambassador BARSHEFSKY. Included in the package is what the fast track bill would authorize for inclusion.
Mr. ROHRABACHER. But only that?
Ambassador BARSHEFSKY. Presumably only what the bill——
Mr. ROHRABACHER. No, not presumably. Is not this an agreement between Congress and the executive branch that we will give an up-and-down vote, but the only thing the President will put in the package is that which is negotiated as part of the agreement?
Ambassador BARSHEFSKY. Yes, I believe that is what the bills in the past have specified.
Mr. ROHRABACHER. Well, with that, Madam Ambassador, this Administration has already betrayed this agreement with the Congress in putting into the GATT implementation legislation a provision that fundamentally changed the patent law of this country, and it was not required, as I say, by Clayton Yeutter, and others have agreed, other scholars have looked at this. It was not required by the GATT agreement itself.
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Why should we trust you a second time with fast track—not you, but this Administration—with fast track authority when it has already snuck in provisions into the last GATT understanding, or the last fast track understanding?
Ambassador BARSHEFSKY. Let me say, first of all, that I believe that under the fast track bill that existed at the time, and indeed prior to that, matters that could be brought back to Congress for fast track treatment were those in legislation deemed necessary or appropriate to the implementation of the trade agreement.
Mr. ROHRABACHER. And so why was a provision included in the bill that required us to change our fundamental patent law, something as fundamental to the future of the United States, when it was not required by GATT?
In fact, the GATT language stated that there are a minimum of 20 years from filing of patents be required of any country, which that language specifically, as Mr. Yeutter confirmed in an oral conversation with me, specifically was written, was suggested so we would not have to change our law. Yet, this Administration proposed a fundamental change. Thus, we had to vote against the entire world trading system or to change our fundamental patent law.
Ambassador BARSHEFSKY. I'm sorry. I just want to be clear, the 20-year patent term is included in the Trips agreement——
Mr. ROHRABACHER. No, no, no.
Ambassador BARSHEFSKY [continuing]. Of the GATT.
Mr. ROHRABACHER. Obviously, you are unaware and your staff is unaware. I have made this a matter of interest and a matter of some investigation for the last 2 years so I know the wording.
The wording is a minimum, a minimum of coverage, and that was negotiated specifically so the United States would not have to change its patent law. Yet this Administration included in a fast track bill something that was not specifically required.
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I guess what I am talking about, you should study this and come back to me on it.
Ambassador BARSHEFSKY. I am pleased to study this issue.
Mr. ROHRABACHER. I will never vote for fast track again. It was a total betrayal of the American people when this happened, and you were not part of it, but the Administration cannot lie once on fast track and expect us to accept it again, accept their word again, which is what the basis of fast track is all about. We are only going to put in this bill what is required to put in the bill, and you are going to get an up-and-down vote.
One last area, Madam Secretary. We have had an incredibly unfair trade relationship with China, and we have talked about this today. It is my opinion after observing from a distance that the Communist Chinese Government in Beijing could incinerate Tibet and we would still have American business interest, and this Administration suggesting that we should still have Most Favor Nation status for China. That in itself, the human rights issue itself is enough for me to say we should not be treating this monstrous regime as we do the trading relationships with Belgium or England or Italy.
But beside that, if you take a look at this $38-billion trade deficit, and then you listen to what you have testified today, that just now we are getting agreements that American apparel is going to be able to be sold on the Chinese market after decades, decades of huge trade imbalances in their favor; I just have to sit back and say that there is someone who is not representing, not just you, but others who have been supposedly representing the interest of the American people have not been doing their job. I mean, this $38 billion represents jobs that do not exist in the United States.
If the Chinese have been able to come into our market with 3- or 4-percent tariffs on their products, and while we try to export at 30- and 40-percent tariffs into their markets, that means our people are being thrown out of work. In the long run the Chinese are developing industries, building up industries that will further compete with Americans and further put Americans out of work.
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Something is wrong with this formula. Something is terribly wrong; not just morality which I believe is enough—in terms of human rights issues, but pure economics. The people of the United States have been ripped off in our trade relationship with China, and, frankly, it does not sound like this Administration or past Administrations, Republicans and Democrats, have been watching out for the interest of the American people.
Ambassador BARSHEFSKY. Obviously, it does not surprise you for me to say that I completely disagree with you. There is no question that the trade relationships is out of balance. There is no one who can be happy about that. The question is how to fix it.
We do not believe that severing the economic relationship will fix it. What we will see is a shift in the trade balances, trade deficits that we have with other countries because 70 percent of all of China's exports here is in low-end footwear, low-end apparel, and toys, and that is over 70 percent of everything that they sell here.
