SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC
48–003 CC
1998
NEW TRANSATLANTIC AGENDA
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
JULY 23, 1997
Serial 105–20
Page 2 PREV PAGE TOP OF DOC
Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
NANCY L. JOHNSON, Connecticut
JIM BUNNING, Kentucky
AMO HOUGHTON, New York
WALLY HERGER, California
JIM McCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
Page 3 PREV PAGE TOP OF DOC
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
BARBARA B. KENNELLY, Connecticut
WILLIAM J. COYNE, Pennsylvania
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM McDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. McNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
KAREN L. THURMAN, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
Page 4 PREV PAGE TOP OF DOC
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
AMO HOUGHTON, New York
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JENNIFER DUNN, Washington
WALLY HERGER, California
JIM NUSSLE, Iowa
ROBERT T. MATSUI, California
CHARLES B. RANGEL, New York
RICHARD E. NEAL, Massachusetts
JIM McDERMOTT, Washington
MICHAEL R. McNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. The electronic version of the hearing record does not include materials which were not submitted in an electronic format. These materials are kept on file in the official Committee records.
Page 5 PREV PAGE TOP OF DOC
C O N T E N T S
Advisories announcing the hearing
WITNESSES
Office of the U.S. Trade Representative, Hon. Jeffrey M. Lang, Deputy U.S. Trade Representative
U.S. Department of Commerce, Timothy J. Hauser, Acting Under Secretary, International Trade Administration
American Electronics Association, Patrick J. Yanahan, Jr
European-American Business Council, Willard M. Berry
Frost, Ellen L., Institute for International Economics
Insta Graphic Systems, Janet Wells
Stern Group, Inc., Hon. Paula Stern
Transatlantic Business Dialogue:
Lodewijk J.R. de Vink
Hon. Paula Stern
Janet Wells
USA Chicago, Inc., Patrick J. Yanahan, Jr
Warner-Lambert Co., Lodewijk J.R. de Vink
SUBMISSIONS FOR THE RECORD
Page 6 PREV PAGE TOP OF DOC
Health Industry Manufacturers Association, statement
International Trade Council, Alexandria, VA, letter
JBC International, James B. Clawson, letter
National Electrical Manufacturers Association, Rosslyn, VA, statement
Philips Electronics North America Corp., Thomas B. Patton, statement
U.S. Chamber of Commerce, Wolf Brueckmann, statement
NEW TRANSATLANTIC AGENDA
WEDNESDAY, JULY 23, 1997
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:08 p.m., in room B–318, Rayburn House Office Building, Hon. Philip Crane (Chairman of the Subcommittee) presiding.
[The advisories announcing the hearing follow:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE
Page 7 PREV PAGE TOP OF DOC
CONTACT: (202) 225–1721
FOR IMMEDIATE RELEASE
July 8, 1997
No. TR–13
Crane Announces Hearing on
New Transatlantic Agenda
Congressman Philip M. Crane (R–IL), Chairman, Subcommittee on Trade of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on the New Transatlantic Agenda (NTA). The hearing will take place on Wednesday, July 23, 1997, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 2:00 p.m.
Oral testimony at this hearing will be from both invited and public witnesses. In addition, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee or for inclusion in the printed record of the hearing.
BACKGROUND:
In December 1995, the United States and the European Union (EU) launched the NTA to initiate specific joint U.S.–EU actions which would address global economic, political, and humanitarian challenges more effectively, fight international crime, terrorism, and drug trafficking, support peacemakers around the world, and bring down barriers to commerce. The trade action plan includes efforts to reduce barriers to trade, enhance trade opportunities, resolve trade disputes, and facilitate customs cooperation. As part of the Agenda, the United States and the EU recently concluded a package of Mutual Recognition Agreements (MRA), which aims to reduce regulatory burdens by recognizing in six industry sectors the results of product testing or certification requirements set by both governments, thereby eliminating the need for duplicative inspection, testing, or certification requirements.
Page 8 PREV PAGE TOP OF DOC
The NTA includes a commitment on the part of the United States and the EU to expand bilateral trade through an initiative called the New Transatlantic Marketplace. An important companion to the Marketplace Initiative is the Transatlantic Business Dialogue (TABD), a forum in which top American and European business leaders can meet to discuss ways to reduce barriers to U.S.–EU trade and investment. The major recommendations endorsed by the United States and European business communities since the inception of TABD include developing common standards, concluding MRA, eliminating tariffs in information technology products, adding to or accelerating some Uruguay Round tariff cuts, and implementing anti-bribery and corruption statutes in Europe.
In announcing the hearing, Chairman Crane stated: ''This hearing provides a good opportunity for us to study important developments in transatlantic commerce and prospects for further liberalization and facilitation of trade. The forum is unique because of the strong involvement of the business community as an official partner. The NTA has already been successful in removing barriers to trade between the United States and Europe through the Mutual Recognition Agreement.''
FOCUS OF THE HEARING:
The focus of the hearing is to examine the trade goals of the NTA, including the TABD. Witnesses should focus on the prospects for increased trade liberalization between the United States and the EU, including increased market access, reduced barriers to trade, the recently concluded package of Mutual Recognition Agreements, the impact of unilateral trade sanctions, and the role of Eastern Europe.
Page 9 PREV PAGE TOP OF DOC
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to Traci Altman or Bradley Schreiber at (202) 225–1721 no later than the close of business, Wednesday, July 16, 1997. The telephone request should be followed by a formal written request to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. The staff of the Subcommittee on Trade will notify by telephone those scheduled to appear as soon as possible after the filing deadline. Any questions concerning a scheduled appearance should be directed to the Subcommittee on Trade staff at (202) 225–6649.
In view of the limited time available to hear witnesses, the Subcommittee may not be able to accommodate all requests to be heard. Those persons and organizations not scheduled for an oral appearance are encouraged to submit written statements for the record of the hearing. All persons requesting to be heard, whether they are scheduled for oral testimony or not, will be notified as soon as possible after the filing deadline.
Witnesses scheduled to present oral testimony are required to summarize briefly their written statements in no more than five minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full written statement of each witness will be included in the printed record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of time available to question witnesses, all witnesses scheduled to appear before the Subcommittee are required to submit 200 copies of their prepared statement and an IBM compatible 3.5-inch diskette in ASCII DOS Text format, for review by Members prior to the hearing. Testimony should arrive at the Subcommittee on Trade office, room 1104 Longworth House Office Building, no later than Monday, July 21, 1997. Failure to do so may result in the witness being denied the opportunity to testify in person.
Page 10 PREV PAGE TOP OF DOC
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Any person or organization wishing to submit a written statement for the printed record of the hearing should submit at least six (6) single-space legal-size copies of their statement, along with an IBM compatible 3.5-inch diskette in ASCII DOS Text format only, with their name, address, and hearing date noted on a label, by the close of business, Wednesday, August 6, 1997, to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Trade office, room 1104 Longworth House Office Building, at least one hour before the hearing begins.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not exceed a total of 10 pages including attachments. At the same time written statements are submitted to the Committee, witnesses are now requested to submit their statements on an IBM compatible 3.5-inch diskette in ASCII DOS Text format.
Page 11 PREV PAGE TOP OF DOC
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where the witness or the designated representative may be reached and a topical outline or summary of the comments and recommendations in the full statement. This supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during the course of a public hearing may be submitted in other forms.
Note: All Committee advisories and news releases are available on the World Wide Web at 'HTTP://WWW.HOUSE.GOV/WAYS_MEANS/'.
