SPEAKERS       CONTENTS       INSERTS    
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47–149 CC
1998
THE FIFTH SUMMIT OF THE ASIA PACIFIC ECONOMIC COOPERATION FORUM

HEARING

BEFORE THE

SUBCOMMITTEE ON
ASIA AND THE PACIFIC

OF THE

COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

NOVEMBER 6, 1997

Printed for the use of the Committee on International Relations

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COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
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
LINDSEY O. GRAHAM, South Carolina
JOHN McHUGH, New York
ROY BLUNT, Missouri
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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
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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Subcommittee on Asia and the Pacific
DOUG BEREUTER, Nebraska, Chairman
JAMES A. LEACH, Iowa
DANA ROHRABACHER, California
PETER T. KING, New York
JAY KIM, California
MATT SALMON, Arizona
JON FOX, Pennsylvania
JOHN M. McHUGH, New York
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
HOWARD L. BERMAN, California
ENI F.H. FALEOMAVAEGA, American Samoa
ROBERT E. ANDREWS, New Jersey
SHERROD BROWN, Ohio
MATTHEW G. MARTINEZ, California
ALCEE L. HASTINGS, Florida
WALTER H. CAPPS, California
ROBERT WEXLER, Florida
MIKE ENNIS, Subcommittee Staff Director
RICHARD KESSLER, Democratic Professional Staff Member
DAN MARTZ, Counsel
HEIDI L. HENNIG, Staff Associate
C O N T E N T S

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WITNESSES

    The Honorable John S. Wolf, Coordinator for Asia Pacific Economic Cooperation Forum, U.S. Department of State
    Mr. Robert Denham, Chairman, Salomon Incorporated
    The Honorable Bennett Johnston, President, U.S. Pacific Economic Cooperation Council
    Dr. C. Fred Bergsten, Director, Institute for International Economics
APPENDIX
Prepared statements:
The Honorable John S. Wolf
Mr. Robert Denham
The Honorable Bennett Johnston
Dr. C. Fred Bergsten
Additional materials submitted for the record:
Questions submitted to the record by The Honorable Doug Bereuter, a Representative in Congress from Nebraska
Question submitted to the record by The Honorable Sherrod Brown, a Representative in Congress from Ohio
Statement submitted to the record by Mr. Steve Parker, The Asia Foundation
Statement submitted to the record by Mr. Marcus Noland, Institute for International Economics
Statement submitted to the record by Prime Minister Chretien, Panel of Independent Experts
THE FIFTH SUMMIT OF THE ASIA PACIFIC ECONOMIC COOPERATION FORUM

THURSDAY, NOVEMBER 6, 1997
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House of Representatives,
Subcommittee on Asia and the Pacific,
Committee on International Relations,
Washington, DC.

    The Subcommittee met, pursuant to notice, at 1:50 p.m. in room 2172, Rayburn House Office Building, Hon. Doug Bereuter (chairman of the Subcommittee) presiding.
    Mr. BEREUTER. The Subcommittee on Asia and the Pacific will come to order.
    Today's hearing focuses on the Fifth Summit of the Asia Pacific Economic Corporation Forum. We will shortly have a competing hearing in one of the subcommittees of the International Relations Committee on fast track, and today is a hectic day with lots of parliamentary and procedural interruptions. It happens every year during the last week of the session.
    I am very interested in having more information conveyed to the American public, as well as my colleagues, about APEC and its operations. As I said, today's hearing does focus on the Fifth Summit of the Asia Pacific Economic Corporation Forum. I open the hearing with skeptical optimism regarding APEC's future to serve as an agent of economic growth in the region through their reduction of trade and investment barriers.
    Overall, APEC has been a very valuable initiative and multilateral initiative. The Clinton Administration and the President himself have played a very important role in making it a viable and more important organization all the time. In 1994, the APEC Heads of State met in Bogor, Indonesia. There they made the remarkable commitment of free trade and investment among the 18 APEC members by the year 2010 for the industrialized countries and the year 2020 for the rest of the members. The Bogor Declaration implies that after 2020, the U.S. Congress will no longer have to debate extending most-favored-nation status or normal tariff status to China because tariff rates between the two countries will be zero. It holds out the hope that companies that want to establish subsidiaries in any APEC country can focus their attention on the economics of the investment and not on the difficulties and the corruptive practices very often necessary for bureaucratic approval.
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    Positive steps to move the process forward have been made. They were achieved, for example, at the 1996 meeting in the Philippines where most members tabled credible, but nonetheless uneven, individual action plans. Additionally, APEC demonstrated its flexibility as an action-forcing event by launching support for the Information Technology Agreement (the ITA). Nevertheless, there are differences between APEC member countries.
    At the 1995 Osaka APEC meetings some APEC members such as Japan, China, the Republic of Korea and Taiwan, sought to frustrate the implementation of the Bogor commitment by requesting flexibility in the implementation of trade liberalization for sensitive sectors, such as agriculture. At least it seemed like that was their intent.
    Another major challenge is that certain countries have no history of bilaterally negotiating free trade with one another. When such countries reach the point where their concessions go beyond those agreed to under the World Trade Organization or other agreements, they are likely to encounter strong political resistance. Is Japan or the Republic of Korea willing to open its rice markets to free imports from the United States and Thailand by the year 2010? Therefore, APEC's capability to induce its members to commit to such difficult economic agreements will be the true test of its viability as an international trade organization capable of securing economic growth throughout the region.
    There can be no doubt that a breakdown or stalemate in the APEC trade and investment liberalization process would be extremely harmful to U.S. interests. The Clinton Administration strongly supports APEC and has hailed it as being the cornerstone of its economic policy in the region. In order for President Clinton and the U.S. negotiators to safeguard U.S. economic interests and take the lead in trade liberalization efforts at the APEC meeting this month, it is critical that President Clinton be given fast track authority. This measure was supported by a surprisingly wide margin in the Senate, and I encourage my colleagues in the House to do the same.
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    This is not to say that the route toward free trade will not be difficult. It will, as we in the Congress learned well from the bruising battle over NAFTA approval. Problems such as rising trade deficits and the potential of nontariff barriers faced by American exporters are real issues which will need strong action. Still, the vision of free trade is there.
    As one of the most open economies of the world, we stand to benefit the most from further trade and liberalization activities and investment as well. I hope this Administration's stated policy of encouraging bilateral free trade agreements in the region and the President's belated lobbying for fast track legislation do indicate a real desire and commitment by the United States to continue to be a champion for trade liberalization in APEC and other fora. I think it is a legitimate indication.
    One of the issues we will be examining during this afternoon's hearing, among other subjects, is whether or not APEC should create a fund to assist in future economic crises in the region.
    I am pleased to introduce our four witnesses for today's hearings, two panels of witnesses, all with solid backgrounds and knowledge of APEC's past history and future goals.
    On our first panel, we are very delighted to have the Honorable John Wolf, Department of State Coordinator for APEC. Mr. Wolf is a career foreign service officer, confirmed as ambassador to APEC in February 1997.
    The second panel includes an excellent and diverse panel of academic and commercial representatives who are very knowledgeable about APEC. It includes Mr. Robert Denham, CEO of Salomon Incorporated and U.S. representative to the APEC Business Advisory Council; the Honorable Bennett Johnston, currently president of the U.S.-PECC and the former senior Senator from Louisiana, who has a long and demonstrated strong history and knowledgeable interest, in the Asia Pacific region; and Dr. C. Fred Bergsten—I would say Mr. APEC in the United States—that is what I call him—director of the Institute for International Economics and former chairman of the Eminent Persons Group (EPG), of the APEC throughout EPG's existence from 1993 to 1995.
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    We will have plenty of interruptions, I am afraid, after the first hour. I would ask the witnesses if they would limit their remarks to about 5 to 8 minutes, if at all possible, so that we can cope with the House's erratic schedule today. When the Ranking Member or his designee arrives, I will interrupt and permit them to introduce a statement or deliver it orally.
    Welcome to the Subcommittee. I wish we had a full membership here, but what you say will be picked up and heard by a wide audience. I will learn from what you have to say, I am sure, as we all will. Please proceed as you wish.
STATEMENT OF AMBASSADOR JOHN S. WOLF, U.S. COORDINATOR FOR THE ASIA PACIFIC ECONOMIC COOPERATION FORUM

