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44–953 CC








OCTOBER 8, 1997

Printed for the use of the Committee on International Relations

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BENJAMIN A. GILMAN, New York, Chairman
HENRY J. HYDE, Illinois
CASS BALLENGER, North Carolina
EDWARD R. ROYCE, California
JAY KIM, California
TOM CAMPBELL, California
JON FOX, Pennsylvania
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LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
SAM GEJDENSON, Connecticut
TOM LANTOS, California
PAT DANNER, Missouri
WALTER CAPPS, California
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
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RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff

Subcommittee on the Western Hemisphere
ELTON GALLEGLY, California, Chairman
CASS BALLENGER, North Carolina
JAY KIM, California
ROY BLUNT, Missouri
WALTER H. CAPPS, California
BRAD SHERMAN, California
VINCE MORELLI, Subcommittee Staff Director
PAUL BONICELLI, Professional Staff Member
DAVID ADAMS, Democratic Professional Staff Member
HOLLY FEIOCK, Staff Associate
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    Mr. Jeffrey Davidow, Assistant Secretary for Inter-American Affairs, U.S. Department of State
    Dr. Mark Falcoff, Director, Latin American Studies, American Enterprise Institute
    Dr. Eduardo Gammara, Director, Graduate Programs, Latin American and Caribbean Center, Florida International University
    Dr. Willliam Perry, President, Institute for the Study of the Americas
Prepared statements:
Congressman Gary Ackerman, a Representative in Congress from New York
Assistant Secretary Davidow
U.S. Department of State reply to Congressman Ballenger's request concerning the status of U.S. military goods supplied for Colombia's anti-narcotics effort
Congressman Robert Menendez, a Representative in Congress from New Jersey
Dr. Falcoff
Dr. Gammara
Dr. Perry

House of Representatives,
Subcommittee on Western Hemisphere,
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Committee on International Relations,
Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:42 p.m., in room 2172, Rayburn House Office Building, Hon. Elton Gallegly (chairman of the Subcommittee) presiding.
    Mr. GALLEGLY. [presiding] Today the Subcommittee continues its oversight hearings on conditions in the hemisphere by focusing on South America. Later this week, President Clinton departs on his third trip to the region when he visits Venezuela, Brazil, and Argentina. Once again, the President's trip presents a good opportunity to engage our neighbors to the south in serious discussion on such complex issues as anti-narcotics, a democratic consolidation, poverty, economic modernization, trade, and corruption.
    While these trips are often seen as symbolic at best, it is my hope that this trip will reaffirm to the nations of South America the importance of the region to this country and to strengthen the partnership that we have begun to establish within the region. While in Venezuela, Brazil, and Argentina, the President will no doubt be apprised of the good news stories. And to be sure, there is very positive progress made in the areas of democratization and economic reform.
    But I hope the President will also have time to address some of the other problematic issues such as the serious leftist guerrilla conflict in Colombia, which now poses as a dangerous threat to Colombia's very democracy; the broad issue of regional defense; and the role of the militaries in the region, and, finally, the need for a higher level of consultation with each other on certain sensitive matters such as arms sales, as well as the need for more multilateral approaches to such complex issues as counter-narcotics, trade, and crime.
    Because South America is so important politically and economically, I look forward to the testimony of our witnesses here today.
    Before we defer to other Members of the Subcommittee, I would just like to make an apology to all of those of you that have been so patiently waiting. As unfortunate as it is, we were faced with five consecutive votes with the first ones starting at just about the same time this meeting was to begin, at 1:30 p.m. So, again, I appreciate your patience, apologize for the inconvenience, and hopefully we'll be able to get into our hearing here now. Next time we have such a hearing I hope you won't be subjected to this kind of a delay.
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    With that, I would like to defer to Mr. Sherman, if he has an opening statement.
    Mr. SHERMAN Just very briefly, Mr. Chairman. Thank you for holding these important hearings. I recognize that a lot of attention on the President's trip to Latin America will be focused on fast track, or the lack thereof. Today, I would like to hear our panelists discuss that with particular reference to the sorry state of existing affairs. By this I am referring to preserving the status quo: most Latin American countries have relatively high tariffs on our goods (much higher than we have on their goods) and whether we could secure trade agreements with labor and environmental standards. If Latin Americans were faced with the alternative of not preserving the status quo, which is so favorable to them, they may be confronted instead with tariff equalization as an alternative to reaching a trade agreement as well as the value we place on labor standards and environmental standards.
    Mr. GALLEGLY. I thank the gentleman from California. Now the gentleman from North Carolina, Mr. Ballenger, do you have any opening remarks?
    Mr. BALLENGER. No, sir, Mr. Chairman, I was just down in Colombia and Venezuela, and I'd like to hear Ambassador Davidow's statement before I ask any questions. Thank you very much.
    Mr. GALLEGLY. Thank you very much.
    [Mr. Ackerman's prepared statement appears in the appendix.]
    With that, we will go on to our first witness, the distinguished Ambassador Jeffrey Davidow, Assistant Secretary for Inter-American Affairs.
    It's good to have you here today.
    Ambassador DAVIDOW. Thank you, Mr. Chairman. As you've noted, this is a particularly opportune time for you to hold this hearing. The President is about to begin a trip to Brazil, Argentina, and Venezuela, and even as we speak, the House Ways and Means Committee is marking up the fast track legislation.
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    As you know, the Administration believes that fast track legislation is absolutely indispensable in order to negotiate the kinds of free trade agreements which open markets to American jobs, not only in this hemisphere, but around the world.
    The U.S. relationship with South America goes far beyond trade and economics, of course. Our policy in the region aims to keep the United States economically strong and internationally competitive, to promote the principles of democracy, and to increase the level of regional cooperation to more easily deal with transnational threats of narcotics trafficking, environmental degradation, and international crime.
    There is a new consensus in this region on democracy, on free markets, and the need for collaboration to face these transnational problems. There is developing also a level of much broader and closer cooperation among all the countries of this hemisphere in confronting these issues.
    For the President's visit, our commitment to advancing our goals in each of these areas of the new consensus will take center stage when he travels. The President's purpose is to focus on strengthening democracy, confronting shared threats to security and the environment, and extending the reach of open markets. Let me just briefly talk about each of the countries we're visiting, and I am amending, abridging my remarks for purposes of brevity.
    In Venezuela, the President will highlight our close partnership in developing a clean and reliable energy supply, our joint alliance against drugs and crime, and the durability of the Venezuelan people's commitment to democracy. Venezuela is our No. 1 supplier of petroleum in the world. While in Caracas, the President will continue to broaden our relationship to include renewable energy, energy efficiency, natural gas development, and integration of energy resources. These are all themes that stem, Mr. Chairman, from discussions at the Summit of the Americas in Miami in 1994.
    In Brazil, the focus will be on putting 21st century technologies to work with advanced scientific, nuclear, and environmental applications in space and on earth. We will discuss advancement of our common agenda in the areas of democracy, crime, and poverty alleviation. Without a doubt, the spotlight will also be on the benefits of more open markets and freer trade that helps improve the skill of workers and young people.
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    Both President Clinton and President Cardoso will emphasize that education and technology are the keys to expanding opportunity and prosperity to citizens of this and future generations. The theme of education will be highlighted in Brazil, although it applies to all the countries we are visiting. Of course it will be a major topic of conversation and action at the Santiago Summit of the Americas in April 1998.
    Finally, in Argentina the President will highlight our close cooperation with Argentina on international security goals and protection of the environment as examples of the region's contributions toward peace and sustainable economic development. While in Buenos Aires, the President will hold a town hall meeting. He will speak to young people there assembled in Buenos Aires and with hookups via satellite to Miami and Los Angeles. This will be an historic event in which the young people and President Clinton will be able to talk about how they see the future, the common challenges, and how we mold that common future.
    Mr. Chairman, Members of the Subcommittee, we cannot underestimate the importance of free trade to the future of our hemispheric relations and the importance of fast track authority to the achievement of free trade throughout the Americas.
    Fast track is indispensable to our ability to negotiate and implement any trade agreement. Foreign governments, as you know, are understandably reluctant to enter into agreements with us if they are uncertain that the terms they agree to at the negotiating table after hard bargaining will ultimately end up in an entirely different form.
    We believe that securing new trade authority is fundamental to our strategy, to maximizing our ability to open markets, to improving international environmental and labor standards as well. The Administration has made unprecedented progress in defining and advancing core labor standards, and we believe that labor and the environment are an important part of the trade agenda for the next century.