Our composition of trade to them on the other hand is much higher value-added goods, goods like aircraft, for example.
The best way we believe we have to rectify the trade imbalance, and I agree with you that the extent of the trade imbalance is unsustainable, the best way we believe we have to rectify that is to pursue particularly WTO negotiations with China, which would require very fundamental basic reforms over its entire economy, and, in addition, would require very substantial market access commitments for goods, for services, and for agriculture.
Mr. ROHRABACHER. I am over-using my time here, but I did stay until the very end.
[Laughter.]
Your strategy and the strategy that is being outlined by the establishment, whoever that is in the United States, Republican and Democrat, always seems to be based on the idea that we are not going to really be pushing for fundamental change in the nature of the Chinese Government. I just have to say that your entire strategy is based on keeping in power this Communist regime. And a strategy of confrontation, a strategy of saying, ''You have reached your threshold and we are no longer going to put up with this,'' a strategy of saying, ''We are not going to permit you to rip off a billion dollars worth of intellectual property rights and treat you the same as we treat other countries that respect our intellectual property rights. We are not going to treat you while you are butchering Christians and Tibetans and Muslims out in the western part of your country, we are not going to treat you the same way we do England or France or other countries that respect human rights.'' That type of approach, I believe, will send a message to the freedom-loving people of China, and perhaps even the second echelon of leadership in China, that they have got to change their ways.
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What you are talking about is nothing more than cementing tyranny in power.
Ambassador BARSHEFSKY. Let me just say that here again I think you and I have to agree to disagree.
What we do not want to have is a policy that creates for us a China that is more hostile, withdrawn from the United States, aggressively pursuing its own interests around the world regardless of the interests or expectations of the United States. We do not want to create a self-fulfilling prophecy, as was recently pointed out in a piece of Michael Manning, a self-fulfilling prophecy of a cold-war type aggressor, which we fear China could become were we to disengage from it.
Put it another way, to revoke MFN means the disengagement of the United States from China. That is all it does. China remains engaged with the rest of the world. U.S. expectations with respect to Chinese behavior become much less relevant to China and perhaps to other countries in sharp contrast with the situation, for example, with South Africa where the global community stood in condemnation of the previous regimes, and we lose our influence. We dissipate our influence. We jeopardize our ability to try and move China in the particular direction in which we would want them to go with respect to human rights, with respect to Tibet and other issues.
Mr. ROHRABACHER. That we do disagree on because my belief is, and I think it is——
Mr. BALLENGER. We are going to have to let her go in a minute.
Mr. ROHRABACHER. One last back and forth.
The message that you believe you are sending is exactly the opposite. The message that you are sending by not drawing a line, by not saying you have crossed the threshold is just the opposite of what you are suggesting. The message is you can do anything. You can drop nuclear weapons in Tibet and the people of the United States will still give you the same trading relationship. They have ripped us off for years. They are ripping off a billion dollars a year from the people of California just in our entertainment industry alone, just in our entertainment industry. Do you know how many jobs that means in California? And what? And then we permit them to come into our country and to still have free access to our markets. By giving them free access to our markets is not sending a message that we want them to move in any other direction, and we are giving them an incentive to keep going the way they are and undermining those people who want freedom and democracy in China, the Chinese people themselves, because the dictators are just turning around and saying, ''It's just a joke. All this talk about democracy is just rhetoric. It's just rhetoric because there will never be any economic sanctions against us. They are going to treat us just the way they do a democracy.''
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Mr. BALLENGER. Madam Ambassador, I think we could carry this on for quite some time, because it seems to me there is somewhat of a slight disagreement between the two of you. So if you do not mind, I will interrupt.
And I would like to say—back up Mr. Houghton's statement.
Ambassador BARSHEFSKY. Thank you.
Mr. BALLENGER. And I know that you are not the most welcome person in China, and you are not the most welcome person in Japan, but I appreciate that, as a businessman I appreciate that very much. And I would like to ask you to send—we would like to send some additional questions and maybe you could throw in Mr. Rohrabacher's thing about patents if you want to.
Ambassador BARSHEFSKY. I will certainly do that.
Mr. BALLENGER. If you would be so kind as to send those to us as quickly as possible, and I would like to personally thank you for being here. And, again, as a member of the opposition, I think you are doing a pretty good job.
Ambassador BARSHEFSKY. Well, thank you so much. It is a pleasure to be here.
Chairman GILMAN. Thank you, Madam Ambassador.
Ambassador BARSHEFSKY. Thank you.
[Whereupon, at 1 p.m., the Committee was adjourned.]