    Ambassador WOLF. Mr. Chairman, thank you for the invitation. Thank you for the support you have given to us on APEC and for the support that you have made so clear on fast track. I will try to do nothing that slows the House down in its progress. A few remarks, though, from my written statement.
    Some would ask, why discuss APEC now? When the hot issues in the region and even globally appear to be finance and currency instability and not economic cooperation, why?
    Why? Because we care about the stability of the Asia Pacific. We care about the millions of Americans who are of Asian and Pacific descent, and because thousands of U.S. companies are involved in the region and because millions of U.S. jobs depend on Asia's well-being.
    In his first term, President Clinton set forth a vision of a Pacific community based on a mutually reinforcing framework of shared strength, shared prosperity and shared commitment to democratic values. APEC is the premier multilateral forum for advancing those policies. Up to this point, APEC's efforts have worked on two sides of the issues, building the marketplaces of the Asia Pacific while at the same time opening those marketplaces. That, incidentally, is why tomorrow's vote on fast track is so important. The vote is about the ability of U.S. firms to compete abroad. It is about America's ability to continue the leadership which we have provided to the global trade and financial system for over 50 years.
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    There are important negotiations ahead in the World Trade Organization, important opportunities to push sectoral liberalization through APEC, and none of these will go forward without that authority. Events of the past few weeks have made clear our economic interests are intertwined with those of Asia. We need the flexibility and the authority to continue our leadership.
    What we must ask ourselves on fast track is, are we going to lead as the rules are made or are we going to sit back and let others, who do not share our interests, make them for us?
    This year, APEC leaders in Vancouver will have to confront today's immediate issues, issues related to how the region's economies can adjust to their recent economic difficulties, pursue necessary reform and get back on the path of strong, sustainable economic growth. We are working on six sets of issues as we go toward that meeting.
    First, we expect that Asia's financial crisis will be at the top of many leaders' agendas. We have been making extraordinary efforts to help the countries of the region address the complex economic issues we are all reading about daily. Our involvement in support of the IMF program for Indonesia is a visible sign of that interest. Finance officials in the APEC region are looking at how APEC can help to promote or to restore financial stability in Asia, but no one should imagine that there will be some silver bullet that comes from the November leaders' meeting. Improvement requires a steadfast commitment to sound policies and demonstrated efforts to adjust.
    Second, APEC is in the process of identifying sectors for early voluntary sectoral liberalization. We want an outcome that is commercially significant and one that helps increase the attractiveness of projects in Asia. Infrastructure-related goods and services, where Americans are the leaders in providing goods and services, fit this specification exactly.
    Third, we want to use APEC to clear the trade underbrush. New air express techniques to speed goods to customers and a mutual recognition agreement in telecommunications to eliminate needless retesting of equipment are two examples of what we are doing and what we need to do more of.
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    APEC is not a traditional trade organization. We do not spend our time in mind-numbing negotiations. Our work is aimed at focused outcomes that increase efficiency and assure more and better jobs, safer workplaces and a cleaner environment. And for this work, APEC cannot depend just on government officials; there must be an active involvement from the private sector. That is why your second panel is so important. Their ideas have been a valuable contribution.
    Much of our work focuses on APEC's economic and technical cooperation. If we get the architecture right, businesses will be able to take advantage of the opportunities and our economies will grow.
    We want to support the President's economic commerce initiative. There it is the private sector that needs to provide the leadership. We believe the government should intervene only minimally to create a stable environment for economic commerce.
    Fifth is an issue right out of today's headlines. It is the environmental issues. These are issues that face us all, on which we all need to act together.
    APEC is about building a community. It is a first step, but it is the soundness of this community and the commitment of its members to work together, to share in the security, the prosperity and the values that the community has to offer. It is this that will keep the economic dynamism of the Asia Pacific region alive and expand it for all the world to share. The Pacific community is real and the United States will continue to be a vital part of it.
    Thank you for having this hearing and giving us an opportunity to discuss the issues that are important to all of us.
    [The prepared statement of Ambassador Wolf appears in the appendix.]
    Mr. BEREUTER. Thank you for your summary, Ambassador.
    I would like to begin by asking you about the proposal that apparently will be under consideration at the Vancouver summit which would create—I don't know if I should use the phrase, but it is typically called a ''bailout fund,'' to offer economic assistance to member countries in the future. It is my understanding that the U.S. position is negative or at least not positive.
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    Australia, I think, has that position. What are the reasons for the U.S. position? How do you think it fits with the IMF? Is the fact that the IMF is available for what appears to be the same purposes a major factor in any decision that has been made, at least tentatively, on the part of our government?
    Ambassador WOLF. Mr. Chairman, I think if you described it as a ''bailout fund,'' there is clearly no question, we oppose. Nor do we think that the IMF is that. We think that whatever financial arrangements are made, it will be important for the International Monetary Fund (IMF) to be at the center.
    There are lots of ideas at play, lots of discussions among the financial authorities in the region. I am not the expert, but I do know that their discussions have focused all through the region on the centrality of an IMF role. The reason for this is very clear. We have learned the lesson, after Mexico, time after time. It is important to assure that even when countries receive funds from outside financial sources, from other countries, for instance, that these resources will be used in support of an adjustment program that supports the necessary measures to restore financial stability, and we believe that the IMF is best positioned to assure a credible adjustment program. Adequate resources are important, but it is sound macroeconomic policies that are a sine qua non. IMF, we believe it is important. It is important for the IMF to have sufficient resources. It is important for it to have flexibility to respond quickly and efficiently. These are a number of the issues that the treasuries are in the process of discussing and which they will discuss at a meeting of financial officials from the APEC region in mid-November.
    Mr. BEREUTER. Who are the primary proponents of the proposal that may be subject to deliberation in Vancouver?
    Ambassador WOLF. Mr. Chairman, as I say, there are a number of different ideas out there. There was an idea that was, I suppose, originally from Japan that was for a freestanding fund that was completely removed from the IMF. Several of the ASEAN countries have indicated that they would be interested in some kind of a facility that would have funds additional to the IMF, but whose disbursement would be dependent on an IMF program.
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    Dr. Bergsten has been very active in terms of proposing a variety of ideas. I think I will leave it to him to discuss his ideas.
    As I say, there are a lot of discussions, there are a lot of ideas. We believe that it is absolutely essential that the IMF be at the center of whatever efforts take place.
    Mr. BEREUTER. Fair enough. Ambassador, there was a proposal to ease visa restrictions on APEC business travelers. What is the position of our government? What is the status of that proposal? Do you expect it will be actively discussed or potentially brought to action in Vancouver?
    Ambassador WOLF. That is a part of the Business Advisory Council's recommendation, and this year they will be proposing three options. One option will have to do with visa-free travel. Another will have to do with the travel card. The third would be for 5-year multiple-entry visas.
    We currently do 10-year multiple-entry visas for most of the countries in the Asia Pacific. Four or five economies are working on the travel card. The visa-free travel idea is not getting real far, but if I might, I believe that what I hear all around the region from American companies, from the Asia Pacific Council of American Chambers of Commerce is that the core issue for them in terms of business mobility is actually the issue of moving people within their companies. When they are established in one country and they want to move people, whether they are Singaporeans or Americans or whatever, to a meeting to do a temporary project or to do a longer stay in a management capacity, the work permit issues are really the big ones; and in our view, we are looking for ways to establish some performance criteria by which countries that want to be attractive can do things that cut costs dramatically by cutting down the time, the number of forms and the fees that are required for that kind of mobility.
    Mr. BEREUTER. Does our government recognize the legitimacy of the concerns that are raised by the business groups about the visa and about facilitating travel?
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    Ambassador WOLF. Yes, sir. We, for instance, are working on this in a variety of ways. We have extended 10-year multiple-entry visas to most of the APEC economies, I think 15 of the other 17. We are working on ways—INS has things like the INS pass program, which is designed to allow frequent travelers to the United States to swipe a card and match a handprint against a registered handprint, and by those means, to improve movement through immigration.
    There is another side of it, as well, which is the whole question of the Customs area, getting the bags on the carousel and getting it out of the Customs area. All of those things are areas where the transportation working group and the group on business mobility are actively engaged.
    Mr. BEREUTER. I don't know if this is the area where we ought to seek action, but it seems to me that it would be good if there were specific, concrete achievements coming out of APEC that relate to business, that are more than important in principle, but something very tangible.
    Ambassador WOLF. I agree with you. We are working with the other economies. I hope they would be as flexible on visas as we are. We think that there are a number of economies where American business and Americans who work abroad provide services for infrastructure, for the building of infrastructure projects, for instance, where we can do things that make it a lot easier for people to get there and enable us to be much more competitive because of that. That is another place where we want to focus on very specific outcomes—shorter times, fewer forms, lower fees.
    Mr. BEREUTER. Moving to a much different plane, important in both cases, you and I both mentioned fast track and its importance. At what point in the APEC process, specifically, do you consider fast track authority to be essential?
    Ambassador WOLF. Tomorrow.
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    Mr. BEREUTER. That is a good general answer.
    When is it that you will come up against the wall and you can no longer make any progress because you lack the authorization from Congress for the President to proceed with negotiations?
    Ambassador WOLF. We are there now, Mr. Chairman. We are in the process of looking at early voluntary sector liberalization. In May, APEC trade ministers asked senior officials to identify, asked economies to identify areas where we could do early, voluntary, sectoral liberalization using the model of the Information Technology Agreement. There were 62 proposals put forward during the summer; they have been consolidated to about 40. We are looking for a commercially significant package.
    But U.S. leadership in this will only be able to lead if other economies look at us and know that we have the authority to carry out the proposals that we are making, so that, for instance, on energy goods and services, on environmental goods and services or on medical goods and services, three areas where the United States is a leading supplier, provider—those are areas that are prime-time attention for this early, voluntary, sectoral liberalization.
    But what is Ambassador Barshefsky to say on the 21st of November when her colleagues say to her, these are good ideas but you are not going to have the authority to move forward on these, why should we agree to this? The same will be true in the WTO, whether it is for ITA–2 or whether it is for the building agenda that is coming.