    The Free Trade Area of the Americas, which we hope to create by the year 2005, will encompass all of the democratic countries of this hemisphere. We are pushing for a commitment across the hemisphere for sustainable development practices, a true concern about the environment.
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    Mr. Chairman, in the moments remaining, I'd like to mention a few specific issues. It's important that we get these on record as the President is about to travel. It is important to put in context and to clarify the U.S. position with respect to subregional trade groupings, in particular MERCOSUR, the Common Market of the South, which Argentina, Brazil, Paraguay, and Uruguay are in the process of building. There is free trade among those four countries that have a combined GDP of $1 trillion.
    The United States supports efforts toward greater cooperation and economic integration. We see MERCOSUR and other sub-regional groups like it as contributing to the process of trade liberalization, since it helps members adjust to wider and more competitive markets.
    I think it's fair to say that MERCOSUR has worked to our benefit as the level of our trade with countries such as Brazil and Argentina have shot up in recent years. Last year we exported $13 billion to Brazil, which is more than we exported to China and four times more than what we exported to Brazil just 6 years ago.
    We see all this as favorable to the formation of a Free Trade Area of the Americas and to U.S. interests. There are differing views on how we should negotiate the Free Trade Area of the Americas on the question of sequencing, on the question of pace of negotiations, but there is no fundamental difference on the ultimate goal, which is a Free Trade Area of the Americas.
    Another issue which I wanted to highlight, Mr. Chairman, is our intention to designate Argentina as a major non-NATO ally. Mr. Chairman, the hallmark of our relations with South America today is mutual respect and cooperation in pursuing common goals. In this vein, we are notifying Congress of our intent to designate Argentina as a major non-NATO ally. Argentina would become only the eighth nation in the world to have such a status, the first in Latin America.
    MNNA status, as it is commonly referred to, represents our recognition of the importance of Argentina's leadership and cooperation in the field of international peacekeeping, notably during Operation Desert Shield/Desert Storm, in Haiti, in its role in supervising the peace between Peru and Ecuador, and in nearly a dozen other international peacekeeping efforts.
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    Argentina would be eligible for such benefits as priority delivery of excess defense articles and participation in cooperative research and development projects. I wish to stress that granting MNNA status to Argentina does not establish any mutual defense obligation, nor does it apply access to advanced weaponry, nor does it establish a strategic alliance. Furthermore, other Latin American countries could be eligible for MNNA status in principle.
    A further topic which has been much commented on, Mr. Chairman, has been U.S. policy on arms transfers in the region. We have moved beyond the existing presumption of denial of any arms sale that has characterized our policy since the late 1970's. We have now established a mechanism that will review all requests for advanced weapons on a case-by-case basis. The new policy will promote stability within a context of continued restraint. It does not sound the opening bell of an arms race, as some have suggested. It simply puts the nations of Latin America on the same footing as most of the rest of the world, and acknowledges the need for civilian leaders to make important strategic decisions on defense matters with the benefit of a range of options, including technology designed and manufactured by the United States.
    Our policy will have as its hallmarks transparency and restraint. In pursuit of greater transparency, we are working within the context of the Organization of American States to prepare a resolution aimed at establishing a legal framework on the issue of advanced notification of major arms acquisitions covered by the U.N. Register of Conventional Arms. The laudable goal is to have such a framework adopted at the next Santiago Summit in April.
    Very briefly on narcotics, Mr. Chairman, the drug trade remains a dynamic and formidable adversary. We have previously testified before this Committee about the work of our government, in conjunction with our Congress, in providing necessary resources for this battle. I do want to call your attention to a report issued by the Office of National Drug Control Policy, jointly with the State Department, on September 15, that characterized the state of cooperation in the region on counter-narcotics and those steps the United States is prepared to take to amplify and deepen our collective efforts with the nations of the hemisphere. We will be working closely with our neighbors over the coming months to assist in the development of long-term, national counter-drug strategies and regional mechanisms to assess performance. We will also provide technical assistance.
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    In sum, Mr. Chairman, on the eve of a Presidential visit to South America, we should take stock of the vast opportunities that exist in the economic, financial, scientific, educational, environmental, and commercial areas. The pace of economic integration and harmonization crisscrossing the continent is impressive, a phenomenon which has been accelerated because of the prospect of a Free Trade Area of the Americas by 2005.
    Stronger ties between the United States and South America, forged through the Miami summit process, must be complemented by full confidence in our resolve and our seriousness in upcoming trade negotiations. We hope that you will favorably consider renewing fast track authority in the coming weeks.
    Mr. Chairman, Members of the Subcommittee, we hope to count on your support and counsel on these issues in the months ahead. I'd be pleased to take your questions. Thank you, sir.
    [The prepared statement of Ambassador Davidow appears in the appendix.]
    Mr. GALLEGLY. Thank you very much, Ambassador Davidow. I have a couple of questions, and then I'll defer to other Members on the Subcommittee.
    Regarding Colombia, there's been a lot of discussion about the seriousness of the guerrilla interference in the electoral process. I'd like to get your assessment of how significant you think that is and whether or not Colombia has essentially lost its democracy in significant portions of the country.
    Ambassador DAVIDOW. There is a concerted move on the part of some of the guerrilla groups to disrupt the coming local elections in Colombia. Last week in New York I met with the Colombian Foreign Minister and the new principal negotiator with the guerrilla movements, who has been appointed by the Colombian Government. Their estimate is that probably in about 10 percent of the municipalities there will not be effective democratic elections because of the interference of the guerrilla movements. We are working within the context of the Organization of American States to support sending observers to the Colombian elections. Some are leaving within the next few days.
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    The attitude of the Colombian guerrilla movements and their actions, their violence, is, indeed, troubling to Colombians and to us and to all who want to preserve Colombia as a functioning democracy. I continue to believe that Colombian society, which has withstood 40 years of nearly constant violence, is strong enough to meet head-on this current outbreak of clearly politically inspired and motivated violence. But the situation is a troubling one. We will work with the Organization of American States, and we will continue to voice our strong support for the continuation of democracy in Colombia and our total rejection of any effort by any group or party to try to torpedo that.
    Mr. GALLEGLY. Mr. Ambassador, in addition to this Committee, I also serve on the Intellectual Property Subcommittee of the Judiciary Committee, and many of us are concerned with the ongoing complaints that many U.S. companies have with Argentina's patent laws and their attitudes toward duplication and marketing of some of these products. Can you give us an update on what the United States is doing and how we're working with Argentina to seek some kind of compliance with the intellectual property concerns that we have?
    Ambassador DAVIDOW. Yes, sir.
    Mr. GALLEGLY. And, further, do you expect this to be on the President's radar scope on this next trip?
    Ambassador DAVIDOW. Yes, sir, the issue of protection of intellectual property rights in this hemisphere, and with specific reference to Argentina, is of major importance to us and forms a major topic in every conversation we have with Argentine officials. There has been progress in recent years in Argentina on intellectual property rights protection. However, there has not been significant progress, particularly in relation to the protection of pharmaceutical patents. This has come before the Argentine Congress on more than one occasion, and efforts to amend the legislation and to make it more in accordance with international standards, including international standards which Argentina has signed onto as a member of the World Trade Organization, have failed. I am quite confident that this issue will be discussed in the context of the President's trip. It's not something that we can walk away from. It relates to the very heart of free trade issues in the hemisphere.
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    Mr. GALLEGLY. Thank you very much. In the interest of time, because we are a little behind, if I could impose on Mr. Sherman to defer to Mr. Ballenger, who has another markup—are you in the middle of a markup, too?
    Mr. SHERMAN I have a meeting back in my office, but I'll yield.
    Mr. BALLENGER. Thank you, Mr. Chairman, and thank you, sir. I won't be long.
    Mr. Davidow, having just returned from Venezuela and Colombia, wouldn't you say that Colombian narco guerrillas are everywhere there are drugs? Therefore, it's a combined process; without one, the others wouldn't exist. The guerrillas previously had financing from Russia and from Cuba; now they've gotten it from the drug trade, and so, therefore, couldn't you classify them together in reality? I think that's what I've run into in the discussions we had in Venezuela and Colombia.
    Ambassador DAVIDOW. Well, sir, I think in some instances what you're saying is absolutely correct, that there are very close ties between guerrilla groups and narcotics producers and shippers. That's not the case in all situations, however. The guerrillas traditionally have run their own economy. For many years, as you say, some did receive support from outside of the country, but they also had income-generating operations within the country, principally cattle rustling, protection rackets, and increasingly, kidnappings.