Page 12 PREV PAGE TOP OF DOC
The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 202–225–1721 or 202–226–3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
—————
NOTICE—CHANGE IN ROOM
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225–1721
FOR IMMEDIATE RELEASE
July 15, 1997
Page 13 PREV PAGE TOP OF DOC
No. TR–13–Revised
Room Change for Subcommittee Hearing on
Wednesday, July 23, 1997,
on New Transatlantic Agenda
Congressman Philip M. Crane (R–IL), Chairman, Subcommittee on Trade, Committee on Ways and Means, today announced that the Subcommittee hearing on the New Transatlantic Agenda scheduled for Wednesday, July 23, 1997, at 2:00 p.m. in the main Committee hearing room, 1100 Longworth House Office Building, will be held instead in room B–318 Rayburn House Office Building.
All other details for the hearing remain the same. (See Subcommittee press release No. TR–13, dated July 8, 1997.)
—————
Chairman CRANE. The Subcommittee will come to order. I know we have more guests here trying to get accommodated, if they could just quietly get over to the other end of the room here and take seats.
Welcome to the Ways and Means Trade Subcommittee hearing on the 18-month-old New Transatlantic Agenda, or NTA, and the U.S.-Europe trade relations. The purpose of this hearing is to examine the trade goals of the NTA, including the Transatlantic Business Dialogue, or TABD.
Page 14 PREV PAGE TOP OF DOC
TABD is a forum in which top American and European business leaders can meet to discuss ways to reduce barriers to U.S.–EU trade and investment. Business operates as an official partner in the discussions. The NTA and TABD have already been very successful in removing barriers to trade between the United States and Europe, and through the Mutual Recognition Agreement, MRA, which aims to reduce regulatory burdens by recognizing for six industry sectors the results of product testing or certification requirements set by the United States when conducted in the European Union and vice versa, thereby eliminating the need for duplicative requirements.
The MRA is expected to substantially reduce barriers to trade and investment, covering over 50 billion dollars' worth of trade. This hearing provides a good opportunity for us to study important developments in transatlantic commerce and prospects for further liberalization and facilitation of trade, including increased market access, reduced barriers to trade, the recently concluded MRA, the impact of unilateral trade sanctions, and the role of Eastern Europe.
The United States and the European Union share the largest two-way trade and investment relationship in the world. Trade with Europe amounted to $256 billion in 1995. In my home State of Illinois, Europe is the second largest export market. In 1995, Europe bought 4 billion dollars' worth of Illinois goods, supporting nearing 50,000 jobs. In addition, it is estimated that approximately 3 million U.S. jobs have been created by EU investment in the United States. In Illinois, European investment supports nearly 135,000 jobs. Of these, 51 percent are high-paying manufacturing jobs.
[The opening statement follows:]
Opening Statement of Chairman Phil Crane
Good afternoon, and welcome to Ways and Means Trade Subcommittee hearing on the 18-month old New Transatlantic Agenda, or NTA, and U.S.-Europe trade relations. The purpose of this hearing is to examine the trade goals of the NTA, including the Transatlantic Business Dialogue, or TAB–D. TAB–D is a forum in which top American and European business leaders can meet to discuss ways to reduce barriers to U.S.–EU trade and investment—business operates as an official partner in the discussions. The NTA and TAB–D have already been very successful in removing barriers to trade between the United States and Europe through the Mutual Recognition Agreement, which aims to reduce regulatory burdens by recognizing for six industry sectors the results of product testing or certification requirements set by the United States when conducted in the EU, and vice versa, thereby eliminating the need for duplicative requirements. The MRA is expected to substantially reduce barriers to trade and investment, covering over 50 billion dollars' worth of trade.
Page 15 PREV PAGE TOP OF DOC
This hearing provides a good opportunity for us to study important developments in transatlantic commerce and prospects for further liberalization and facilitation of trade, including increased market access, reduced barriers to trade, the recently concluded MRA, the impact of unilateral trade sanctions, and the role of Eastern Europe.
The United States and the EU share the largest two-way trade and investment relationship in the world. Trade with Europe amounted to $256 billion in 1995. In my state of Illinois, Europe is the second largest export market. In 1995, Europe bought $4 billion worth of Illinois goods, supporting nearly 50,000 jobs.
In addition, it is estimated that approximately 3 million U.S. jobs have been created by EU investment in the United States. In Illinois, European investment supports nearly 135,000 jobs. Of these, 51% are high paying manufacturing jobs.
I now recognize our distinguished Ranking Member, Mr. Matsui, for any statement he would like to make.
—————
Chairman CRANE. I now recognize our distinguished Ranking Member, Mr. Matsui, for any statements he would like to make.
Mr. MATSUI. Thank you very much, Mr. Chairman.
I want to commend you on holding these hearings today. Of course, yesterday you held hearings regarding the Western Hemisphere trade possibilities, and we appreciate very much your efforts in this area.
Despite the fact that the United States and the European Union have the world's largest two-way trade and investment relationship, we in Congress, too often in the past, have not devoted sufficient attention to our economic relations with the European Union. Indeed, I can't really recall a time, in my almost 18 years on the Ways and Means Committee, that the Trade Subcommittee has held a hearing solely devoted to U.S.–EU trade relations.
Page 16 PREV PAGE TOP OF DOC
It is my hope that today's hearing will help educate the Congress and the public in developing, with respect to the U.S.–EU relationship, many issues that are outstanding. In this regard, the United States has embarked upon an ambitious and potentially far-reaching course of action with the European Union that responds in a positive way to the questions of how the United States and the European Union should structure their relationship in the post-cold war era, including in the area of trade.
The overall goal of the New Transatlantic Agenda, agreed to in December 1995, is to widen and deepen the transatlantic relationship, given the new realities of a globalized economy, where nations must work together on a broad range of issues in a cooperative manner, more than ever before, in order to prosper.
One of the four key goals of this new agenda is to contribute to the expansion of world trade and closer economic ties across the Atlantic. We will be taking a closer look at what actions are being taken to achieve these goals, especially the Joint Trade Action Plan.
With regard to the Transatlantic Business Dialogue, this is a rather unique concept. As I understand it, rather than having government officials establish their own work agenda, the idea is to have business communities on both sides of the Atlantic work together, in the first instance to identify problems complicating trade and investment flows, and to suggest solutions to these problems with their respective governments. Governments would then follow up on these suggestions, as appropriate. I am interested in hearing from the private sector witnesses on how this process has worked to date.
Finally, while our current trade relationship with the European Union is, on balance, very positive, it should be noted that we do have a number of ongoing bilateral trade disputes with the European Union. We should use this hearing today as an opportunity to review some of the efforts to resolve these disputes in the World Trade Organization and elsewhere.
Page 17 PREV PAGE TOP OF DOC
In this regard, I am gratified by reports out of Brussels earlier today that, after successful last minute negotiations with the Boeing Co., the European Commission has given its blessing to Boeing in its planned merger with McDonnell-Douglas. This averts what could have been a major trade dispute.
[The opening statements follow:]
Opening Statement of Hon. Robert T. Matsui
Mr. Chairman, I congratulate you on holding this hearing today to discuss the trade aspects of the New Transatlantic Agenda, including the Transatlantic Business Dialogue (TADB).
Despite the fact that the United States and the European Union have the world's largest two-way trade and investment relationship, we in Congress too often in the past have not devoted sufficient attention to our economic relations with the European Union. Indeed, I cannot recall the last time that the Trade Subcommittee held a hearing devoted solely to U.S.–EU trade relations.