    There are important negotiations coming on agriculture, on services, on intellectual property rights, and all of those things are discussions that are under way now. The vote you take tomorrow is a vote for whether America will lead and whether we will compete, or whether we will retreat, and so I will stick with tomorrow.
    Mr. BEREUTER. What do you think would be the particular criticisms to which the United States would be subjected in Vancouver by the other member States if, in fact, the Congress is not able, not successful, in an effort to approve fast track and grant the President and his trade negotiators those authorities?
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    Ambassador WOLF. If that happens, we will not be able to knock down the barriers that block Americans from providing goods and services into markets that are currently not as open as they should be. APEC is about building the marketplace and opening the marketplace. They go hand in hand. Our leadership is an imperative part of it. We will not be able to lead.
    For the President, in 1993, he went to Blake Island in the wake of a successful vote on NAFTA and that enabled APEC leaders to give a strong boost to the completion of the Uruguay Round and that was important.
    Last year, it was President Clinton and his hard work, with a number of leaders moving—some of the ones that you mentioned earlier, that moved forward the whole question of an Information Technology Agreement, that reduced to zero by the year 2000 tariffs on a wide range of information technology products. It was the President who had the power, and he had the authority, and he could provide the leadership that made that happen. $500 billion of trade has been liberalized as a result of that. That is the kind of leadership we are talking about.
    After that $500 billion of liberalization in areas where we are the world leaders, we turned our attention to the global telecommunications service talks. Again, another $500 billion of global liberalization. Again, it is American companies that provide the hardware and the services in the international telecommunications field.
    These are the kinds of things we can do when we have the authority and when we can lead. These are the kinds of things that are very hard to do when the people on the other side of the table say, you don't count because you can't deliver.
    Mr. BEREUTER. Thank you for that response. I think it is very important to have that on the record.
    I do want to ask you, what sectors have you designated as being open for negotiations without fast track approval and approval by Congress, since the Administration is using a sectoral free trade agreement as one way of attempting to achieve global free trade? What areas are open despite the importance of fast track authority?
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    Ambassador WOLF. I think we have a few residual pieces of fast track authority in areas like nonferrous metals and oil seeds and, I think, in forest products. These are several of the 40-plus areas that APEC is looking at; but frankly, in the areas that have won the widest support during the course of the summer and fall, areas like the environment, medical goods and services and energy goods and services, we do not have that authority. So that the ones where APEC is moving to some kind of a consensus, we hope—and it still requires a lot of work between now and the leaders' meeting—these are areas where we need the authority.
    I think, in general, it is the whole question of whether we arrive with authority and looking to the next century to set the stage for the next century, or whether we arrive kind of on the last wisps of fuel in our tank. I think we do better to fill up our tank before we start this drive into the next century.
    Mr. BEREUTER. Ambassador Wolf, what consideration has been given, if any, to ensuring that processed food is included as a priority sector for APEC trade liberalization?
    Ambassador WOLF. There is a proposal that has been put out that includes processed food, and we would be delighted to support it.
    Food is hard in APEC. It is one of the sensitive areas for several of the economies. The proposal that was first put forward by Australia has been going through a number of permutations. It still includes processed food, and we have been working closely with Australia on that one. But as I say, we are not going to get all of them this year in APEC.
    We are looking for a commercially significant package, and I am not real good at handicapping the field, but I will tell you that food and some of the primary commodities are the hardest for some of the APEC economies, especially those in northeast Asia. I think the message that came to those economies' officials at the meeting in Singapore that we had 10 days ago was pretty clear. There are some important areas out there in the primary sectors. You are going to have to make a choice; you cannot choose none.
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    Mr. BEREUTER. I do think it is difficult, at times, in the agricultural sectors to make progress, but it seems to me, oftentimes in very specific areas, it is not as difficult to do it on processed food. In some cases, the resistance has no real competitive base in those economies. It is just thought—that is, related to agriculture—that it is too difficult. I do not think that always follows.
    Ambassador WOLF. I think you are precisely right, Mr. Chairman. Some foreign ministries and trade ministries have a wedge theory which is that if you let them put the wedge in at all, the next thing you know, you will have everybody else coming through that door.
    It is true, we are going to push those areas, and even as we push those areas in terms of broad liberalization, the tariff issues, there is work that we are doing in a number of sectors which are sensitive, that have to do with standards and testing and trying to decrease the transaction costs. So food is one area where we are working on phytosanitary standards. The automotive sector is another area where we think that there are things that are maybe too hard to do if you just say liberalization, but are easier to do if you say facilitation. But for us, for American workers and for American businesses, they can make a real dollars-and-cents difference in terms of our competitiveness. So those are specific areas on which we will also work.
    Mr. BEREUTER. The example I always like to bring up is the subject of soup. I bring it up with respect to Taiwan. Taiwan has no soup companies, but you would not know it by looking at their tariff schedule. Taiwanese consume huge amounts of soup. So I bring that up even though the soup companies in my district are not likely to be beneficiaries in a direct sense of those plans. It is an example that I use occasionally.
    Ambassador WOLF. I think they still prefer mother's soup or something.
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    Mr. BEREUTER. Well, some of them do. But they do not always have time over lunch to go home to mother.
    [Laughter.]
    Finally I would ask you, Ambassador, to what extent do you think that there will be special consideration or issues raised that relate to the currency, the stock market problems in Southeast Asia on the one hand, and second, very differently, to what extent do you think that the haze problem in Southeast Asia will be a factor in any of the discussions in Vancouver?
    Ambassador WOLF. I think both of those issues overshadow—no pun intended—but both of those issues are the issues which shape the whole discussion, and they have shaped the discussion for the last several months. They will clearly be major issues at the ministerial and at the leaders' meeting on the financial and currencies volatility. Those are clearly issues to be discussed. At the root of the volatility—and I have several professionals sitting right behind me—I do not want to go too far.
    But our sense is that sound macroeconomic policies and wise use of limited capital is an important prescription for reducing the likelihood of further swings now and future swings. So the discussion that finance officials are having in the APEC area is about how we can do things together to cooperate and coordinate, and how we can reduce, how we can get those sound, wise financial policies and mechanisms in place.
    On the haze issue, this is sort of twofold. One issue is the haze issue in Southeast Asia, and there we are looking at ways in which the United States can build on some of the work that we have been doing with Indonesia over the last few weeks. We have three C–130's and a number of experts in forest fire management in Indonesia. There are things that we are going to look at in terms of weather prediction, institution building to deal with El Nino and vice versa. There are also things that we are going to look at, Canadians are interested in looking at as well, and other countries, in terms of emergency preparedness. That is one set of issues on the environment.
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    The second set of issues will not have an APEC conclusion, I am sure, but there will certainly be a discussion of the question of global climate change. I think what the haze makes clear is that the threats to our environment, the carbon-based gases and whatnot, are not just coming from developed countries. It is a problem that everybody shares in, and it is a solution that everyone must participate in jointly. I am certain that whether in the formal plenaries or at the retreats, and certainly in the bilaterals that we, the Japanese and others will be having very active discussions with the members of APEC on this critical issue for the next century.
    Mr. BEREUTER. Thank you, Ambassador. I would hope that we might have your cooperation in responding to any questions that you might receive in writing from Members of the Subcommittee. I particularly want to extend that to the Minority since they are not able to be here at this point, but to all Members; is that possible?
    Ambassador WOLF. We will be delighted. I hope you recognize that we are just 5 days away from this meeting of 36 ministers, 18 leaders and 1,400 of their closest friends just from the United States. We will do that.
    Mr. BEREUTER. I do not think you can expect to receive any questions from Members within the next 2 days, in any case.
    Ambassador WOLF. Then we will handle it in a very timely way.
    Mr. BEREUTER. Our timing may be mutually agreeable here.
    Ambassador WOLF. Thank you, Mr. Chairman. We would be delighted. You have been a strong supporter of open trade and opening the marketplace. You have been a strong supporter of the efforts that we make, and we thank you for that and for the voice that you take onto the House floor. I can't overstate how important these kinds of issues are.
    I was in Savannah, Georgia, yesterday and I have done a lot of traveling around the United States, both in this job and as ambassador to Malaysia. When I go to American companies and I see American workers on the job because of the things that we are able to do, that comes in large part because we have been able to lead. We provide a credible leadership in trade and finance. Those people are at work and they are on Main Street spending money because of the involvement in the international global economy.
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    Some people can argue about whether it is good or bad to have a global economy. It exists and there is not really any going back. That is why your vote tomorrow is a critical vote. It is a vote that says we are going to go forward and we are going to stay at the front. We thank you for your help on that.
    Mr. BEREUTER. Thank you, Ambassador. I have been intrigued with the view that we see expressed here, the view that people would like to stop the world. They don't like the way the world is headed. ''Stop the world, I want to get off.''
    The alternative of NAFTA was to export even more jobs, and in fact, we eliminated some of the incentives for moving American jobs to Mexico by the passage of NAFTA. But not everybody looks at it that way. They simply did not like the direction, so they strike out and vote no without any real rational basis for that kind of decision.
    Ambassador WOLF. I think Charlene Barshefsky made an interesting statement when she said that 80 percent of the job losses that have taken place in the American economy have been job losses due to productivity gain and technology. They are not due to trade.
    These things are going to happen. That is why we have a sound economy. That is why we have lower unemployment and low inflation and that is one of the things that helped us get almost to a balanced budget.
    Mr. BEREUTER. Thank you very much, Ambassador Wolf.
    I will now call the second panel. I have introduced the members of the panel with a short biographical statement. Apparently Senator Johnston is not here yet.
    I would like, first, to call upon Mr. Robert Denham, chairman of Salomon Inc., member of the APEC Business Advisory Council. Thank you very much for your effort to come here, for the testimony you are about to deliver and for your responses to questions later. Your entire statement will be made a part of the record. You may proceed as you wish.
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STATEMENT OF ROBERT DENHAM, CHAIRMAN, SALOMON INC., AND MEMBER, APEC BUSINESS ADVISORY COUNCIL