    I think there is still a body, a core, of the guerrilla movement in Colombia that is principally politically motivated in its actions. And I could not possibly give you a percentage because we don't really have information that is reliable. I think the activity of the guerrillas now in terms of trying to disrupt these municipal elections is more politically motivated. There are ties between guerrillas and narco traffickers, but I do not think that we have enough evidence to demonstrate, nor is it my impression that there is no difference at all between the two groups.
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    Mr. BALLENGER. Let me interrupt, if I may.
    Ambassador DAVIDOW. Yes.
    Mr. BALLENGER. I don't want to use up all the time while you answer.
    Ambassador DAVIDOW. Sure.
    Mr. BALLENGER. But considering cooperation in the hemisphere, I understand that although the President granted 614 waivers on August the 14th and State briefed the Congress on its expected assistance package, that none of that assistance has been delivered. Do you expect this assistance to be delivered prior to the October 26 elections, as we hoped for and believed in Congress? And as you know, this assistance is crucial to helping the Colombians carry out their democratic elections. Where are we as far as delivery of that material?
    Ambassador DAVIDOW. Well——
    Mr. BALLENGER. I mean, it's very difficult to defend yourself if you don't have bullets. These are basics that we're talking about here.
    Ambassador DAVIDOW. Well, sir, let's put it in context, if I may. Over the last 2 years, we have drawn down, using 506(a) authority, both in the last Fiscal Year——
    Mr. BALLENGER. I'm talking about the 614 right now.
    Ambassador DAVIDOW. The 614, which was notified to Congress, which was necessary because of the decertification, we have gone to the Colombians and asked them to put together the list of what is necessary——
    Mr. BALLENGER. My understanding is they've done that and delivered it——
    Ambassador DAVIDOW. Well, I think we're moving on that, sir.
    Mr. BALLENGER. —on September the 2nd of this year.
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    Ambassador DAVIDOW. Those goods have to come from the Department of Defense, but we are moving rapidly. But I do want to make it clear, sir—and I think we might have a difference on this—that our assistance to Colombia is for counter-narcotics activity. We are not involved in strict counter-insurgency activity there, and I think it's important that we maintain that distinction. Obviously, where the insurgents are involved in counter-narcotics, then our assistance might be used against them. Let me repeat that. Where insurgents or guerrillas are involved in narcotics activity, our assistance might be used against them. But we are not involved in counter-insurgency in Colombia per se. We're involved in counter-narcotics, and we are moving as fast as we can on 614——
    Mr. BALLENGER. Well, I understand that, but the case in point, there was a large group of us that were involved in trying to do everything we could to help the national police, which in my considered opinion is probably the only really honest group down there. We came back and made a request to put into the budget the assistance that we thought would be necessary. All we're talking about is bullets and night vision. These are the basics to help them defend themselves as far as both the rebels and the narco traffickers are concerned. And you didn't give me an answer. So could you tell me when you think that will be delivered?
    Ambassador DAVIDOW. I will get an answer for you, sir. But I will say——
    Mr. BALLENGER. Before the President leaves?
    Ambassador DAVIDOW. The answer before the President leaves?
    Mr. BALLENGER. Yes.
    Ambassador DAVIDOW. Yes, sir, I will.
    [The information referred to appears in the appendix.]
    Mr. GALLEGLY. The time of the gentleman has expired. The gentleman from California, Mr. Sherman.
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    Mr. SHERMAN. Thank you, Mr. Chairman.
    I'd like to follow up on the Chairman's questions about intellectual property. Ambassador, can you give us assurance here and now that we will not designate Argentina as a major non-NATO ally until we are absolutely sure that they will following international standards on intellectual property?
    Ambassador DAVIDOW. Sir, we will move ahead on both; that is, urging Argentina to meet international standards on IPR, intellectual property rights, and designating them as a major non-NATO ally.
    Mr. SHERMAN. So they could stiff us on one and we would hand them the keys with the other. I think that's kind of an insult to the taxpayers who pay the cost of maintaining this huge international security apparatus. You're saying that we—I mean, I know that the State Department doesn't like to see linkage, but there is an inherent linkage. If you make it impossible for American companies to compete, it will be impossible to pay the huge costs that go along with the ambitious foreign policy of non-linkage that the State Department has carved out for us.
    I take it from your answer that we may very well have the President come back, grant major non-NATO ally status to Argentina at a time when they are pirating our intellectual property. Am I interpreting your answer correctly?
    Ambassador DAVIDOW. Sir, I'm not against linkage. I think the linkage that applies in the case of major non-NATO allies is the linkage that is evident by the fact that Argentina has been a willing participant in numerous international peacekeeping operations, that it sent its military forces to the Persian Gulf——
    Mr. SHERMAN. Ambassador, my time is brief. I just asked you, did I correctly interpret your response?
    Ambassador DAVIDOW. Yes, sir, you did.
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    Mr. SHERMAN. OK. I'd like to shift to the issue of energy supplies. You point out that our single largest supplier is Venezuela. What steps can we take to make sure that the relatively safe Latin American sources of petroleum will be available to the United States in the event of some disruption in more dangerous parts of the world, such as Central Asia, West Asia, and the Middle East? Do we have long-term contracts either at the corporate level or at the nation-to-nation level that will assure that, during an energy crisis or a disruption in the Middle East, the Venezuelan oil will continue to come to the United States?
    Ambassador DAVIDOW. Well, that's a very good question, sir. As you know, during previous OPIC oil boycotts, particularly in the 1970's, Venezuela, which was a founding member of OPIC, refused to participate in the boycott and continued sending oil to the United States. The most important development along this line in recent years has been the opening of the Venezuelan petroleum sector to foreign investment, and American companies have been the most enthusiastic and most energetic, not to create a pun, about going into Venezuela.
    Mr. SHERMAN. But, in fact, if there was a shutoff of oil from the Middle East or Central Asia, the Europeans and the Japanese could literally outbid us for petroleum supplies from Venezuela and from Mexico, and whether it's American companies getting the windfall or whether it's the host countries getting the windfall, the American consumer does not have any legal first claim on oil produced in Latin America.
    Ambassador DAVIDOW. Well, there's obviously an open and free market in oil, which responds to political developments and supply developments. One of the interesting points—and I won't take too much of your time—is that, as American companies have been investing in Venezuela, Venezuela has been investing in the United States, and there is a strong desire on the part of the Venezuelan oil company to keep their gas stations—you know they own the largest chain of gas stations in the United States—keep them stocked. They also own several refineries here. So this kind of cross-fertilization of investment is, I think, the best guarantee of supply.
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    Mr. SHERMAN. Is it on the agenda for the President to try to negotiate with the Venezuelans a treaty of priority delivery to the United States?
    Ambassador DAVIDOW. No, sir.
    Mr. SHERMAN. I would consult with the Administration about adding protecting the interests of American consumers and businesses at the highest possible level on his agenda.
    Ambassador DAVIDOW. Thank you.
    Mr. GALLEGLY. The gentleman from Texas, Mr. Brady.
    Mr. BRADY. Thank you, Mr. Chairman.
    Mr. Ambassador, my initial question was going to deal with MERCOSUR and our relationship with Latin America. However, since we're on the issue of Argentina, I would like to discuss that. I'm concerned that the Government of Argentina isn't living up to its obligations under the Bilateral Investment Treaty with the United States. I am aware of at least one U.S. investor, Lanco International, that has been forced to file a claim under the terms of the treaty, because they cannot seem to settle this matter with the Government of Argentina.
    What actions has the State Department taken, and what action are you prepared to take, to ensure that the rights of U.S. investors under this treaty are protected?
    Ambassador DAVIDOW. I'm very familiar with this case of Lanco and also Myjack, which is another name for the company. This has been an ongoing issue in which this American corporation feels that the terms of the contract that it signed for port services and port activities has been undercut. The U.S. Embassy, the Ambassador, the Chargé in Buenos Aires have made this a topic of consistent conversation with the Government of Argentina. We have just been informed, as of October 1st, that the company is now going to exercise its right under the bilateral investment treaty to bring the case to arbitration. We're very disappointed that this cannot be resolved with something short of arbitration. Yet, on the other hand, I think it does show that there is value in having such treaties in place, so when there are irreconcilable differences, they can go to arbitration.
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    Mr. BRADY. So my understanding of your answer is that your actions are to monitor it, as opposed to being an advocate for Lanco?
    Ambassador DAVIDOW. No, sir, we have been an advocate. We have, and I think in your conversations with representatives of the company you should confirm that we have raised this issue on numerous occasions with the Government of Argentina. We've urged resolution of the case. We are disappointed that that has not happened. And we are disappointed that it must go to arbitration. On the other hand, I think it is good that we have a treaty that allows for such arbitration. We don't have that in every country.