It is my hope that today's hearing will help to educate the Congress and the public on developments with respect to the U.S.–EU relationship. In this regard, the United States has embarked on an ambitious and potentially far-reaching course of action with the European Union that responds in a positive way to the question of how the United States and the European Union should structure their relationship in the post-Cold War era, including in the area of trade.
The overall goal of the New Transatlantic Agenda agreed to in December 1995 is to widen and deepen the transatlantic relationship given the new realities of a globalized economy, where nations must work together on a broad range of issues in a cooperative manner more than ever before in order to prosper.
Page 18 PREV PAGE TOP OF DOC
One of the four key goals for this new agenda is to contribute to the expansion of world trade and closer economic ties across the Atlantic. We will be taking a closer look today at what actions are being taken to achieve this goal, especially the Joint Trade Action Plan.
With regard to the Transatlantic Business Dialogue, this is a rather unique concept. As I understand it, rather than having government officials establish their own work agenda, the idea is to have the business communities on both sides of the Atlantic work together in the first instance to identify problems complicating trade and investment flows and to suggest solutions to those problems to their respective governments. Governments would then follow up on these suggestions as appropriate. I am interested in hearing from our private sector witnesses how this process has worked to date.
Finally, while our current trade relationship with the EU is on balance very positive, it should be noted that we do have a number of ongoing bilateral trade disputes with the EU. We should use the hearing today as an opportunity to review the status of efforts to resolve these disputes, in the WTO and elsewhere.
In this regard, I am gratified by reports out of Brussels earlier today that, after successful last-minute negotiations with Boeing, the European Commission has given its blessing to Boeing's planned merger with McDonnell-Douglas. This averts what could have been a major trade dispute.
In closing, Mr. Chairman, let me join you in welcoming all of our witnesses to today's hearing.
Thank you.
Page 19 PREV PAGE TOP OF DOC
—————
Opening Statement of Hon. Jim Ramstad
Mr. Chairman, thank you for calling today's hearing to discuss U.S. trade with the European Union and the New Transatlantic Agenda.
There has always been a special relationship between the U.S. and the E.U. Not only are the U.S. and E.U. the leading participants in the international marketplace, they also share the largest two-way trade (in goods and services combined) and investment relationship in the world.
This relationship translates into 3 million US jobs from E.U. investments alone, and we all know for every $1 billion of U.S. exports, there are 20,000 more better paying jobs created in the U.S.
That is why it is important that we continue to take the lead in many of the international trade agreements being negotiated under the WTO, OECD through other trade auspices. Of course, we should certainly lead through bilateral efforts like the NTA and initiatives like the New Transatlantic Marketplace. As I have stated many times, I am hopeful we will soon renew Fast-Track Authority so we can continue to push for trade liberalism for the sake of the American economy and workers.
I am very interested to learn more about the NTA and, in particular, the recently concluded Mutual Recognition Agreement to reduce regulatory burdens for six key U.S. industry sectors. Being from Minnesota and the Chair of the House Medical Technology Caucus, I am very glad the MRA addresses regulations and barriers for a very important industry in my state, the medical device industry.
Thank you again, Mr. Chairman, for calling this hearing. I look forward to hearing from today's witnesses about the importance and implications of U.S.–E.U. trade and the NTA.
Page 20 PREV PAGE TOP OF DOC
—————
Mr. MATSUI. Again, Mr. Chairman, in closing, let me join with you, first of all congratulating you again, in welcoming all the witnesses at today's hearing.
Chairman CRANE. Thank you.
Today we will hear from a number of distinguished witnesses. In the interest of time, I would ask that you try and keep your oral testimony to 5 minutes, and we will include longer written statements in the record.
Our first panel today is made up of administration witnesses, Deputy U.S. Trade Representative Jeff Lang, for his second day in a row, and Timothy Hauser, Acting Under Secretary for International Trade Administration at the Department of Commerce.
You people may proceed in order.
STATEMENT OF AMBASSADOR JEFFREY M. LANG, DEPUTY U.S. TRADE REPRESENTATIVE
Mr. LANG. Thank you, Mr. Chairman. It's good to be here. I can think of a lot of other places I would rather not be. [Laughter.]
Much of what your statement said is in our statement, too, so that makes it easier, I think, to summarize what I was going to say.
I think it is important to emphasize that whatever differences we have with the European Union, if you assume they are a single player, they are a very large trading partner. That means it's safe to say that most U.S. efforts to further open markets and increase the rule of law in international trade, particularly on a multilateral basis, cannot advance without the positive participation of the European Union. I mean, the combined economic weight of trade and investment between the EU–15 and the United States is better than $1 trillion.
Page 21 PREV PAGE TOP OF DOC
In 1996, two-way trade in goods and services was $400 billion. If you compare that to U.S.-Canada trade, for example—often called our biggest trading partner—that's $362 billion last year. Our investment flows, by the way, are almost equal. In other words, each accounted for roughly half of the other's outward investment flows.
Now, turning to this New Transatlantic Agenda, there was a lot of discussion leading up to that meeting you mentioned, Mr. Chairman, in Madrid. I think what we opted for a pragmatic approach to the task of improving our economic relations, in this context we have created of the New Transatlantic Agenda.
The Joint Action Plan of the NTA includes commitments to further the evolution of the multilateral system, and it also lists commitments designed to deepen the transatlantic relationship. Those are the things that are together called the New Transatlantic Marketplace. The meeting in Madrid, the Madrid declaration, also sanctioned a deeper role for European and American business in, as you said, the New Transatlantic Business Dialogue.
Now, what's happened? From USTR's perspective, we have mixed results. But we always assumed that we would have mixed results by this point in the process. We have benefited from the process, which has helped in getting the information technology initiative done, and in getting the basic telecommunications services agreement done. Those milestones could not have been reached without the participation of the European Union.
Under the New Transatlantic Marketplace Initiative, we have concluded a customs cooperation agreement, we have a veterinary equivalence agreement—although we have a few loose ends there—and the one that's been the most noticed by the press and public, the mutual recognition agreements.
As your statement suggests, you can't have a big relationship like this without having some problems, and we do have some pretty serious problems in this case, some of them serious enough to involve millions, even tens of millions of dollars.
Page 22 PREV PAGE TOP OF DOC
We also have some concerns regarding EU approaches with respect to the WTO, particularly some of the disputes that have been taken to the WTO that really raise political issues rather than the kinds of commercial issues that the dispute settlement system was designed for. I think that when these trade-related U.S.–EU disagreements touch on sensitive areas of foreign policy and security, we raise a risk to the overall business climate. I think both sides have to be careful in those situations. I'm thinking here, for example, of the Cuba matter.
Now, if we look ahead, we're going to have a number of opportunities in the coming months to demonstrate the value of working together to solve problems and to advance the rule of law and market opening.
I met this morning with my counterparts from the EU about financial services, and that's clearly an area in which we are working well together. We have what appears to be many common objectives, if not almost identical objectives, and I think we can work well together in the coming months. That was evident also from our meetings in Geneva last week, and elsewhere in Europe.
One final comment. Europe has a number of internal issues to deal with in the coming years, and particularly as it prepares for its eventual enlargement toward the East. We hope that this necessary and appropriate focus on their internal concerns won't preclude a constructive role for Europe in the transatlantic environment and in the global environment, because they are such big players.
I was in Seville at the first Transatlantic Business Dialogue meeting. I was struck by how important the role the business community has been in this matter—and I know you have them appearing later today. But I think that in getting these businessmen to talk to each other—and we attend the meetings, but we are not running the meetings; we are simply there as observers and to help in a technical sense. Getting to talk with each other and arrive at a set of conclusions about where we need to be going to improve the lives of people in both Europe and the United States I think is a valuable contribution. I would say to them that it's a valuable process and we hope they keep up the good work.