    Mr. DENHAM. Thank you, Mr. Chairman. I very much appreciate the opportunity to discuss with you the issues that will be raised, the recommendations that will be made at the Fifth Summit of the Asia Pacific Economic Cooperation Forum in Vancouver later this month.
    APEC plays an important role in furthering trade and investment among the countries in the Asia Pacific region. In the present circumstances of market turmoil, APEC can encourage greater stability through policy coordination, through restoration of investment flows.
    In 1996, I was appointed by President Clinton to the APEC Business Advisory Council, ABAC. ABAC is composed of senior business leaders from each of the 18 Asia Pacific economies reporting to the economic leaders. Like most of the business leaders participating in ABAC, my company, Salomon, benefits greatly from economic liberalization and enhanced trade as new opportunities are created for us and for our clients.
    The APEC economic ministers asked for the creation of ABAC to advise and make recommendations to the leaders regarding challenges facing them. ABAC members have supported the adoption of policies which would advance freer and more stable flows of capital, facilitate private sector participation in infrastructure development and promote the development of financial and capital markets. The goals of ABAC are also the goals of U.S. workers, businesses and consumers: to enhance economic growth by creating broader and more efficient markets for goods, services and capital. The U.S. ABAC representatives have the additional goal of ensuring that U.S. companies and U.S. workers obtain maximum benefit from the rapid growth of APEC markets.
    Last year, ABAC made recommendations to the APEC leaders in Manila. These recommendations addressed barriers to foreign direct investment, the financing of infrastructure projects, and recommended specific measures to increase the pace of trade liberalization and enhance business mobility. Our recommendations this year are meant to advance last year's program while improving upon and sharpening the focus.
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    I will give a few highlights of this year's ABAC report. The first is our assessment of the Manila Action Plan for APEC, or MAPA, which the 18 governments released last year in November, and our suggestions for improving action plans in the future. The second area contains our recommendations to the economic leaders in the areas of cross-border flows, financial and investment issues and economic and technical cooperation.
    Regarding ABAC's assessment of the Manila Action Plan, ABAC is well aware that APEC plans continuously to update and improve its action plans in the coming years. We welcome this intention, and in assessing MAPA our primary goal has been offering recommendations for improving future action plans. These action plans constitute the essential link between APEC's grand vision of trade liberalization and the implementation by individual members that so crucially affects business.
    From a business perspective, we found that the individual action plans compiled in MAPA are quite vague, generally nontransparent, lacking in specifics about the actions that member economies plan to take to reach the goal of free trade and investment by 2010 or 2020. APEC members need to be more specific about tariff and nontariff barriers. The action plans fail to offer additional commitments with regard to tariff and nontariff barriers beyond what members have already promised in the WTO or other multilateral organizations.
    With respect to services, ABAC is encouraging APEC to take a leading role in bringing the WTO financial services talks to a successful conclusion this year and, in the medium term, take a comprehensive approach to removing impediments across the full range of service industries. In the critical area of foreign direct investment ABAC found little in MAPA by way of specific commitments to remove barriers.
    In general, while APEC in the MAPA process produced fine-sounding principles or descriptions of best practices, these nonbinding collective principles are not being translated into concrete action by individual members.
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    In terms of our recommendations to leaders this year, ABAC will recommend that the leaders endorse the adoption of steps that will help capital markets facilitate economic growth. Specifically, we have put forth recommendations addressing currency instability, promoting regulation and transparency in financial markets, establishing modern clearance and settlement systems, developing understandable and harmonized accounting standards, broadening the local investor base and liberalizing foreign access. We urge the economic leaders to endorse public-private sector cooperation to facilitate development of markets for asset-backed securities in the region.
    Additionally, in the area of cross-border flows, our report offers specific proposals to facilitate business travel, improve enforcement of intellectual property rights, harmonize standards for business-related professional services and establish more open and competitive government procurement systems. These recommendations are aimed at reducing the cost of cross-border business in the APEC region.
    The report also expresses support for APEC efforts to identify sectors for early voluntary liberalization. Some examples of sectors where ABAC believes early action might occur include chemicals, environmental projects and services, food, oil seeds, pharmaceuticals, pulp and wood products, toys, automotive and other transport products. In the area of finance, investment and infrastructure, our recommendations are aimed at promoting more private investment in infrastructure, at developing the region's capital markets, and at easing financing for small- and medium-sized companies and developing tax treaties to eliminate double taxation of firms that operate in more than one APEC economy.
    The region's critical infrastructure needs can only be met if we enhance private investment in large-scale infrastructure projects in the region. For APEC to respond effectively to this need, we recommend a sectoral approach to investment liberalization for infrastructure through an infrastructure investment initiative. This initiative applies enhanced investment protection on a sectoral basis to infrastructure projects. It builds on our APEC voluntary investment project, known as AVIP, which calls for APEC to encourage a strong system of investment protection measures on a project-by-project basis. Under this initiative, APEC economies would be encouraged to apply a strong regime of investment protection measures to the infrastructure sector generally in order to attract more private investment.
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    Recent market instability is a very serious issue that is of high concern to ABAC members. Business needs a predictable macroeconomic environment, including stable foreign exchange markets. Relatively free flowing international capital has been a key ingredient in the region's economic success. Such openness, however, places an extra premium on sound macroeconomic management by economies. ABAC hopes that APEC economies will cooperate on this issue, which should include developing transparent and timely national economic statistics to provide early warning of macroeconomic imbalances. It should also include collective review of members' macroeconomic policies, should include developing and enforcing rules against market manipulation, and developing and administering appropriate adjustment funds in cooperation with the IMF and, finally, and importantly, should include continuing financial sector liberalization.
    For the United States to continue to play a leadership role in groupings such as APEC, it is essential that we get a renewal of fast track trade negotiating authority. Trade liberalization and a stable investment environment benefits U.S. workers and U.S. businesses and creates markets for U.S. exports. Through new trade negotiations, the United States will continue to lead the APEC economies toward further trade liberalizing policies, with the elimination of some of the same trade and financial access barriers that are being discussed today. Without fast track authority, U.S. leadership on trade and a broad range of other important national economic issues would be impossible.
    I think it is important to recognize that the vote on fast track is being taken at a time of substantial turmoil in the world's financial markets. As one observes financial markets over a long period of time, one of the conclusions you come to is that financial markets are influenced powerfully by changes in direction in economic policy. If fast track were to be denied, I think this would be viewed as a significant change in the direction of U.S. economic policy in the postwar period. The consequences of that to financial markets in the long run and perhaps even the short run might be serious.