    Mr. BRADY. Well, my guess is, as in any case, you go to litigation only as a last resort and usually because someone is being unreasonable. My understanding is that the Ambassador for France has gone to bat repeatedly for French companies to ensure their fair treatment. What have we done? Have we gone to bat for American companies to prevent them from having to go to a fairly significant action to remedy something that, in my opinion, should have been addressed successfully earlier?
    Ambassador DAVIDOW. Well, I agree with you; it should have been addressed successfully. I can only repeat that we have gone into the Government of Argentina, and we do this throughout Latin America and other parts of the world, and advocate the cause of American industry and American business. In this case, we were not successful, and I regret that.
    Mr. BRADY. OK. And I guess I would just reinforce the desire that we—what is the status of our ambassadorship in Argentina right now?
    Ambassador DAVIDOW. The ambassadorship is currently vacant and a new ambassador has not yet been nominated by the White House.
    Mr. BRADY. When will that be done? Do you know?
    Ambassador DAVIDOW. I can't answer that for you.
    Mr. BRADY. I would just urge that you pass on to whomever—to get on the ball. We really need some support for our American businesses down there.
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    Mr. BRADY. And I appreciate the help that you've already given in the monitoring and other discussions, but the stronger we can be an advocate, the better, in my opinion.
    Ambassador DAVIDOW. We really do try.
    Mr. BRADY. I know and I appreciate it.
    Ambassador DAVIDOW. And I will pass your concern on about the ambassadorship.
    Mr. BRADY. A final thought: You've made it clear: my time has expired.
    Mr. GALLEGLY. Thank you very much, Mr. Brady. The gentleman from New Jersey, Mr. Menendez.
    Mr. MENENDEZ. Thank you, Mr. Chairman. I want to thank you for calling the hearing. I regret that I wasn't here at the beginning, but, as the Ranking Member on the Africa Subcommittee, we had a markup and I needed to be there. So, Mr. Secretary, welcome, and I'd ask the chairman that my full statement be entered into the record.
    Mr. GALLEGLY. Without objection.
    Mr. MENENDEZ. Thank you.
    [The prepared statement of Mr. Menendez appears in the appendix.]
    Mr. MENENDEZ. Mr. Secretary, I am concerned about a series of issues, and I'd like to lay them out for you, and then have you respond to them. One is about recent events in Peru, President Fujimori's actions against a TV station owner, Baruch Fucher, this summer smacked to me of press censorship, and Fujimori's dismissal of three constitutional court judges earlier this year raised serious concerns about his commitment to democracy. I'd like you to comment about that and what we're doing about those items.
    In a trip to Latin America this summer, I was shocked to hear our ambassador in Colombia, Ambassador Frechette, who is no shrinking violet by any stretch of the imagination, as it relates to Colombia's efforts, or lack thereof, of pursuing what we perceive to be the right course of action in terms of the fight against narcotics and narco trafficking, say—which as a Member of Congress as a Member of this Committee, for the first time, I heard that he recommended on three separate occasions to the Administration that Colombia should be certified with a national interest waiver. Now it seems to me, and, as you know, I am one of those people who does not believe that the present process is the best process, but, nonetheless, having had Ambassador Frechette who is on the ground, who has been very critical of Colombia, say on three separate occasions that he believed that it was in the national interest of the United States to go ahead and give a waiver to Colombia, and considering that we gave Mexico the full certification, is outrageous. I have the greatest respect for you, sir; you just happen to be the representative today of the State Department, and you have to carry water, and you'll excuse me for posing some of the tougher questions. I'd like to understand how it is that the State Department came to a conclusion that it was perfectly OK to give Mexico a pass and to then go ahead and decertify Colombia, when our ambassador on the ground and all of his people who I met with—all of his people—say that they thought it was right to give a national interest waiver.
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    Last, I'm shocked that our government returned people to the Cuban regime without getting a commitment from that regime that they would not prosecute them under the death penalty provisions of a country which, in essence, from my point of view, has no laws, and certainly doesn't have a system of justice that would, in fact, ensure that a person has their day in court.
    It is amazing to me when we consistently waive the death penalty, even when it is appropriate—to get extradition from other countries, that we would yet hand over nationals, even when there is a question as to whether or not they were involved in the hijacking of a boat in order to come to freedom, but forgetting about the facts and circumstances, they would never arise to being subjected to the death penalty in any country which observes the rule of law. And we just handed these people over without getting any commitment whatsoever that they would not be subject to that. That, to me, is outrageous. It is outrageous.
    And I'd like to hear the State Department's responses on all three of these issues, please.
    Ambassador DAVIDOW. OK. Thank you, Congressman. First, in relation to Peru, in the situation of press freedoms and other freedoms in that country, I think it's fair to say that a reading of the Peruvian press, which is a very spirited press and highly critical of the government, would indicate that there was a high level of press freedom in that society. Nevertheless, we share with you our concerns about what appear to be politically motivated intentions to take away from Mr. Ivcher, a Peruvian citizen, his citizenship in order to take away from him his right to own a television station. We expressed publicly our concern about this. We expressed our concern in terms that we felt that this would have a chilling effect on press freedom in Peru. We've also raised this in our bilateral discussions with the Peruvian Government, and I think we've made ourselves clear on this. We are considerably troubled by this development.
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    In relation to Colombia, the issue of certification, of course, is one which is waived by many people with many different purposes and many different factors. I won't go into the specifics of who within the Administration recommends one course of action or another; that's deliberative process. But let me say this, sir: that the decision on decertification of Colombia, as opposed to the idea that you've expressed that Colombia perhaps should have been certified with a national interest waiver, was one that was well discussed at the highest levels of the Administration, and a decision was made by the Secretary of State. As you know, we have outlined for the Government of Colombia on numerous occasions our concerns about actions that that government should take in terms of both last year and this year, in terms of meeting our jointly arrived-at expectations for certification.
    I thought it was highly laudable—and I congratulate you—that just a few days ago you issued a statement in which you were critical of the Congress of Colombia for refusing to pass legislation for extradition, that would allow extradition of nationals from Colombia, which is a major consideration in this year's certification decisionmaking. We believe that we made the right decision.
    In terms of the apparent discrepancies that you see between Mexico and Colombia, I think we feel that the principal difference, or one of the principal differences, between the two countries is that in Mexico we have an administration under President Zadillo which at the highest levels is committed to taking serious action against drug traffickers. Are they always successful? No. Is the country hampered by serious corruption at lower levels? Yes. But the commitment at the highest political levels is there. What we found wanting in Colombia was a President who, as you know, accepted over $6 million from narco traffickers for his electoral campaign.
    Mr. MENENDEZ. Well, what will you do when that President is no longer there? What will be the excuse then? I mean, I understand Mr. Samper's—the dilemma the United States has with Mr. Samper, but it is the Congress that passes the legislation, as it is the Congress in Mexico that passes the legislation as well. And so the bottom line is the commitment of one President and the lack thereof of another. If that is the pure reason in which we certify one and decertify another, then we are talking about the personalities, yes, of a very important individual in that country, but not recognizing the legislative bodies of each.
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    Ambassador DAVIDOW. No, I agree with you, sir, there's certainly more than one criteria. There was a list of criteria last year. There's another list, which is well known to the Colombian Government, for this year. I cannot predict what is going to happen when Mr. Samper leaves office or even what will happen in the certification process that will take place in March of this coming year before he leaves office. That would be presumptuous of me.
    But our concerns about Colombia's anti-narcotics efforts are there. We are working in, I think, a cooperative fashion with the Colombian police and military. We've drawn down in each of the past 2 years, 506(a) authority for additional funds for Colombia. The President has sent a 614 waiver to the Hill to allow Colombia to reactivate foreign military sales and financing. So there is a process that is going on of cooperation there, and I could not make any prediction about what will happen either before or after Mr. Samper leaves office in terms of his—you know, Colombia's certification.
    In terms of the incident that you referred to, this is a complex issue in relation to the individuals from Cuba. The facts, as we know them, are that two individuals hijacked a boat in Cuba. They kidnapped four other individuals, including a girl 15 years old, put them out in the high sea heading north, had a skirmish with the Cuban coast guard in which shots were fired, and ultimately were picked up in international waters by the U.S. Navy, at which point the four people who had been kidnapped asked to be immediately returned to Cuba, and they were. After studying the case, several days later the decision to return the two hijackers was made after careful consideration by all relevant agencies of the U.S. Government of a number of factors, including the Government of Cuba's handling of a similar case of hijacking in May 1996. We have spoken to Cuban authorities and have stressed our expectation that the Government of Cuba would not go beyond actions taken in the May 1996 case, where the hijackers were put on trial for piracy and sentenced, respectively, from 8 to 20 years, depending on the level of their involvement. Based on all of these considerations, an interagency decision was made to return the hijackers to Cuba for prosecution.