Page 23 PREV PAGE TOP OF DOC
So I urge the Subcommittee to consider our economic relationship with Europe. It makes an enormous contribution to our national prosperity, great potential for future growth, but we have to continue through the NTA process, and any other appropriate forum, to explore what additional multilateral and bilateral things we can do to improve the system.
In this connection, I would say all of this is also relevant to fast track, not unlike our meeting yesterday. Ultimately, the two of us set the pace for the system as a whole, and I think being able to go forward together is very important.
At my elbow sits Tim Hauser, who has some remarks to make, but I would be remiss if I didn't reflect the role of other people in this new transatlantic process. One of them has since departed the Commerce Department for the State Department, Stu Eizenstat, who helped start this process as Ambassador to the European Union, and then pushed it along as Under Secretary of Commerce, and I'm sure is going to be helpful to both of us in his new role at the State Department. I would be remiss if I didn't mention at least Stu, not to speak of all the hundreds of other people who helped with this process.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Ambassador Jeffrey M. Lang, Deputy U.S. Trade Representative
Good afternoon, Mr. Chairman and Members of the Subcommittee. I appreciate very much the opportunity to bring before the Subcommittee USTR's views on the implications for our trade policy of the New Transatlantic Agenda Initiative and associated activities. I shall be brief so that I may respond to any questions Members of the Subcommittee may have.
At the outset, I would note that, as U.S. cooperation with Europe on security matters formed the bedrock on which the post-Second World War peace was built, the U.S.-European trade relationship has been an anchoring point for the international trading system since the General Agreement on Tariffs and Trade came into force in 1947. The United States and the European Communities, known since the Maastricht Treaty as the European Union (EU), are the two largest actors in the global economy and each has benefitted from successive efforts to liberalize multilateral trade. It is safe to say that U.S. efforts to further multilateral trade liberalization cannot advance without the positive participation of the EU.
Page 24 PREV PAGE TOP OF DOC
The truth of that statement is evident if one but takes a quick look at the dimensions of the transatlantic economic relationship. If the EU were a nation-state, it and the United States would share the largest two-way trade and investment relationship in the world. The numbers are impressive by any measure. The combined economic weight of trade and investment between the United States and the 15 member states of the EU exceeds $1 trillion. The EU collectively is the U.S.'s largest market for goods and services and vice versa. In 1996, two way trade in goods and services amounted to nearly $400 billion. In 1996, U.S. merchandise exports to the EU were $127.5 billion, an increase of $3.9 billion, or 3.2 percent, from 1995 levels. Imports from the EU in 1996 were $142.7 billion. On average during the post-war period, two-way trade has remained in rough balance. The stock of U.S. foreign direct investment into the EU in 1996 was $315.4 billion. The United States and the EU in 1995 each accounted for roughly one-half of the other's outward investment flows. To put this into perspective, consider that two-way U.S.-Canada trade in goods and services in 1996 was $327 billion and that two-way U.S.-China trade in goods and services in 1995 amounted to $62 billion. One of the basic messages I wish to leave with you today is that the sheer extent of transatlantic economic interactions makes it imperative that, no matter what other opportunities we perceive in the world, we must continue to bear in mind that truly vital U.S. economic interests are at stake in our relations with Europe.
Recognizing the major advantages that could accrue to both sides from expanding economic relations between the two regions, President Clinton and European Union leaders at the U.S.–EU Summit in Madrid in December 1995 made initiatives in the trade and investment area an integral part of the New Transatlantic Agenda (NTA). The genesis of the NTA lay in the desire of leaders on both sides to reaffirm the strong historic relationship between the United States and Europe and to promote their vision of a post-Cold War Europe united around the principles of democracy and free markets. The maintenance and furtherance of transatlantic prosperity was seen as a key component of any effort to move the transatlantic relationship into the post-Cold War era and the 21st century.
Page 25 PREV PAGE TOP OF DOC
After much discussion both internally and across the Atlantic, the U.S. and the EU opted for a pragmatic approach to the task of improving economic relations. Cooperation being the key concept animating the NTA, we worked to construct a series of multilateral and transatlantic issues on which we could take positive joint steps, moving beyond the bickering and recrimination that have often accompanied our interactions on trade matters. The result was embodied in commitments laid out in the NTA ''Joint Action Plan.'' The plan's economic section expresses the two sides' intention to cooperate in furthering the continuing evolution of the multilateral trading system. It also lists commitments designed to deepen the transatlantic relationship—these actions are collectively termed the New Transatlantic Marketplace initiative. To supplement these government-to-government endeavors, the NTA also endorsed an enhanced role for European and American business through participation in the Transatlantic Business Dialogue (TABD). While I would defer to the State Department for overall analysis of the NTA process, let me say a few words about each of these three major components.
The Joint Action Plan's economic section includes both multilateral and transatlantic economic efforts, many of which were launched during 1996 and have continued into 1997 or will continue in the years ahead. Actions aimed at strengthening the multilateral trade and investment system include: consolidating the World Trade Organization; exploring ways to further reduce tariffs, which included an agreement to eliminate tariffs on information technology products (the Information Technology Agreement, or ITA); starting work on new international rules for intellectual property rights and government procurement; and agreeing to work together at the OECD to conclude a Multilateral Agreement on Investment.
New Transatlantic Marketplace actions designed to enhance U.S.–EU economic opportunities include: an ongoing joint study of remaining barriers to transatlantic trade and investment and ways to reduce them; implementation of a Customs Cooperation Agreement; reinforcing efforts to resolve outstanding trade disputes as part of a confidence-building process; and concluding Mutual Recognition Agreements (MRAs) to reduce regulatory burdens on business. Other New Transatlantic Marketplace commitments involve expanding an ongoing Information Society Dialogue to spur innovation and ensure interconnectivity and interoperability; and establishing a joint working group on employment and labor-related issues.
Page 26 PREV PAGE TOP OF DOC
The TABD is a forum in which top American and European business leaders can meet to discuss ways to reduce barriers to U.S.-European trade and investment. The 1995 TABD Conference in Seville kicked off a process of private sector evaluation of obstacles to business in both Europe and America. The result has been a series of business recommendations for governmental action to eliminate those obstacles.
What have the initiatives I have described above achieved in the year and a half since the NTA was announced? From USTR's point of view, I would say the results are mixed, but, then, we always suspected they would be by this point in the process. Certainly, the United States has benefitted from notable successes in the multilateral context. Conclusion of the Information Technology Agreement and the WTO Basic Telecommunications Services agreement are major steps forward for our high technology companies, which are among our most competitive. True to what I said earlier, such milestones could not have been reached without the participation of the European Union. At the Singapore WTO ministerial meeting last December, we achieved what we believe is a workable compromise with the EU on WTO treatment of the so-called ''new issues'' of trade and environment, trade and labor standards, trade and investment and trade and competition.
Under the rubric of the New Transatlantic Marketplace, we concluded the U.S.–EU Customs Cooperation Agreement, which will assist our customs services by streamlining their operations and boosting their enforcement efforts. We also concluded after great effort a Veterinary Equivalence Agreement that, while not as ambitious as we had hoped, still should do much to facilitate trade in live animals and animal products. We have launched our joint study of ways to reduce barriers to transatlantic trade by agreeing on a select group of sectors for initial examination. Of course, the New Transatlantic Marketplace action item receiving by far the most attention, from the private sector as well as from governments, has been the effort to complete negotiations on Mutual Recognition Agreements. This exercise was deemed the number one priority on the transatlantic agenda by both American and European companies participating in the TABD and became a key trade concern of President Clinton and EU leaders. The negotiated result we achieved just last month after three long years of talks sets a precedent in government-to-government cooperation on regulatory reform which should considerably ease burdens on businesses.