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    As a member of ABAC, I look forward to the opportunity to exchange views with the APEC leaders in Vancouver just as I have appreciated this opportunity to present my views to your Subcommittee. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Denham appears in the appendix.]
    Mr. BEREUTER. Mr. Denham, thank you very much.
    Your testimony deserves very careful scrutiny. I do hope that you have the attention of the APEC meeting when you make these recommendations on the capital market, its role in facilitating economic growth and suggested changes you have on the elements of the macroeconomic policy that affect the environment there. You certainly should have, in light of what has happened lately.
    Senator Johnston, welcome. Glad to see you here. Nice to have you back in the halls of the Congress. I introduced you previously as having long demonstrated a strong and very knowledgeable interest in the Asia Pacific region and in trade generally. That is absolutely true. We appreciate very much your contribution and the fact that you have taken time to be with us today.
    I am faced with a vote and, before we begin, in order that your presentation and that of Fred Bergsten is not interrupted, I would like to take a 10-minute recess. I think I can complete the vote and be back with you. The Subcommittee will be in recess for 10 minutes.
    [Recess.]
    Mr. BEREUTER. The Subcommittee will come to order. Our next witness is The Honorable Bennett Johnston. Senator, you may proceed as you wish.
STATEMENT OF THE HONORABLE J. BENNETT JOHNSTON, FORMER MEMBER OF UNITED STATES SENATE FROM THE STATE OF LOUISIANA, PRESIDENT, U.S.-PECC, PACIFIC ECONOMIC COOPERATION COUNCIL
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    Senator JOHNSTON. Thank you very much, Mr. Chairman. This is my first trip back up here since I retired in January. It is nice to be back. I am testifying on behalf of Pacific Economic Cooperation Council (PECC). I am president of what we call U.S.-PECC. I have a formal written statement, Mr. Chairman, but I would like to proceed in a briefer style if I may.
    Mr. BEREUTER. That is certainly appropriate. Your entire statement will be made a part of the record.
    Senator JOHNSTON. Mr. Chairman, there has been a tremendous evolution about our collective thinking about Asia. We used to think of Asia as being just lots of people, lots of poverty and lots of problems. Now we think of it as huge prosperity and opportunity, but still problems. This year, of course, has been very extraordinary and historic: Hong Kong, new security relationship with Japan, famine in Korea, and of course more recently the terrible financial crises in Southeast Asia, the full extent of which we do not know yet. What we do realize is how deeply and directly Asia affects America, its future and its security as well as its economy.
    In 1980, the Prime Ministers of Australia and Japan recognized that there was a need for a forum to which members of the Pacific community could go for common discussions and to deal with problems. They called a conference which was attended by 12 countries and set up PECC. It was founded as a tripartite group, business, government as well as academics. For the first few years, they conducted research, educated the members, and advocated the need for a group like APEC. By 1989, the first APEC conference was called. It was meant to be a one of a kind but it now has a permanent charter, if not a permanent standing in the laws of the various countries.
    APEC is the only forum for the common discussion of economic policy debates and initiatives in Asia. It is vitally important. As you know, there are APEC summit meetings as well as ministerial meetings attended by our Secretary of State, our Trade Representative and Secretary of Commerce.
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    The method of APEC, and I know I am being very fundamental, is rather difficult to assess in some people's eyes in that it relies on individual commitments as opposed to treaties. It is a very delicate process to have all of these countries jointly declare their individual commitments to various trade and economic policies as opposed to having a binding agreement. Sometimes the commitments are in very broad terms, as the Bogor, Indonesia commitment to open economies in Asia by the year 2010.
    PECC plays a very important role, not only in initially setting it up but also being its advocate. PECC identifies, researches and tees up the issues for APEC. One of the biggest projects we have done at the behest of APEC is a survey of the impediments to trade and investment in the whole region. Additional work has now been agreed to and will be undertaken by PECC. Another example is telecommunications, where we are dealing with removing impediments to trade, seeking common standards, terminal testing, certification, et cetera. As you can imagine, in international trade and telecommunications, it is vitally important that our equipment match, that we know what the fields of competition are and how we define our common standards and how we remove the impediments for American businesses to get into not only telecommunications but other areas.
    We are dealing with items like intellectual property, which is a huge area of concern to American companies, legal liability, rule of law, content issues, et cetera. We are organized into 10 working groups, telecommunications, energy, finance, transport, fisheries, human resources, minerals, trade policy, food and agriculture, and an economic forecasting group led by Professor Lawrence Krause.
    PECC research narrows the areas for negotiation. We identify issues for APEC and help solve them. As such, PECC is the only business and government network for research that exists in all APEC economies. There are about 100 council members in the United States. Internationally, PECC is virtually all volunteers, with some officers principally paid by their respective governments. Many of the researchers are from academe and receive only travel expenses.
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    I talk about this because, frankly, we need your help. Each year, the United States is supposed to pay $72,000 to fund the Secretariat in Singapore and assist some travel by scholars. The vast bulk of what we do is funded by business and by individual volunteers. I am embarrassed to tell you, Mr. Chairman, that the United States is in arrears to this organization to the tune of about $320,000, a drop in the bucket, not even enough to talk about in the great halls of Congress. But as president of U.S.-PECC, I attend these meetings and they believe I am going to come in and say, well, of course, we have solved the problem. At a recent meeting down in Santiago, I arrived a few minutes late and Adlai Stevenson, our former U.S.-PECC president, filled in for me. They had asked him about the funding and he said, do not worry, Senator Johnston will be here to talk about how he has solved this problem.
    Mr. BEREUTER. It is nice to be put on the spot. Congressman Richardson, now our ambassador, has the same problem in the United Nations. It is a little larger scale.
    Senator JOHNSTON. I know. But he has got some people's attention. We do not yet. So we need your help to make some people aware. Also the State Department feels that it would come out of its budget and so there is that concern.
    Let me reiterate what the first speaker, Mr. Denham, said about fast track. We are predictably and very strongly for fast track. It is essential for the whole Asia Pacific region if we are to keep our influence and our credibility. We strongly support that.
    Thank you very much for the opportunity to be here and for what I know will be your strong support of U.S.-PECC.
    [The prepared statement of Senator Johnston appears in the appendix.]
    Mr. BEREUTER. Thank you very much, Senator Johnston.
    Now we will hear our third witness on the second panel, Dr. C. Fred Bergsten, director of the Institute for International Economics. I think this may be your third appearance before the Subcommittee since I have had a chance to chair it. Welcome back and thank you for your time and your efforts. We look forward to your testimony. Your entire statement will be part of the record. You may proceed.
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STATEMENT OF DR. C. FRED BERGSTEN, DIRECTOR, INSTITUTE FOR INTERNATIONAL ECONOMICS