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    Mr. MENENDEZ. Mr. Chairman, if I could ask your indulgence for a comment, not a question?
    Mr. GALLEGLY. If the gentleman would be brief, because——
    Mr. MENENDEZ. I certainly will.
    Mr. GALLEGLY. Thank you very much.
    Mr. MENENDEZ. And that is just two points: On the Colombia question, General McCaffrey's meeting with Samper later this month, I don't understand how you square that away. And, second, the fact of the matter is I hope that, based upon expectations, someone, regardless of the scenario that you generated, doesn't end up dying under provisions, that under our own law would never lead to them being executed under the death penalty. It's a big hook on expectations to turn people over without commitments.
    Thank you, Mr. Chairman, for your indulgence.
    Mr. GALLEGLY. The time of the gentleman has expired.
    Just one closing question for you, Mr. Ambassador: It's been reported that during the course of President Clinton's trip that there would be a signing of a new investment treaty while in Venezuela which could open a lot of new opportunities for American investors. Can you give us the status of that treaty, and whether or not it will be ready for signature when the President is in Caracas?
    Ambassador DAVIDOW. I can tell you the status, sir. There was a Venezuelan delegation here just this past week negotiating the treaty. The talks are continuing. Obviously, this is something that we have sought for many years. When I was ambassador to Venezuela, it was at the top of my agenda. I was not successful.
    I cannot tell you whether this treaty will be ready for signature within the next few days. I think we've made very considerable progress, but it is, frankly, disappointing that we have not achieved agreement up to this time, and I must note that the reason that we have not achieved progress, we have not achieved a final agreement, is our insistence on protection for intellectual property rights, which we view as highly important, and I mention that because it is something that influences so much of what we do throughout the continent.
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    Mr. GALLEGLY. And in fairness to Mr. Brady, who we kind of cut off a while ago—we went a little bit over on the other side—I would certainly give you an opportunity to finish that question that——
    Mr. BRADY. Thank you, Mr. Chairman. I'll make it brief.
    One question on trade, Mr. Ambassador, two parts: As a supporter of fast track, can we expect Chile to negotiate a trade agreement with us if the President doesn't have fast track authority? And second, you made it clear that the United States has no intention or desire to harm MERCOSUR in the trade relations that it promotes among its members or to harm Latin American trading relations generally. Yet, many observers in Latin American, especially the Brazilians, apparently continue to harbor fears that we may seek to disrupt trade relations in Latin America for U.S. purposes. From your experience, can you help us understand why some of our friends in Latin America have these perceptions and what we can do to alleviate their concern?
    Ambassador DAVIDOW. Well, there are perhaps many reasons why there is this, what I would call, misperception. For one, I think we have to be frank and acknowledge that we do have differences, particularly with Brazil, over the pace and sequencing of negotiations for the Free Trade Area of the Americas. The United States would like to proceed a lot faster along a much broader front than I think the Government of Brazil, which wants to move more slowly and in a more narrow fashion. But those differences are not fatal in any way.
    Our view about subregional groupings for trade, whether it be NAFTA, MERCOSUR, Andean Pact, CARICOM, Central America, is that they generally are helpful because they insist that their member nations open up, reduce tariffs, become less discriminatory and less protectionist. I think one way of trying to convince Brazilians and others that we're not against MERCOSUR is by noting the obvious fact that we have been big winners in terms of MERCOSUR. Because those economies are growing, our exports to Brazil and Argentina have grown tremendously in recent years. Our trade deficit with Brazil and Argentina has disappeared, and we now run a positive balance of trade.
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    So as long as regional subgroupings don't adopt measures which would make it more difficult to build a Free Trade Area of the Americas, we have nothing against them. I think we have to continually stress that point, because there is, as you know, Mr. Brady, because you've studied the region, an underlying suspicion of American motives. And we can reiterate day after day that we are as pure as the driven snow, but that is an uphill battle with some journalists and some politicians.
    Mr. BRADY. Thank you, Mr. Chairman.
    And fast track? Chile?
    Ambassador DAVIDOW. I'm sorry, I didn't understand the question. I didn't hear you, sir.
    Mr. BRADY. Can we expect Chile to negotiate agreement with us if the President doesn't have fast track?
    Ambassador DAVIDOW. Well, I think the President's going to have fast track, but it's been a decision by the Chilean Government not to negotiate with us on a bilateral trade agreement, absent fast track. In the remote possibility that we do not get fast track, I would still advocate a negotiation with Chile, and it would be up to them to make that decision.
    Mr. BRADY. Right. Thanks, Mr. Chairman.
    Mr. GALLEGLY. Thank you, Mr. Brady, and thank you, Ambassador Davidow.
    I am tempted to have just one quick followup inasmuch as you did mention fast track——
    Ambassador DAVIDOW. Yes, sir.
    Mr. GALLEGLY. —and you did say that you considered it a very remote possibility that there wouldn't be a fast track——
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    Ambassador DAVIDOW. That there would not be a fast track.
    Mr. GALLEGLY. —which means to me that you think that there's a high probability that there will be fast track. Would you give me any predictions as to when you think that probability will take place?
    Ambassador DAVIDOW. Congressman, you're asking me to make a prediction about what's going to happen up here on the Hill?
    Mr. GALLEGLY. Well, you were the one that made the optimistic comment relating to fast track.
    Ambassador DAVIDOW. Well, joking aside, I think we have seen some rapid movement in the Senate Finance Committee, in which they cleared out a bill; House Ways and Means is meeting right now at this hour, and I believe they will report out a bill. Obviously, recess is coming up, but I would hope that we could see these bills taken to the floor—obviously, it would have to go to the floor of the House within weeks.
    Mr. GALLEGLY. What type of progress is the President making with his party of choice?
    Ambassador DAVIDOW. I really can't answer that for you, sir. I'm sure he is——
    Mr. GALLEGLY. I'm just being factitious, Ambassador.
    Ambassador DAVIDOW. I know you are, and I'm being careful.
    Mr. GALLEGLY. That's your job security.
    Thank you very much, Mr. Ambassador. It's always a pleasure to have you here for your candor and wit, and certainly a wealth of knowledge. Thank you very much for being here.
    Ambassador DAVIDOW. Thank you, sir. It's a pleasure being here.
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    Mr. GALLEGLY. Our next panel, we have three distinguished witnesses. First, we have Dr. Mark Falcoff and Dr. Eduardo Gamarra and Mr. William Perry. Dr. Falcoff is director of Latin American studies at the American Enterprise Institute, and we'll start with you, Dr. Falcoff.
    Mr. GALLEGLY. Welcome.
    Mr. FALCOFF. I am going to confine my remarks to Argentina and Chile, as agreed ahead of time with your staff. First, I will speak about Argentina. Some of what I will say, inevitably, overlaps what Ambassador Davidow has said.
    After 50 years of decline, Argentina is once again emerging as a Latin American leader—a society notable for civic peace, economic progress, and democratic political life. Inflation, long the bane of Argentine society, has been brought to a halt through stern fiscal discipline which places the peso on a par with the U.S. dollar. Many money-losing State enterprises have been auctioned off; foreign and domestic capital has returned, and the country registered a healthy 8 percent economic growth in the first 6 months of this year. Three weeks from now, Argentina will hold congressional elections. While the outcome is uncertain, nobody expects the opposition, if it is victorious, to reverse the broad economic trends that I have described.
    In foreign policy, President Carlos Menem has formally aligned Argentina with the United States, and you've heard from Ambassador Davidow of some of the things that this has represented. Argentina has been with us in the Gulf, in Haiti; Argentine troops are making major contributions to peacekeeping in the former Yugoslavia. Argentine defense officials have concluded an important agreement with the United States which makes possible joint activities to suppress drug trafficking throughout the region.
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    I might add that Argentina has strongly supported our efforts to win condemnation of the Castro regime's inhumane practices at such bodies as the U.N. Human Rights Commission in Geneva.
    The United States is not, of course, the only country with which Argentina maintains close commercial, political, and military relations. Since 1991, it has been part of a larger community of nations known by the acronym MERCOSUR. The MERCOSUR agreements are designed to create a common market between these countries, but also to intensify existing political, military, and cultural links.