Page 27 PREV PAGE TOP OF DOC
No international economic relationship as vast and intricate as that binding the United States and Europe could operate without problems. The very dynamism which propels this machinery inevitably results in a certain amount of friction, especially as the pace of innovation and adaption in the business world continues to accelerate. And indeed, we face a variety of problems associated with our relations with the EU. These disagreements can be serious. Sometimes, as with certain EU attitudes toward the regulation of trade in bioengineered foodstuffs, tens or hundreds of millions of dollars in trade can be at stake.
Many of our disagreements are long standing and are connected in one way or another to the EU's Common Agricultural Policy. Some agricultural disputes also stem from popular attitudes in Europe toward protection of the environment and of human health. European views on animal welfare have resulted in an EU threat to cut off U.S. fur exports. We frequently receive complaints from U.S. businesses related to European standards-setting practices, both at the EU and member state level—hence the substantial business interest in the MRAs. European industrial subsidies, particularly to the aircraft and shipbuilding industries, have long been a source of frustration for U.S. firms.
In the multilateral arena, we are concerned by certain signs that the EU, having repeatedly expressed its commitment to the successful implementation of the Uruguay Round and the smooth functioning of the WTO, is through its actions putting stresses on the international trading system that the system might not bear. We find particularly disturbing recent EU moves to bring to WTO dispute settlement cases which are more political in nature than commercial. This sets a bad precedent which could undermine the hard work all sides put into creating in the WTO an objective, rules-based system for managing global trade.
When trade-related U.S.–EU disagreements touch on other sensitive areas of foreign policy, we risk souring the overall business climate. We fortunately reached an understanding in the spring of this year with the Europeans regarding their concerns with the our sanctions against Cuba and Iran/Libya, but only after months of often harsh EU criticism. We remain hopeful that the issue of the Boeing/McDonnell-Douglas merger can be resolved as expeditiously as possible.
Page 28 PREV PAGE TOP OF DOC
In coming months, we will have many opportunities to demonstrate our ability jointly to solve problems and advance trade liberalization. The WTO negotiations on financial services have now been relaunched and, if we work together, the United States and the EU can in December repeat for financial services the success of the basic telecommunications services agreement. We must pool our efforts to conclude the Multilateral Agreement on Investment in the OECD by next spring's deadline. Likewise, we look to Europe to join us in advancing the proposed OECD convention on bribery and official corruption. In the WTO, there are a variety of areas where joint U.S.–EU approaches can make the difference in terms of bringing in other members, from government procurement to new market access initiatives to the unfinished agenda from the Uruguay Round. I particularly note in this regard the upcoming commencement of new WTO agricultural trade negotiations. As in the past, EU cooperation in the agricultural area will clearly spell the difference between success and failure.
In the transatlantic context, we can continue the search for new opportunities to enhance economic interrelationships. We intend to pursue actively the joint study on eliminating barriers to trade and investment and expect to have preliminary recommendations for government action available by the end of this year. The success of the MRA negotiations has resulted already in joint commitments to look at additional sectors that could benefit from this sort of regulatory cooperation.
I hope the United States and Europe can look beyond their differences and keep in mind the broader objective of enhancing transatlantic, and global, prosperity. Europe has much to ponder as it deals with internal issues during the coming years. Our sincere wish is that this focus on the internal will not preclude a constructive role for Europe in the transatlantic and global contexts. We on the U.S. side will continue to pursue resolution of outstanding disputes, searching wherever possible to defuse situations before they become crises. No one, least of all businesses and workers, benefits from an atmosphere of tension. We shall of course seek resolution of disagreements in the WTO where appropriate—this is what we constructed the WTO system for and we will do what we can to ensure that it does the job it was meant to do.
Page 29 PREV PAGE TOP OF DOC
In addition, we must persist in looking beyond the series of disputes to the opportunities Europe presents for our companies. This is especially true as the EU contemplates accession negotiations with Central and Eastern Europe and the internal EU reforms that will be necessary to complete that process. Expansion of the EU to include many of the Central and Eastern European states should lead to significant new market opportunities for U.S. firms.
One can contemplate other possibilities for the U.S. and the EU, working together, to move the rest of the world toward the openness and transparency generally existing in transatlantic business relations today. We have many interests in common in third countries, for example. A clear instance where the U.S. and the EU can accomplish a great deal through adoption of a united stance is the accession to the WTO of new members, particularly China, Russia and Ukraine.
I should like before closing to say some additional words about the TABD. I came away from attending the initial TABD Conference in Seville very impressed with the potential of this process for channeling business concerns and ideas to government officials on both sides of the Atlantic. I was particularly struck by the involvement of European companies, which have traditionally not enjoyed the ability to provide input into the official decision-making process that U.S. companies have come to expect as a matter of course.
The TABD proved how significant a force for liberalization it can be in the course of the MRA negotiations. Were it not for the good advice and strong, timely intervention of the TABD, it is fair to say that the MRA talks could not have succeeded. The TABD is first and foremost a forum for debate between businesses. That is as it should be. Governments may not always be able to do everything the TABD asks. I want only to note the U.S. Government's keen appreciation of the great potential for constructive participation by the TABD and the private sectors of both continents in advancing transatlantic and global market liberalization. To the TABD I say: you have been valuable and we hope you keep up the good work.
Page 30 PREV PAGE TOP OF DOC
In sum, I would urge the Subcommittee to consider that our huge and, for the most part, highly successful economic relationship with Europe makes an enormous contribution to our national prosperity and offers great potential for future growth. In order to fully realize this potential, I believe we should continue, through the NTA process and any other appropriate forum, to explore with the EU additional multilateral and transatlantic trade liberalization goals. The approval by Congress of new fast-track authority would, of course, expand considerably the scope of the areas we could jointly investigate. Ultimately, it is up to the United States and Europe to set the pace for the international economy and we should not shrink from this responsibility.
I will be happy to respond to any questions Members may wish to pose. Thank you very much.
—————
Chairman CRANE. Thank you, Jeff.
Mr. Hauser.
STATEMENT OF TIMOTHY J. HAUSER, ACTING UNDER SECRETARY, INTERNATIONAL TRADE ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE
Mr. HAUSER. Thank you, Mr. Chairman. Let me also commend you and the Subcommittee for focusing attention on this very important commercial relationship, one in which the Commerce Department has been particularly active, particularly with respect to the Transatlantic Business Dialogue and the Mutual Recognition Agreement process.
Page 31 PREV PAGE TOP OF DOC
Let me take a minute to elaborate on the size of the relationship. The European Union's $8.6 trillion economy is the world's largest. Its huge size translates relatively small percentage growth increases into large dollar increases and accompanying opportunities for expanded trade with America. For example, if the European Union grows by 2.7 percent next year, its economy will grow by over $230 billion. This is almost like discovering a new market the size of Taiwan every year.
Our trade with Europe, in addition to growing, is generally balanced over time. With surpluses in some years and deficits in others, our trade balances with Europe over the past 25 years or so have netted out almost to zero. By way of comparison, over that same period, our trade with Asia has cumulated a deficit of over $1.5 trillion.
Our balanced position extends to investment as well. Some 3 million Europeans work for U.S.-owned companies, and some 3 million Americans work for European-owned firms. In fact, one in every 12 U.S. factory workers is now employed in a European-owned firm.