    Dr. BERGSTEN. Mr. Chairman, thank you very much. It is a particular pleasure to be here this time, because, as you well know, my institute released a book just last month called Wither APEC? The Progress to Date and Agenda for the Future. I mention that because it has an extremely cogent and persuasive chapter written by the chairman of this Committee, Congressman Bereuter.
    Mr. BEREUTER. Nice of you to mention that.
    Dr. BERGSTEN. It is a very important part of our effort. I appreciated your involvement in our major conference on that topic last spring.
    Looking to the upcoming APEC summit in Vancouver, trade issues have, of course, been and remain central to the APEC process. APEC, at its Bogor summit in 1994, enunciated the goal of achieving free trade and investment in the region by 2010 and 2020. If achieved, this will be the biggest trade agreement in history; countries that account for half the world's economy will have eliminated all of their barriers. The chosen instrument for liberalization now is sectoral agreements. APEC pushed the Information Technology Agreement through the WTO a year ago. There is still good reason to hope that APEC economies will be able to reach an agreement on financial services liberalization in Vancouver this year, which would in turn galvanize a WTO agreement on that sector in December.
    Now, APEC is about to agree on a number of additional sectors—maybe four, five, or six additional sectors—for serious efforts to liberalize over the course of the next year. As Ambassador Wolf said, that agenda can proceed, and the United States can lead it, only with the passage of fast track. So I would add my voice to yours and to that of the other witnesses today in suggesting that the fast-track vote tomorrow is absolutely crucial for the future of APEC and U.S. market opportunities in the Asia Pacific region as well as many other regions.
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    I would furthermore underline what Mr. Denham said. If this House were to explicitly turn down fast track tomorrow, I believe there would be a devastating impact on the financial markets. The world economy has proceeded for 30 years on the assumption of international economic cooperation and active U.S. leadership in that process. A rejection of fast track would shatter that assumption.
    I have tracked these relationships over the years. Whenever the Congress has taken even small steps toward restricting our markets or backing away from international cooperation, the dollar has dropped sharply in the exchange markets. That was even in calm times. In today's very nervous and fragile market conditions, I would have no hesitance in predicting that if you explicitly reject this on Friday, next Monday will be a very black Monday, and there will be a devastating effect not only on our financial markets but on financial markets around the world, because one of the critical assumptions of the whole basis for world economic progress would be thrown into question. So, that consideration must be in Members' minds when you vote tomorrow.
    Mr. BEREUTER. Dr. Bergsten, that is a very sobering prediction. If in fact we take that action, I hope that everybody will note that and give it a special emphasis today, tomorrow in the media. You know we already rejected a Caribbean Basin initiative reform bill in the House unfortunately this week. So that would be a much harsher blow. Thank you, you may proceed. I am sorry to interrupt you.
    Dr. BERGSTEN. Let me turn to the focus of my statement, which closely relates to these same market issues. In addition to the trade topics at Vancouver, I believe that the APEC summit should launch new arrangements to support and reinforce IMF in helping to prevent and respond to future monetary crises in the region. Indeed, I believe that Vancouver should be ''the finance summit'', which would add a major new dimension to APEC's agenda for dealing with Asia Pacific problems. There is a clear need for additional monetary arrangements. I believe a consensus is evolving to put such arrangements in place.
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    As Ambassador Wolf said, the Deputy Finance Ministers of the APEC countries, including the Deputy Secretary of our own Treasury, will be meeting to discuss these issues at Manila on November 18 and 19, trying to put concrete plans together. There is a consensus on a need for new arrangements, but as far as I can tell, there is no consensus at all at this point on where and how to do it. I would submit, Mr. Chairman, that APEC is the logical institutional home for the new Asian Monetary Fund that has been discussed so widely since the onset of the current financial problems in Southeast Asia.
    Incidentally, the ideas that I put before you today are not only my own; they are supported by an independent panel of experts, a group that has been meeting regularly over the last several years to try to offer independent expert advice to the APEC governments on what policies they might pursue. I attach to my statement our latest report, which addresses these issues in some detail. I might add that the ideas I mention today strike me as being fully consistent with, though more detailed than, the suggestions from the APEC Business Advisory Council (ABAC) that Mr. Denham enunciated a few moments ago.     Ambassador Wolf is right; there is no silver bullet that APEC is going to adopt in Vancouver that will resolve the current monetary crisis or solve all our problems. The primary goal of what I recommend for APEC would be to prevent future crises, not serve as a bailout fund.
    After the Mexican financial crisis in early 1995, there were extensive efforts to improve the early warning system. But the system failed again in Thailand, and one might add Indonesia. Moreover, the contagion to neighboring countries is far worse on this occasion than it was in Latin America in 1995.
    I hasten to add that the IMF, as I see it, did its job in foreseeing and warning of the impending problem. The systemic difficulty was that Thailand rejected the advice, and no one pressed it to act. The IMF on its own demonstrably cannot get countries to adjust preemptively. The best prospect, in my view, is to get the neighboring countries to intervene or press for preventative action because they are so likely to be hurt themselves by the fallout from a crisis.
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    In the Asia Pacific region, I think APEC can provide the institutional locus for such efforts. It has already been developing an extensive process of peer pressure, or friendly persuasion, through which individual members encourage others to act responsibly and in the interest of the broadest group as well as in their own interest. APEC is using this approach to pursue its Bogor target of free trade in the region. The most dramatic success came at last year's Subic summit, when peer pressure did persuade a number of members to eliminate their tariffs on a wide range of high tech products, enabling APEC to galvanize the ITA on $500 billion worth of trade. I am sure, Mr. Chairman, that you have talked to President Clinton about this. He felt that APEC was enormously successful last year, because its process did convert the views of a number of countries, indicating that peer pressure can work.
    In the monetary area, the APEC finance ministers have been meeting regularly since the Seattle summit. Their deputies have convened even more often and are doing so in Manila in 2 weeks. They have already discussed the currency and related issues in depth. I believe they should begin systematically assessing national economic outlooks, pressing members to adopt good advice from the IMF and elsewhere that would head off future crises and thereby avoid new disruption in the region.
    In addition, though they could simply create this new surveillance mechanism, I think APEC should also create a standby funding arrangement to support future IMF programs in the region. The current cases are only the latest reminders that such crises inevitably occur from time to time and that international rescue packages will be required in the future as in the past. It is also clear that IMF lending by itself will never be adequate. The IMF has plenty of money. That is not the problem. The problem is that IMF credits to any individual country are limited by that country's quota in the IMF. Even when the IMF gives generous multiples of quotas—700 percent to Mexico, 500 percent to Thailand—it is still only a small part of the total package that is needed to reassure markets and get the country to take the corrective action.
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    Widespread support has therefore developed for a so-called Asian Monetary Fund to supplement the IMF. Japan proposed an Asia-only fund, but, for alot of reasons, it has been rejected, including by the proposed beneficiaries. China, incidentally, is totally opposed to it. ASEAN is obviously too small a group to create such a fund on its own.