    Argentina is driven to a close association with Brazil for a variety of reasons. The most important of these is economic; namely, the large market that that country represents for its exports. Argentine transactions with Brazil help to balance off the radically unfavorable balance of trade it has long maintained with the United States.
    One further comment about MERCOSUR: Mr. Brady brought it up earlier. Many of us see MERCOSUR as a weigh station to NAFTA, but many Brazilian leaders regard MERCOSUR as an ultimate alternative to it, and the dilemma for Argentina is how to maintain its close and favorable relationship with Brazil without foreclosing other equally interesting prospects which may yet develop with the United States. And the best way that Congress can assure that we meet Argentina halfway is to vote the President fast track authority.
    Now let me turn to Chile. It seems incredible that today the main issue on the agenda between our two countries is a free trade agreement when a mere decade ago the only topic of a congressional hearing on that country would have been human rights violations. Today Chile represents perhaps the most successful fusion of free market economics and democratic government anywhere in Latin America, with its pension fund reforms inviting emulation in Argentina, Peru, even the United States.
    Much of Chile's success rests upon its history and traditions. Prior to 1970, it was notable for its commitment to democracy, the rule of law, and the full range of civil liberties. It has largely returned to these. Chilean civil society, never destroyed by either Marxism or the military, remains extraordinarily rich.
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    To be sure, some of the wounds inflicted during 3 years of rule by a Communist-Socialist coalition and sixteen more under General Pinochet have not fully healed, and some institutional legacies of dictatorship, notably the incapacity of civilian authorities to appoint and remove military commanders, remain in force. However, after General Pinochet's retirement from active service in March of next year, Chile's civilian leaders will recover their traditional authority in this area.
    What is remarkable about Chile is that, considering all the blood and tears shed over two decades, the country has been able to return so quickly to normal life. Probably this is due largely to sound economic policies which continue to provide a rising standard of living for its people, as well as a tradition of integrity and transparency in the public administration.
    As is well known, Chile is the next likely candidate for inclusion into NAFTA, if the Congress votes the President fast track authority. But, doubtless, the Chilean Government would like to be invited into this interesting market if for no other reason than to validate its stature as one of the most dynamic emerging markets. However, it is likely that the United States would benefit more. The Chilean economy is a small economy. It has reached the limit of what it can sell to us in industrial metals, forest products, fruit and fruit derivatives, and fresh fish. However, the Chilean market has an almost inexhaustible appetite for American products of every type, and to the degree to which the country continues to grow, it will constitute an expanding opportunity for American investors and producers.
    Let me say something, finally, about military-to-military relations. As a result of Chile's recovery of its democratic traditions, the relationship between our defense establishments has grown in quantity and quality. In recent years we have seen a resumption of military exchanges, joint maneuvers, education, consultations. These are far more important than the widely advertised decision of the Administration to lift the ban on the sale of high-tech aircraft.
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    Contrary to what has been widely reported in the press, Chile did not lobby directly or indirectly for that change, except to announce that it was in the process of updating its fleet. The United States responded to that opportunity, which otherwise would have gone to France, Great Britain, to Germany, may indeed go to some other country yet—the bidding process is still open—but at least the United States has an opportunity to participate. Also, contrary to what has been widely stated in the media, this decision has not unleashed an arms race in South America, nor is it likely to.
    I look forward to answering your questions.
    [The prepared statement of Mr. Falcoff appears in the appendix.]
    Mr. GALLEGLY. Thank you very much, Dr. Falcoff.
    Now we'll have Dr. Gamarra.
    Mr. GAMARRA. I appreciate the opportunity to testify before this Committee and to have the privilege of sharing this panel with distinguished witnesses such as Dr. Falcoff and Mr. Perry.
    President Clinton's trip to Venezuela, Brazil, and Argentina will find three countries facing the dual and difficult task of democraticizing and deepening economic reforms. These countries, in my view, represent the broad, general pattern in South America, a generally positive pattern.
    The record and current trends, however, must be put in the context of five other areas which, in my view, must be addressed in the next few years in order to ensure that this current trend continues. These areas are: first, dealing with the legacies and temptations of an authoritarian past; second, strengthening very weak democratic institutions; third, resolving the proper role of the armed forces in democratic societies; fourth, dealing with the social issues stemming from the implementation of market-oriented, or as they are called in the region, neo-liberal reforms; and, finally, dealing with the grave problems posed by the proliferation of drug trafficking and related crimes. Let me address each of these issues specifically.
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    First, the legacies and temptations of the authoritarian past: There is a tendency in Latin America, and particularly in some nations of South America at the moment, to resort to authoritarian decisionmaking, particularly when impasses occur. There is also a tendency to avoid any type of social consultation on major issues, but particularly on economic reform. There is a tendency to change the rules of the game to accommodate short-term objectives of those in office. In particular, I think it's important to look, again, at the Andean countries of Ecuador and Peru most recently. And, finally, there are still widespread violations of human rights throughout the region that I think merit some greater investigation.
    The second area of institutional weakness: Democratic institutions in South America, political parties, legislatures, judiciaries, and even executive branches are fundamentally weak. As a result, democratic governance has, in fact, been problematic. But, in my view, although my written testimony addresses each of those areas, I think it's absolutely important to underscore the importance of the administration of justice. It is currently in the region as a whole plagued by lack of independence, rampant corruption, absence of due process, overcrowded jails, and, most particularly, abuse of police institutions throughout, but, again, particularly in the Andean region.
    The U.S. role in this particular area is important, and although efforts are underway, in my view, they are underfunded and they are particularly subjected to conditionality clauses, especially linked to narcotics policy, which in the long term undermine their effectiveness.
    Third, let me turn to the role and place of the armed forces. The role and place of the armed forces in South America is largely undefined. The current context is rampant crime, proliferation of drug trafficking, and, more importantly, growing citizen insecurity. There is a tendency in that context to involve military institutions in internal security roles, especially in law enforcement. In my view, this is a dangerous area, as military officials and military institutions in general are untrained for law enforcement, and these law enforcement roles range from patrolling the street to enforce economic austerity measures, to preventing crime, and clearly drug control efforts.
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    Protecting borders is still a major role, and this role, in my view, can be a problematic area, particularly in an area where border problems are still a major concern. Bolivia and Chile still have an unresolved border issue; Colombia and Venezuela, and of course the Ecuador and Peru conflict now. We do now know from the Ecuador and Peru conflict that democratic nations do go to war.
    This in many ways has generated an ongoing mini-arms race in the Andes, particularly between those two nations. While I am not fundamentally opposed to the sale of F–16s to Chile, I do think that the timing of the sale is bad, particularly as it is linked to a whole series of other ongoing and more important issues.
    The fourth area: Market-oriented reforms and trade issues. Most of the region, as has been heard, and as most of you know, is experiencing positive economic growth rates, low inflation, and other major improvements—stemming mainly from the brave reforms of the last decade. Trade integration is clearly a crucial area, and I was pleased to hear the comments of Ambassador Davidow that the United States is very interested in working with MERCOSUR. But, importantly, I believe that fast track is essential to retain credibility in the region.
    It is very important to understand that the market may provide some solutions to the region, but it is not the only way. The social impact of the reforms is not yet fully understood. Unemployment rates in Argentina, which have surpassed 20 percent at some point, growing wealth and income gaps throughout the region, including Chile, and declining social spending are areas of critical concern which ought to be looked at more carefully in this and other bodies.
    My first point, I want to turn my attention to illegal drugs and related crimes. This is a problem area that all of you know is of major concern to every country in South America, not only in terms of trafficking, but growing consumption rates, especially in two of the three countries that President Clinton will visit—in Brazil and in Argentina. But, also, the problems of money laundering are very significant throughout the region.
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    But I think it's also important to note that the region is demonstrating major political will by signing agreements, including the 1988 U.N. convention and, currently, the most recent effort, the Drug Strategy for the Americas, signed in Lima just a few months ago.
    But I think it's important to distinguish between will and capacity. Most of the countries of the region still lack the capacity to carry out these policies, owing primarily to weaknesses of their institutions, rampant corruption, which I mentioned before, but also because of domestic political constraints and lack of resources. In this instance, therefore, what I'd like to do is conclude by talking a little bit about the certification issue.
    In most of the region, certification is seen as a unilateral U.S. measure. It has generated three consequences, very important consequences. First, there is an increased anti-American sentiment throughout, but specifically in those countries that are facing this problem. Second, there is a perverse impact of strengthening precisely those individuals and groups that are targeted by the United States. And, third, as we saw in Colombia, certification policy has weakened governments of the region domestically and has threatened their ability, in fact, to negotiate with those very groups it is trying to bring under control.