Europe, as Jeff has mentioned, is very important to us as a global partner in opening world markets. Next to the United States, no one has been as supportive of improving the global trading system as has Europe. To broaden and deepen this relationship, the administration created the New Transatlantic Agenda, which is both a blueprint for both cooperation into the 21st century and a mechanism for solving problems and agreeing for joint action on common goals.
The New Transatlantic Marketplace is that part of the New Transatlantic Agenda where we, in Commerce, have been most active. The intent of the NTM is simple: To create a barrier-free marketplace for trade and investment across the Atlantic, working on a pragmatic basis to identify and eliminate the remaining commercial obstacles in the region.
Jeff went through a number of the specific accomplishments of the NTM. I won't reiterate them. Let me say that, in our view, the success in building the New Transatlantic Marketplace is largely due to the close working relationship with U.S. and European business, through the Transatlantic Business Dialogue. Bringing the U.S. and European chief executive officers into a dialog with top U.S. and EU trade officials, this unprecedented process has contributed immensely to the reduction of barriers across the Atlantic.
Page 32 PREV PAGE TOP OF DOC
The Mutual Recognition Agreement affects some 60 billion dollars' worth of bilateral U.S.–EU trade, and it would not have become a reality without the TABD. As Jeff mentioned, TABD, and working with the Europeans, was critical in concluding the information technology agreement affecting something like $600 billion in global trade.
The late Secretary of Commerce Ron Brown proposed the TABD in a December 1994 speech before the American Chamber of Commerce in Belgium. Commissioner Brittan, and Industry Commissioner Bangemann from the European side, joined him and started the dialog moving. Two annual TABD conferences were held in Seville, Spain, in November 1995, and in Chicago in November 1996. Secretary Bill Daley will be leading the U.S. Government delegation to the third TABD conference this November in Rome. We have been honored to have Tenneco chief executive officer Dana Mead serving over the current year as the U.S. cochairman of the TABD.
TABD is not, however, limited to large, multinational companies, Mr. Chairman. About one-third of the U.S. chief executive officers in the process have been from small- and medium-size companies, and an important part of the Dialogue's work has been the creation of a Transatlantic Small Business Initiative, aimed at helping smaller firms penetrate these markets.
Perhaps the key role played by the TABD was the effort to convince governments to finish work this past spring on what was identified as the TABD's highest priority, the Mutual Recognition Agreements. The MRAs recently initiated between the United States and the European Union represent a groundbreaking step in reducing trade barriers and have cut the cost of market entry across the Atlantic by eliminating redundant product testing and certification requirements. The MRAs liberalized market access for more than 30 billion dollars' worth of U.S. exports, and close to 60 billion dollars' worth of two-way trade.
Industry estimates the overall cost of market entry across the Atlantic will fall by about $1 billion, about $500 million of which will accrue to U.S. exporters. Again, the main beneficiaries will be small businesses, who cannot afford the high cost of international labs and testing. Many smaller U.S. companies will now be able to enter the European market, where they were unable to do so before.
Page 33 PREV PAGE TOP OF DOC
The agreement is a real breakthrough. Importantly, the agreement provides all the necessary health and safety protections, including the key ability of our regulatory agencies to take all appropriate and immediate measures to protect health and safety. We worked closely on this issue with the U.S. Trade Representative, U.S. regulatory agencies, and the European Union, to bring these MRAs into reality.
The extraordinary difficulties, because of the different regulatory systems involved, made progress very slow and, indeed, at midpoint last year the agreement appeared to be doomed. At the November 1996 TABD conference in Chicago, however, the business community rejected the idea that we in government could not find a way to make the agreements work and they, themselves, entered into spirited discussions with the U.S. and European negotiating teams. Lodewijk de Vink, president and chief executive officer of Warner-Lambert, who will be testifying later, led this business charge, and his personal efforts led to the breakthrough which was accepted by the U.S. and EU trade leadership.
I can state flatly that, without this private sector leadership, we would not have MRAs. The pressure we on the government side of the table felt from the business leadership kept us there until an agreement was reached. The success showed what we can get through a true public/private partnership.
Looking to the future, Mr. Chairman, though much has been achieved through the efforts of the TABD and the New Transatlantic Agenda process, we are still far from having the barrier-free marketplace that we want. From Commerce's perspective, our first priority, in addition to addressing current issues like the Boeing/McDonnell-Douglas merger, is to implement the MRA. This will be a formidable task in itself. We also look forward to looking at additional sectors where we might broaden the scope of the MRAs.
Other important initiatives we are pressing with business community support include obtaining mechanisms for harmonizing standard for automobiles and recreational marine engines. We also seek a focus on electronic commerce and the need for effective market-driven rules that will encourage rather than stifle continued technical advances.
Page 34 PREV PAGE TOP OF DOC
Tariff reductions in areas like paper and other important sectors, that were not fully liberalized in the Uruguay round, are other areas where we expect progress could be made rapidly.
These, Mr. Chairman, are just some of the priorities we see for the future. We look forward to continued cooperation through the New Transatlantic Agenda, working closely with our partners in the TABD to improve our trading relationship with Europe.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Timothy J. Hauser, Acting Under Secretary, International Trade Administration, U.S. Department of Commerce
Mr. Chairman, I would like to begin my statement by commending you for holding this hearing. Europe is our largest commercial partner, yet its significance is frequently overlooked. This hearing will do much to help elevate the visibility of the transatlantic commercial relationship and its potential for further U.S. exports. This hearing also provides a well-deserved focus on the unique business-government partnership in the Transatlantic Business Dialogue, which is one of the most important innovations in international trade.
Out of the devastation of World War II the United States and Europe forged a strong partnership that has been the cornerstone of both global security and the global economic system. This year marks the 50th anniversary of the Marshall Plan, and the peace and prosperity that the Atlantic Alliance has produced are indeed worth celebrating. The Cold War is now history. Today, our former adversaries in Central and Eastern Europe are beginning to be integrated into NATO and the OECD, and are being considered for full membership in the European Union.
The U.S.-European partnership has never been one only of military and security concerns, but has also has developed common ground in trade and economic interests. With the end of the Cold War, the commercial aspect of our relationship has taken on greater importance, and trade and economic growth are the focus at the top levels of our bilateral meetings and institutions.
Page 35 PREV PAGE TOP OF DOC
I am very pleased to represent the Commerce Department at this hearing, for Commerce has played a leading role in expanding transatlantic trade, both in working to reduce trade barriers and to promote more trade. One of the most innovative and important new developments, Mr. Chairman, is the Transatlantic Business Dialogue, the TABD, which is one of the focal points of your hearing today. I am proud to say that the TABD was initiated by the Department of Commerce. The Department of Commerce has also been the driving force within the U.S. government for the Mutual Recognition Agreements (MRA's) between the United States and Europe that will eliminate much of the duplicate testing and certification requirements across the Atlantic and substantially reduce the time and cost of market entry into Europe. Small companies will particularly benefit from these MRA's.
Both of these initiatives, and others as well, were made possible by Commerce's small but extremely effective Market Access and Compliance Unit (MAC). MAC effectively worked with the private sector to address trade concerns. These efforts have been consistently supported by an aggressive program of export promotion in Europe through our U.S. and Foreign Commercial Service, particularly aimed at assisting small and medium-sized companies increase their exports to this important market.
In these and other ways, the Commerce Department is making a major contribution toward the important goal of a barrier free New Transatlantic Marketplace envisioned by President Clinton when he and European Commission President Santer initiated the New Transatlantic Agenda in December 1995 as an unprecedented expansion of economic and political cooperation between the United States and the European Union.