    So I conclude that APEC is the logical institutional venue. It includes all the Asian countries that might need help. It includes all the potential creditors, including the United States and Canada as well as Japan, Singapore, Hong Kong, China, Taiwan, and Brunei. Its Latin American members would be helpful, Mexico with its crisis and dramatic recovery experience and Chile as a healthy role model.
    The main criticism of this proposal is that any standing fund would create a so-called moral hazard, raising the risk of profligate policies and unsound investments that would bring on a crisis rather than head it off. There is a decisive answer to that concern, which is simply to tie any APEC arrangements inextricably to IMF programs. No country is going to put itself through the ringer of a monetary crisis and subject itself to the tender mercies of the IMF simply because some rescue funds are available, nor would private investors keep coming when there are countless alternative opportunities around the world if the IMF requires them to share the cost of adjustment programs, as it must.
    Since we are going to have programs of this type from time to time, the alternative to a standby arrangement is simply ad hoc bailouts, as cobbled together by the United States for Mexico and Japan for Thailand. Their outcome is always highly uncertain, as when the Congress almost blocked the Mexican package. Their magnitude, how donors share obligations, and speed of delivery are purely fortuitous. Prepared standby funding is far superior.
    Therefore, in conclusion, Mr. Chairman, I believe that the APEC summit at Vancouver has an enormous opportunity. It can and should launch new preventive and funding arrangements to deal with future monetary crises in this region.
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    In 1993, APEC decided to create a community of Asia Pacific economies. The community now requires better mechanisms to avoid and handle future crises. In 1994, APEC decided to achieve free trade in the region. It now needs comparably bold initiatives on the financial side. In 1996, APEC effectively applied peer pressure to achieve the Information Technology Agreement. It now needs to use similar techniques to head off monetary disruptions.
    Vancouver can be ''the finance summit'' that will add to this chain of dramatic successes and further mark APEC as the outstanding international institutional innovation of the post-cold war era.
    Thank you very much.
    [The prepared statement of Dr. Bergsten appears in the appendix.]
    Mr. BEREUTER. Thank you very much, Dr. Bergsten, for your stimulating presentation.
    I would like to begin with nearly the last point that Dr. Bergsten brought up—that is, his proposal to create a standby funding arrangement to support further IMF programs in the area. This has not, of course, been on the previous U.S. agenda—perhaps unprecedented. You have heard, I think completely, the materials that he has in his formal presentation, his arguments for it and the tie to the IMF programs. I would like the other two witnesses, if they have any comments, to comment upon it. Would you like to be first?
    Mr. DENHAM. Mr. Chairman, I think that there are many interesting aspects of Dr. Bergsten's proposal. It is worthy of serious attention. In my mind one of the most important issues is the relationship of any such fund to the IMF because I think it is very important that the IMF have primacy and centrality to the process of working out the adjustment programs. The IMF has demonstrated the ability to work out adjustment programs, develop adjustment programs, the ability to work with countries to get countries to go along with its programs and the will to stick with those programs. That last point is important, having the will to stick with the insistence on tough medicine.
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    I think there is a danger that an Asian fund, certainly if it got decoupled from the IMF process, would not have that necessary will. It is a little like if I get behind on my car payments, the bank is not going to put my brother-in-law in charge of my finances, and we do not want to have that sort of process existing as an Asian currency fund. I am sure that is not at all what Dr. Bergsten has in mind. But I do think the question of centrality of the IMF is critical.
    I also welcome Dr. Bergsten's emphasis on the prevention of future crises, and his point about the situation in Thailand is important. This was identified by the IMF. It was identified by a number of people. But it was not possible to get the necessary attention by the Thai government.
    I think there is a very important role for APEC to play, the APEC finance ministers to play, in talking with each other to focus the attention of countries that are developing imbalances in their macroeconomic conditions, get another country to focus on the problem that they are heading toward. I think that that is something we should be encouraging APEC to do.
    Senator JOHNSTON. Mr. Chairman, there is, as you know, a great competition for the hearts and minds of people in Asia as to first assigning fault for what the present problems are and, second, prescribing the medicine. On the one hand, Prime Minister Mahathir, who spoke at our PECC conference down in Santiago, would assign that fault to Western speculators and Westerners who want to take advantage of these emerging companies. He states that basically nothing is wrong, nothing needs correcting other than to deal with controlling the outside speculators.
    My own belief is that in each of these countries, Indonesia, Thailand, all of them that have problems, most of which have bubbled to the surface and some of which perhaps have yet to appear, all have been caused by identifiable and clear problems which were preventable. We cannot repeal altogether the economic cycle anywhere, particularly not in Southeast Asia. The solutions involve the countries doing things that they do not want to do. I could go right down the list. In Indonesia some of these things were just announced. They closed some of the banks, and that is causing a great debate. The national car company may be moved. The same set of tough medicines are proposed elsewhere and may or may not be carried out.
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    Now, the question is not whether they need help and the terms of a fund. I think that there needs to be a fund. The question is how well can we fashion a delivery mechanism that makes them accept the discipline.
    My own view is that the IMF, in coordination with APEC or APEC in coordination with IMF, as Fred Bergsten says, can be made to be a very effective instrument. The Asian way seems to be to do things by consensus and the APEC way is to do things by consensus. IMF, on the other hand, tends to be authoritarian. They issue the orders and you have to agree with them.
    So I think a proper melding of the two, where you have the appearance of consensus through APEC but the delivery mechanism through the IMF that enforces these disciplines is the way to do it. That is only stating things in a very broad way. The difficulty comes in the details. I personally, and I am speaking now personally because PECC has not taken a position on this, believe that the Vancouver summit offers a very good place to begin discussions as to how we fashion a mechanism to deliver help but also deliver the discipline.
    Mr. BEREUTER. Thank you, Senator. Thank you, Mr. Denham.
    Dr. Bergsten, I am going to ask you to comment in a minute on the recommendations in the Denham paper, which are not his own but which are from the organization he represents: on page 4, his recommendations about the ways to help capital market facilitate economic growth and then the elements to give a more predictable macroeconomic environment on page 5. If you could just scan those briefly. I will shift to Senator Johnston in the meantime.
    Senator, if we looked at what Congress can do better to advance the important priorities and objectives of APEC—which generally I think we understand and certainly will benefit the United States, as most of us see it—one of the immediate issues is fast track. We have had some discussion about that. I agree with the importance of doing that. Beyond that, certainly, there is an educational function that we have. I have been trying in a small way to do that. I recall a couple years ago when I would mention APEC in the elevator or something like that, just dropping that name there in the midst of a conversation, and people would confuse it with OPIC and AIPAC, and, ''What is this APEC?'' So that is one of the reasons why we have had at least 3, maybe 4 years in the last several years. That is an education function we have to pursue. What else can you think of now, looking back, not from a very long distance? What in the Senate, what in the House could we do to advance the objectives of APEC and trade liberalization that we pursue through that organization?