    So to conclude, what can be done in this specific area—in my view, it is important to continue institutional reform efforts, especially the judiciary, but it is my view that you must not narcotize institutional reform efforts.
    And, finally, I think it is critical to multilateralize the certification process to ensure the legitimacy of the process and to ensure greater compliance.
    Thank you very much, and I'll take your questions.
    [The prepared statement of Mr. Gamarra appears in the appendix.]
    Mr. GALLEGLY. Thank you very much, Dr. Gamarra.
    Dr. Perry.
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    Mr. PERRY. Excuse my voice.
    Thank you very much for the opportunity of speaking here today. It's always both a pleasure and an honor to address this Subcommittee, as I did in March and have done on a number of previous occasions.
    The present topic is South America on the eve of President Clinton's visit, and Brazil is my particular area of responsibility, and I'd also like to address a little bit the imperatives of U.S. policy toward the continent. Obvious limitations of time and space require me to treat these matters, which are very complex, in a quite synoptic way.
    Like the remainder of South America, Brazil has returned to the full practice of democratic government over the past decade. Liberalizing reform efforts, especially under the incumbent Administration of Fernando Henrique Cardoso, have restored a positive trajectory of socio-economic development, and burgeoning new trade/investment patterns are linking the country closer to its regional neighbors, especially in the southern cone, as well as attracting a great deal of attention from the industrialized nations, including the United States.
    But Brazil is a singular actor and must be viewed and understood somewhat separately. In territorial extent, it compares with countries like the United States and Canada and China, and it has the potential to be a quite significant actor on the wider international stage. From a more hemispheric standpoint, Brazil constitutes fully half of South America in terms of size, population, and economic output, and fully one-third of Latin America as a whole. Moreover, it has a unique, Portuguese-speaking world of its own, and Brazilian society, as a consequence, tends to move at a pace determined by local practice and circumstances rather than what's going on in the world necessarily.
    A great deal more could be said about Brazilian individualism. I had the pleasure to live in Brazil for a time. But, for our present purposes, two features need to be highlighted.
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    First, it has not managed to quite yet achieve the degree of austerity and market reform that we find in Chile, Mexico, and Argentina, and, second, it's coming into some degree of conflict or disagreement at least with Washington over the future course of western hemisphere economic organization.
    No doubt should be entertained about the fact that Brazil has made significant progress along the road to economic recovery—along the road to recovery of its fast developmental dynamism, especially considering a late start and the obstacles presented by the country's unique political system. Enough has been accomplished to rescue the country from the difficult situation that prevailed prior to 1994, to stabilize the currency, to restart growth, and to restore optimism both at home and abroad. Moreover, quite significant reforms have been implemented under the Cardoso Administration, and should lay the foundation for continued progress. But a good deal more remains to be done, and Brazil faces a Presidential election year in 1998 that may prove quite important in terms of its future prospects.
    This is not a negative judgment. I only wish to say that Brazil has a way to go before necessary reforms are deepened and institutionalized to the point that they provide a really firm, substantially irreversible guarantee of positive performance in the future. I think any candid Brazilian would tell you more or less the same thing. And, in the meantime, Brazilian policymakers have to improvise a little bit, and that sometimes proves bothersome to its economic partners.
    The second matter that needs to be drawn to your attention has already come up. In fact, Congressman Brady already alluded to it with Ambassador Davidow. There has developed a bit of tension over the last couple of years between U.S. and Brazilian views with respect to the future of western hemisphere commercial integration. Both countries purport to agree on the desirability of a comprehensive, inter-American Free Trade Area, if possible, by 2005, the date which was established as a target by the 1994 Miami Summit of Hemispheric Presidents.
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    Since this goal was first articulated, however, under the enterprise of the Americas Initiative in 1990, U.S. policymakers have sort of simply assumed that it would be achieved by sequential adherence of countries or pretty discrete subgroups to the existing NAFTA structure. But after Mexico, Washington has been woefully slow to move along this course. There have been various results. I think the Chileans are quite disappointed with our performance. There's a great deal more European activity, institutional activity, on the continent, and Brazil has begun promoting an alternative or an option other than the one that we have assumed.
    Essentially, the thesis of the Brazilian foreign office is that first priority ought to be accorded to strengthening and expanding MERCOSUL, which is the Portuguese equivalent of MERCOSUR, perhaps eventually to include as many members as possible throughout South America. The stated objective is to bring this SAFTA, if you will, South America Free Trade Area, together with NAFTA at some point before 2005, but aware of the difficulty we have had in processing so simple a case as Chile, many observers are concerned that a large group of this nature would prove completely indigestible to the U.S. policy process.
    Whatever the merits of differing interpretations, it would be quite counterproductive, I think, to be at loggerheads with Brazil over this matter. After all, a Hemispheric Free Trade Area without Brazil's cooperation is inconceivable, and the root cause of the problem, frankly, is Washington's failure to move forward on a very important initiative that we, ourselves, originally proposed.
    For that reason, I would like to conclude my testimony with just a couple of remarks about the imperatives for U.S. policy, especially today. It was my privilege to be chairman of the two Western Hemisphere Working Groups on the Bush/Quayle campaign of 1988. At that time, with the cold war coming to an end, we believed that Latin America would be a very much more important actor to the United States in the new age that was emerging. We also saw a need and an opportunity to create a wholly new kind of relationship with the other nations of the western hemisphere. What was eventually offered in the form of the Enterprise of the Americas Initiative, which later evolved into the Western Hemisphere Free Trade Area, has had to be sufficiently attractive to secure the participation of our neighbors to the south, but it was proposed principally in furtherance of vital U.S. interests.
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    I can't speak for others who were involved in the process at the time—and I'll summarize this as briefly as I can—but, for me, there were two basic categories of advantages that we saw for the United States at that time. One was purely economic. We have a great natural advantage with these countries, a competitive advantage. Competitiveness was seen as very important, and I still think it is. We could expect to run serious trade surpluses with these countries. Through joint production, we could help our industries compete. If companies did move their operations offshore, it's certainly more advantageous for us to have them move to a Latin American venue, where probably a greater percentage of U.S. products will be repurchased, and we certainly wanted to, if we could, create sort of an inter-American block of countries bound together by free trade principles that would strengthen Washington's bargaining position vis-a-vis protectionist forces in Europe and Asia.
    Second, beyond the purely economic area, but in my opinion of equal importance, and frequently not recognized in the debate, is the fact that the geographic proximity of the region is conferring a unique importance on Latin America that's going to expand steadily in coming decades. The fact is that the United States is already the fifth largest Latin American country in terms of population, and if it is a fact that we are devoting more attention here to domestic affairs than to foreign affairs in terms of the past, then Latin America ought to be the most important country of the world, because it certainly affects the day-to-day life of the average American to a greater extent than any other region that I can think of right offhand.
    The circumstances were favorable, as has been remarked by my colleagues. There were democratic governments, relatively few problems within these countries and between them in comparison with times past, and they were, after the cold war, quite well disposed to cooperate with the United States. We thought, and I still think, that it should be our policy to preserve and build upon these hard-won gains, and to the extent that our economic policy benefits the countries of the region, as well as ourselves, we receive the additional advantage of stabilizing positive conditions there.
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    I guess in my mind I thought that we might take a little bit of a lesson from what the Europeans did with respect to, for example, Spain, Portugal, Greece—countries that were political embarrassments, economic weaklings, and causing social problems in northern Europe—by closer association and by helping to stimulate economic development, certainly in our own interest, but also in theirs. I think the Europeans headed off a lot of problems, and I hope that we can do the same.
    Therefore, I not only support re-energizing our commitment and our leadership, which we've lost, I'm afraid, in the hemisphere on the free trade issue, but also considering new issues, new initiatives, in areas of inter-American political and security cooperation. The fact is that a great deal of precious time has already been lost between 1988 and today, and U.S. leadership in the region, as I mentioned, has lagged visibly. Our policy elites seem to have a great difficulty in escaping from the geographical priorities of the cold war, and there has been a loud chorus of particular objections to the policy of hemispheric approximation that has been embraced by both the Bush and the Clinton Administrations.
    But, as I said, there was a strategic purpose to this that I believe is solidly grounded in an imaginative projection of U.S. interests over 10, 20, 30, 40 years in the future, and unless somebody has an alternative to offer, I would suggest that we go ahead with it. And I hope that that's possible here in the House of Representatives today.