Importance of Transatlantic Trade
Much attention is paid to the Big Emerging Markets of the world, and indeed they are of enormous importance for their growth potential. Much attention, properly so, is also focused on Japan, China, and the other countries of Asia, for this is where we find most of our trade differences and most of our trade policy attention is devoted. NAFTA and the countries of Latin America are also areas of trade attention and interest.
Page 36 PREV PAGE TOP OF DOC
Europe generally attracts less attention in the press and in the public eye, and, this being aside, relatively little in the Congress as well. This lack of attention Mr. Chairman, is not because Europe is unimportant, but rather is because our trade has been relatively smooth and for the most part trouble free. Tariffs across the Atlantic have also been quite low and trade is relatively barrier free, though there are important exceptions in areas such as agriculture and paper. We have certainly had our differences in trade with Europe, and we are having a major one now with the approach the European Commission has taken to the proposed Boeing-McDonnell Douglas merger, but for the most part the huge amount of transatlantic trade takes place almost unnoticed.
There seems to be a widespread belief that since our transpacific trade is now significantly larger than transatlantic trade, and since the Asian countries have much more rapid rates of real GDP growth, Europe has become relatively unimportant to us commercially. Nothing could be further from the truth.
To begin with, the EU is the world's largest economy. Its $8.6 trillion economy exceeds the size of the U.S. economy, and even NAFTA. In fact, the EU produces about one-third of all the goods and services outside the United States. While the mature EU economy grows more slowly than Asian countries for example, its huge size translates relatively small percentage increases into large dollar increases. For example, if the EU grows 2.7 percent next year, which is a reasonable assumption at this point, its economy will grow by over $230 billion. That is almost like discovering a new market the size of Taiwan every year.
The EU is our largest commercial partner, each year buying over $1 trillion of goods and services made by U.S. companies. This makes the European Union twice as large a market for American companies as Canada, and three times as large a market as Japan. While the EU is our second largest export market, closely following Canada, it is by far our largest market for U.S. affiliate production and sales. In fact Europe accounts for over half of the global production of U.S. firms outside the United States.
Page 37 PREV PAGE TOP OF DOC
America's commerce with Europe is quite balanced. With trade surpluses in some years and deficits in others, the cumulated trade of the United States with the EU over the past quarter century has netted out to being almost in balance. During the same period, however, our trade with Asia cumulated a trade deficit amounting to $1.5 trillion. Our balanced position in Europe extends to investment as well. While three million Europeans work for U.S.-owned companies, three million Americans work for European-owned firms. In fact, one in every 12 U.S. factory workers is now employed by a European-owned firm.
Europe As A Partner
Europe's commercial importance to us, however, is not limited to its significance as a market for U.S. goods and services and as a supplier of excellent products and services in return. Of at least equal importance is Europe's role as a global partner with America in opening world markets and in developing the multilateral trading system. Since the end of World War II Europe and the United States have shared a vision of an increasingly open world trading system, and have worked together to achieve that goal. Next to the United States, no one has been as supportive of improving the global trading system as has Europe, and it is a fact that Europe has been our strong and consistent partner in every trade round, starting in 1947 and continuing today.
No trade round or other major multilateral initiative has been achieved without the joint leadership of the United States and Europe. This has required the United States and the European Union to first reach agreement with each other prior to working jointly to convince the rest of the world to participate. Obtaining transatlantic agreement has not always been easy, and there have been times that the United States and Europe have been unable to agree. The Uruguay Round, for example, was stalled for several years while the United States and the EU worked out their differences on agricultural trade.
Page 38 PREV PAGE TOP OF DOC
However, when we agree on objectives, we achieve results. Look what we have accomplished together in terms of multilateral agreements just in the past few years: the Uruguay Round, the Information Technology Agreement, the Telecommunications Services Agreement, and the OECD agreement to criminalize bribery of foreign officials.
New Transatlantic Agenda
Given the extreme importance of Europe both as a market and as a partner, the Clinton Administration worked with the European Union to create the New Transatlantic Agenda (NTA) to broaden and deepen the relationship and to ensure strong ties curity to economic cooperation. The NTA is a blueprint for U.S.–EU cooperation into the 21st century and expands our relationship, not just in trade and commerce, but across the board, including many areas that were previously untouched. The NTA seeks not only to ''look beyond the next row of trees'' to define common goals and joint approaches, but also to provide the most comprehensive mechanism yet to allow us to address and resolve the problems that inevitably occur in any relationship.
The NTA and the accompanying U.S.–EU Joint Action Plan were signed by President Clinton, EU Commission President Santer, and Spanish Prime Minister Gonzalez (who was then President of the EU Council) at the Madrid U.S.–EU Summit in December 1995. The NTA is certainly one of the most significant steps in U.S.–EU relations since the founding of the European integration movement in 1957. It is the first time that we have dealt with the EU as a political institution on a large scale, and the initiative moves our already considerable relationship into a new action phase. It seeks to expand our economic and commercial relationship, highlights the cooperation that already exists, and seeks to make progress in a wide range of specific economic, political and social areas.
It is important to stress that the NTA is not simply a statement of good intentions. It is a living agreement with active implementation mechanisms that provide a richness of contact and understanding among our governments unparalleled in the past. The semi-annual U.S.–EU Summits provide impetus to keep the relationship moving forward and provide an incentive to both U.S. and European officials to deliver results on a timely basis. The Summits are supplemented by meetings several times a year of the ''Senior Level Group'' at the Under Secretary level to provide a focus for issues and to ensure that decisions are actually made. This group is supported by the ''NTA Task Force'' of working level officials who meet frequently either in person or by video conference to resolve problems and find solutions. These mechanisms, it is important to note, have broadened the agenda to include the energies of U.S. agencies that have not previously been directly involved in U.S.–EU affairs: the Environmental Protection Agency, the FBI, Health and Human Services, the President's Science Office, and many others.
Page 39 PREV PAGE TOP OF DOC
Through the NTA the United States and the EU are committing themselves to joint leadership and action to preserve and promote peace and stability throughout the world and to further open markets to international commerce bilaterally and multilaterally. The breadth of the agenda encompasses political cooperation such as in Bosnia and the Middle East, humanitarian assistance, combating international crime and narcotics flows, steps to combat nuclear proliferation, cooperation in health and science, joint efforts in the environmental area, and building ''people-to-people'' bridges to foster an increasingly vibrant transatlantic community, and of course working together to further open trade and commerce—in what is called the ''New Transatlantic Marketplace'' (NTM).
The NTM is the part of the New Transatlantic Agenda in which the Commerce Department has been most active. The intent of the NTM is to create a barrier-free Transatlantic marketplace for trade and investment, working on a pragmatic basis to take step by step action to identify and eliminate remaining commercial obstacles across the Atlantic. Though it is not yet two years old, the NTA process can point to a considerable number of successes in reducing transatlantic barriers. The process, through its constant communication among U.S. and European officials, has contributed greatly to the resolution of problems and the implementation of a common trade agenda. In the space of about 18 months, it has: generated a bilateral customs agreement, resolved differences that had prevented a veterinary equivalence agreement, solved obstacles that had prevented U.S. exports of genetically engineered ''BT corn,'' agreed on an Information Technology Agreement and on the need to work jointly to obtain its acceptance globally, enabled a joint Science and Technology Agreement, and provided the impetus for finalizing the unprecedented U.S.–EU Mutual Recognition Agreement.