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    Senator JOHNSTON. Mr. Chairman, I think you have identified the problems. The problem is that in the Congress so few people know anything about Asia. They don't know what APEC is, they certainly don't know what U.S.-PECC is, and they don't know what these problems are. Too many Members of Congress react to pressure groups, whether or not they be for great goals. They tend to look at a trade problem as if it is a problem of one-dimensional human rights or one-dimensional religious liberty or native rights or the environment without understanding the complexities of these emerging economies. And they are very, very complex. The history, the development of each of these countries in Southeast Asia is very complicated. It cannot be simplified. We cannot control it by reacting in an emotional way to the pressure groups.
    I say that because these actions are proliferating. I think there are some 70 different sanctions that our government has taken against countries, and I do not know of any of them that have really worked. Some have been counterproductive. They take the place of real policy. This is not to say that these issues, from the environment to human rights and all the rest, do not have a very great place and an important place, but we need to react with knowledge rather than just visceral responses to the pressure of groups. For that reason, one of the most important things that can be done is to get Members to go to Asia. I went to Indonesia, I think it was about 4 years ago. It was the first visit by any Member of Congress in a year and a half. It is a long way over there. But people need to understand about this huge country, the largest Moslem country in the world, with over 200 million people. This applies to all Asia. It is far away, but it is very important to everything we do in this country.
    Mr. BEREUTER. Thank you. Do you know there is a Trans-Atlantic Business Council where you have legislators and now business people from both sides of the Atlantic involved in a more routine process? I wonder, is there anything that lends itself to a greater flow of information between APEC and the United States? Does PECC? Do you have some way of getting more information about what you do and are trying to accomplish to Members of Congress as well as to the executive branch? I think you are sending your information automatically to the executive branch or trying to get this to the Heads of State and the ministers that make the decisions; your recommendations surely will come to their attention as well as your foreign counterparts. Is there some way that you could contribute to a better understanding up here of what your objectives are? For example, if there is merit in some idea related to facilitating travel of businessmen in the APEC region by reducing visa requirements, is that something that you are having any success in advancing here as an idea?
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    Mr. DENHAM. I think the suggestion implicit in what you are saying, that we need to as the U.S. representatives to ABAC do a better job of communicating to Congress, is a very good suggestion and one that I have received and will make sure that we start doing a better job of that. I think there are a number of things, such as you just pointed out, on removing impediments to business travel that are extremely important to American businesses operating in Asia.
    Interestingly enough, I think they are most important to small- and medium-size enterprises. A large company like mine has a lot of ways frequently to deal with issues of needing to move employees around. We have got a lot of alternatives. If one employee has a visa problem from the United States, maybe we can send someone from Japan or someone from Australia, a nation with a different passport. She is not going to have the same visa problem. But a small- or medium-size enterprise does not have that kind of flexibility. That is a really biting issue for them.
    I think that kind of issue would resonate with many people in Congress. We need to get those kinds of recommendations in front of them.
    Mr. BEREUTER. This Trans-Atlantic Business Council—I am not forgetting what ocean we are talking about here—this dialog that has been taking place now embraced by the president of EU and President Clinton recently... Do you think there is any kind of potential parallel for the Asia Pacific region?
    Mr. DENHAM. I think there may be. Of course there are groups like PECC and ABAC that provide a forum for business to communicate, but does not include the same kind of legislative involvement.
    Mr. BEREUTER. We do not sit down with meetings where you explain why this is important as we are now trying to do with respect to the European Parliament Members and Members of Congress, with businessmen from Europe and America.
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    Mr. DENHAM. I think it could be very valuable to develop a forum for legislative involvement by legislators throughout the APEC region with businesses to talk about the kinds of things that come out of PECC and ABAC studies.
    Senator JOHNSTON. Mr. Chairman, I think you are really onto something. One of the problems, however, is that so many of the countries in Asia do not have the traditional kinds of parliament with the same power as they do in Europe. So perhaps we should identify in those countries ministers at a comparable level of power just so that the government leaders, whoever they may be, would come and visit with us. I think it would be very, very helpful.
    Mr. BEREUTER. That is a point well taken.
    I know Mr. Denham has to leave. I want to have as a last element here, while all three of you are together, anything Dr. Bergsten would like to say about the suggestions of ABAC that I particularly identified for you. Would you like to make any comments?
    Dr. BERGSTEN. Very quickly, I strongly support the ABAC proposals as Mr. Denham put them forward today. I think, particularly, that the changes to further strengthen the financial markets and to provide a stronger basis for financing the infrastructure needs of the region, which are huge, are terribly important. I very much like his stress on the sectoral approach, including within the infrastructure context.
    I think ABAC has come up with a very creative idea, the so-called APEC Voluntary Investment Projects (AVIP). I always felt that if you could get APEC countries to instill investment protection on a case-by-case basis like that, it would then multiply like wildfire for competitive reasons. Once a given country does it for a given sector, then other countries will have to emulate. Once you get it implanted, it will spread and multiply. I think it is a very creative idea, and I strongly support it.
    I also support his points on the macroeconomic environment. That is what I had in mind when I suggested that my proposals were consistent with those of the ABAC. In ticking off the ABAC proposals, he talked about a collective review of members' macroeconomic policies. That is what I had in mind with this new facility, to try to prevent crises and provide appropriate adjustment funds in cooperation with the IMF. I think these are very creative and very positive ideas.
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    I very much welcome both Mr. Denham's and Senator Johnston's support for my proposals. I would also like to echo their comment that you are really onto something with your idea of parliamentary exchanges. I have been involved in that on the Atlantic side. I think it would be very helpful on the Pacific side, partly to have routine involvement by our own Congressmen, which I know is one of your purposes. Also, to pick up on Senator Johnston's points, it is true that the other countries do not all have a parliament like we do, but maybe we could encourage them to move at least a bit in our direction by engaging them on a regular basis with our own parliamentarians. I think there would be a lot of benefits. I hope we will pursue this idea.
    Mr. BEREUTER. Thank you very much.
    There is this infant organization that has been evolving over there. Senator Roth has been heavily involved in it, among other of our Senate colleagues, I think.
    Gentlemen, I want to thank you very much for your contributions here today. The interaction among you, I think, has been particularly helpful—to this Member at least. I very much appreciate your time. I know all of you are very busy. Dr. Bergsten, I think you, in particular, have a lot of people in the city right now that you are trying to host.
    I will look forward to watching the Vancouver summit with even more interest than usual and would like to see how it really works sometime.
    Thank you very much. I appreciate your coming.
    This Subcommittee hearing is adjourned.
    [Whereupon, at 3:35 p.m., the Subcommittee was adjourned.]

A P P E N D I X

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