    Thank you very much, and I'll be happy to take any questions you have.
    [The prepared statement of Mr. Perry appears in the appendix.]
    Mr. GALLEGLY. Thank you very much, Dr. Perry.
    Dr. Gamarra, you stated in your testimony that you had some reservations or thought that the idea of selling the F–16 to Chile wasn't a good idea, particularly at this time.
    Mr. GAMARRA. Right.
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    Mr. GALLEGLY. Since Chile appears to be very intent on purchasing this type of aircraft, would you say, if we didn't follow through with this transaction, there's still a strong likelihood that they may seek another vendor in a similar type of high-tech aircraft, and basically what do you think all this means? And maybe you could give us a little idea about your concern for the sale.
    Mr. GAMARRA. Yes. To take the latter part of your question first, it seems to me that Chile will buy arms, particularly this sophisticated kind of aircraft, either from France or elsewhere. It's already made some noises in that direction. The question I think that the Chileans are facing has more to do with U.S. domestic politics. I think that they fear a large—a really large inquiry in this body about the sale, and I think that that's probably their main concern.
    My concern has to do more with the general competitive nature of this process. If you sell F–16s to Chile, Argentina will certainly follow; Brazil will certainly follow. Is this necessarily bad? Probably not. My concern in this area is that we are not yet past the transition. I think too many of my colleagues in this particular field have been too quick to jump on the bandwagon that democracy has consolidated. My fear is that we are not yet there, and that unless we are able to ensure civilian control over the armed forces, which I don't think we're there yet—and even in Chile, that all we're doing from the outside is strengthening military institutions, in fact, at the expense of civilian institutions.
    Mr. GALLEGLY. Just one quick followup to that: You mentioned that you thought Argentina would follow, and perhaps—did you say Brazil?
    Mr. GAMARRA. Brazil, yes.
    Mr. GALLEGLY. It's my understanding that there's a good chance that Argentina at this time is not in the financial position to do such a thing. Does that, in and of itself, create another problem diplomatically for us to sell to one country and a neighboring country not financially being in a position to—is that another issue that we should think about?
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    Mr. GAMARRA. Well, in my view, the real problem boils down to a guns-and-butter economics issue. The fact of the matter is that, for all the privatization and market reform that has occurred in Latin America, the only institution that has not faced up to the market is the military, and particularly in countries like Argentina, Brazil, and others such as Bolivia and Peru and elsewhere. So if you lack the resources, the real issue has more to do with where you're going to get that money to fund these arms purchases, and it seems to me in the current context of austerity, you're really going to taking from another pot to fund a specific arms purchase that is not really necessary at this juncture.
    Mr. GALLEGLY. Dr. Falcoff, you might like to——
    Mr. FALCOFF. Well, I'd just like to offer another perspective on this. Whether we do or do not sell high-tech aircraft to a given country may or may not strengthen civilian rule. For example, in the case of Chile—and I certainly agree that it is not a perfect situation; in my testimony I suggested as much—it could be argued that the capacity of the Chilean civilian government to get this, or to at least preside over a situation in which these prohibitions were lifted, shows that civilian rule is the way that the Chilean air force can get what it wants in a technical sense or in an equipment sense. Certainly no military government could have gotten this.
    I think it's a wash myself. If it goes in either way, I think it slightly strengthens the prestige of civilian rule in Chile.
    With respect to Argentina, if you look at the numbers, Argentina's military budget, as a percentage of the gross national product, has been shrinking; conscription has been eliminated—indeed, I think it's fair to say, never in the last 50 to 60 years has civilian rule been stronger in Argentina and has the military been, shall we say, less in a position to assert its budgetary demands. This may not be the case in other countries, but in the case of Argentina it just seems to me that the likelihood that they would rush to compete with Chile in this area is just not valid. In fact, one might even suggest that the non-NATO status could be offered by President Menem to his military people as a kind of substitute for advanced arms purchases.
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    Mr. GALLEGLY. Thank you very much, Dr. Falcoff.
    Mr. Brady.
    Mr. BRADY. Thank you, Mr. Chairman.
    Thank you for being here today and for your comments. One of my goals is to try to help recapture or regain some of the momentum from the Miami Summit, and to help re-establish America's leadership in Latin America. It's generally agreed that fast track will provide us a big tool. My question to you is, first, how would you use fast track to re-establish that leadership? And, second, what else must we do to try to get back into that ball game as soon as possible? And I would direct it to any of the panelists.
    Mr. PERRY. Well, I would just have to say that, without fast track, it's hopeless. I was at Meloalozonte, and an American President without fast track negotiation—I would have answered the question—of course, he's a diplomat—differently than Davidow. The Chileans won't touch us with a 10-foot pole if we don't have fast track, and they have every reason not to. Those procedures exist for a reason. I used to work in the other body, and you know what would happen to a trade bill if——
    Mr. BRADY. Yes, assuming we can get that in a streamline form——
    Mr. PERRY. From my standpoint, we should have done a deal with Chile 5 years ago. We should do Chile immediately and look for the next available candidate. As I said, there were some things that were left on the cutting room floor that might be reconsidered at some point here. One of them was some attention to the inter-American political and security system, which is pretty deteriorated, and I think it's causing some of the trouble for fast track; that is to say, perhaps your average citizen looks at the situation and says, ''Why should we be joining ourselves economically to these countries who aren't helping us with new age security issues, like drugs and immigration?'' I think we should consider that alternative.
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    Another one was mentioned about energy from one of the Members. It wasn't a question of getting contracts; it was working out some kind of inter-American energy cooperation in which we would help them make sure that they did all the exploration they could, and we would get some kind of guarantee of priority use in case of an emergency, because, after all, the hemisphere is self-sufficient in energy, and the Brazilians, I guess, are the biggest consumers. And if we should have learned anything from the Persian Gulf, it's that some of the countries in that region are suspect over any 10- to 15-year period of time.
    Mr. BRADY. Thank you, Dr. Perry.
    Mr. GAMARRA. I agree with Dr. Perry. I think that the United States has already lost leadership on trade in the region, and it lost a lot of credibility as a result of domestic political constraints in this country. And without fast track, I think President Clinton is going to have virtually nothing to talk about in Santiago next year.
    Mr. BRADY. Thank you.
    Mr. PERRY. And I'd say, worse than that, other things happen. I mean, people that are disappointed, they either start ignoring you, as the Chileans might; the Europeans get busy; local trade areas may have a tendency to become ends in themselves because the United States, after having proposed this thing in the first place and generated a tremendous amount of enthusiasm in Latin America, proceeded to do little with the thing subsequently.
    Mr. BRADY. Thank you, Mr. Chairman.
    Mr. GALLEGLY. Thank you very much, Mr. Brady.
    As you gentlemen are all aware, there is a vote pending, and Congressman Brady and I certainly don't want to miss the vote. But I would like Dr. Perry to try to give me as brief an answer as possible on a question that I think we need to have on the record. As you know, as affluent as Brazil is, there's a good deal of poverty in the nation, and this is especially true in the agricultural sector, where there have been some violent clashes between the peasants and the police. Are there any current indications that left-wing groups are attempting to use this issue as a way to try to challenge the government? Is there a simple answer to that?
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    Mr. PERRY. Yes, but not nearly successfully, so long as democracy is there and the economy continues to recover.
    Mr. GALLEGLY. Dr. Gamarra, would you like to comment on that?
    Mr. GAMARRA. I think so, but—I agree with Dr. Perry—I think it really boils down to the broader issue. Economic reform in Brazil and elsewhere has really attacked the short-term kinds of implications and has put forth a whole series of long-term measures. The problem is that poverty is a very short-term measure, and most of the people in Latin America are really unwilling to wait for these kinds of things. So this should be a major concern, I think, to everybody because poverty rates in Brazil, particularly in the rural areas, are only comparable to some parts of sub-Sahara in Africa. So I think the Brazilian Government has to do something very quickly to address that.
    Mr. GALLEGLY. Dr. Falcoff, Dr. Gamarra, and Dr. Perry, I want to thank you all very much for the time. I apologize again for all of the distractions we've had in getting started late, and there are a lot of other questions I would like to ask, but I can't ask you to hang around until we get back from this series of votes. But, with that in mind, I hope that we'll have a chance to ask you back again and maintain an ongoing dialog even between Subcommittee meetings. Thank you all very much.
    And, with that, the Subcommittee stands adjourned.
    [Whereupon, at 4:16 p.m., the Subcommittee adjourned subject to the call of the Chair.]


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