Transatlantic Business Dialogue
Page 40 PREV PAGE TOP OF DOC
In large part, this amazing success is due to the contribution of another important new U.S.–EU mechanism, the Transatlantic Business Dialogue—the TABD. This unique government-business dialogue has contributed immensely to the reduction of trade barriers across the Atlantic. It is difficult to overstate the effect the TABD has had on trade liberalization. The Mutual Recognition Agreement affecting 50 billion dollars' worth of bilateral U.S.–EU trade would not have become reality without the TABD. TABD was also very important to the Information Technology Agreement, affecting nearly 600 billion dollars' worth of global trade. These are not, however, the TABD's only successes. The TABD has developed a broad menu of specific and pragmatic recommendations. In fact virtually every market-opening move undertaken by the United States and the EU in the last couple of years has been suggested by the TABD.
The TABD is a business-driven forum, but I am pleased to say that the inspiration for the TABD came from the U.S. Department of Commerce. In December 1994, the late Secretary of Commerce Ron Brown proposed the formation of a Transatlantic Business Dialogue in a speech before the American Chamber of Commerce in Belgium. He proposed that U.S. and European business join together to develop a business-driven vision of Transatlantic trade and specific recommendations for removing barriers, and that they engage in dialogue with the U.S. Government and the European Commission to find the ways to implement those recommendations.
The idea was simple: to identify those barriers to trade or opportunities for liberalization on which both business communities could agree as targets for government action. We should put the business ''horse'' before the government ''cart.'' We believed that, given the enormous cross-investment by U.S. and European firms in each others's markets, a single Transatlantic business community already existed that faced similar problems and could agree jointly on common solutions which would benefit both the U.S. and European economies.
Businesses on both sides of the Atlantic reacted enthusiastically, as did the European Commission. The first TABD conference was held in November 1995 in Seville Spain, with about 50 U.S. and 50 European CEOs led by Xerox CEO Paul Allaire and Ford CEO Alex Trotman on the U.S. side and BASF CEO Jurgen Strube and Goldman Sachs International CEO Peter Sutherland on the European side. They met with Secretary Brown, European Commission Vice President Sir Leon Brittan, Commissioner Bangemann, and other leading U.S. and European trade officials, and presented an agenda that grew to about 170 specific recommendations.
Page 41 PREV PAGE TOP OF DOC
The main impediments to trade across the Atlantic, they told the government officials, were not tariffs—although there were some important objectives in lowering tariffs—but were in differing standards, testing and certification requirements, and other regulatory differences. The EU was particularly surprised by the emphasis the European business community placed on reducing testing and certification costs, which provided a major impetus to the Mutual Recognition Agreement the U.S. and the EU had been discussing for about two years.
The joint business community also pressed governments to move forward on eliminating tariffs on all information technology products and to work together to multilateralize this reduction in the form of the Information Technology Agreement. This agreement was negotiated at the Singapore WTO Ministerial in December 1996 and finalized in March 1997—barely more than a year after the TABD made it a priority. As Deputy U.S. Trade Representative Jeff Lang, who is also testifying today, said—this agreement broke all records for a major negotiation. Former Commerce Secretary Kantor remarked at the Chicago Conference that working with the TABD, we had discovered ''an entirely new way of speeding trade negotiations.''
The TABD has been an ongoing process, generating new recommendations as governments examine and implement their earlier ones. In this way, the TABD helps keep a constant focus on those trade impediments that are most important, and it also provides a strong incentive to governments on both sides of the Atlantic to keep working at TABD recommendations rather than simply acknowledging them and putting them in file cabinets. The most important part of this process is the annual CEO-level meetings with top U.S. and EU trade officials. This was demonstrated dramatically in the second TABD conference, in November 1996, where under the leadership of Ford CEO Alex Trotman and BASF CEO Juergen Struebe, the TABD engineered the breakthrough that enabled governments to conclude the Mutual Recognition Agreement a few months later.
Page 42 PREV PAGE TOP OF DOC
It is important to point out that the TABD is not a vehicle limited to America's and Europe's largest companies. In fact, about one-third of the CEO's on the U.S. business delegations have been smaller and medium-sized firms. These firms are no novices in international trade, and many of them are proportionately more dependent upon international trade than Fortune 500 firms. Generally we have found that smaller and medium-sized firms are more affected by cost factors such as those in product testing and certification than large firms, and should benefit greatly from the MRA's, from streamlined customs practices, and other reductions in the cost of doing business across the Atlantic. Smaller and medium-sized firms also have a greater need for information about finding customers and complying with trade rules. Recognizing this, the TABD has set up a ''Transatlantic Small Business Initiative'' (TASBI), in which the Commerce Department's U.S. and Foreign Commercial Service is cooperating closely, as is the small business part of the European Commission.
We are looking forward to the third TABD conference, which is being planned by Tenneco CEO Dana Mead and former Philips CEO Jan Timmer. At this conference, which will be held in Rome this November, we anticipate working on implementing more forward-looking recommendations that will continue to move us toward the goal of a barrier-free Transatlantic marketplace. Secretary of Commerce Daley will lead the U.S. government delegation to this conference.
From the U.S. government's perspective, though, another extremely valuable aspect of the TABD is its working level structure. The TABD has no secretariat or permanent staff. By design, the TABD was set up to utilize existing business mechanisms, such as the National Association of Manufacturers, the Chamber of Commerce, the various industry sector associations and the interests of individual companies. The chairing company provides the leadership for frequent meetings to consider recommendations and to work with government officials in a cooperative fashion to help move forward consideration of their recommendations. Commerce's Market Access and Compliance unit (MAC) leads the U.S. Government's relationship with the TABD, and chairs an interagency working group that focuses on the TABD's recommendations. This lean and efficient structure works well, both in the United States and Europe, as can be seen in the results.
Page 43 PREV PAGE TOP OF DOC
Finally, the TABD inter-relates with the formulation of trade policy by direct links into the NTA process and the semi-annual U.S.–EU Summits. The TABD is a major source of analysis and input to the Joint U.S.–EU study of trade barriers which is being conducted for the NTA under the leadership of USTR and the European Commission. Additionally, the TABD prepares a special report for each Summit, in which the U.S. and European business participants explain their joint recommendations to the Presidents. The TABD CEO leadership meets briefly with the Summit leaders to underscore the key priorities. This process has given the private sector a strong voice in shaping trade priorities, and has benefitted the NTA process by enabling it to work on pragmatic steps in the knowledge they reflect the agreed priorities of businesses on both sides of the Atlantic. In fact, at the Madrid Summit, which began the NTA process, the United States and the European Commission agreed to 60 percent of the recommendations made at the TABD's Seville conference, and the proportion has continued to increase since then.
No other forum has risen so rapidly to become as effective as the TABD. It has become the single most important channel through which business can influence the bilateral trade and commercial agenda of the U.S. Government and the European Commission. The European Commission's Vice President Sir Leon Brittan summed up the process well when he said, ''whenever our two business communities can agree jointly that an action is in the mutual interest of our two economies, it is incumbent upon us to seek to implement their recommendation—or at the very least to sit down with them and explain why we cannot, and to try to work out another approach.'' This was perhaps best reflected in the TABD's role in convincing governments to finish work on the TABD's highest priority—the Mutual Recognition Agreements (MRA).
Mutual Recognition Agreements
The Mutual Recognition Agreements (MRAs) recently initialed between the United States and the European Union represent a ground breaking step in our efforts to reduce trade barriers. These agreements reduce the cost of market entry across the Atlantic by seeking to eliminate redundant product testing and certification requirements. The agreements cover telecommunications, pharmaceuticals, medical devices, electrical safety, electromagnetic compatibility, and recreational boats. Reaching these agreements was extraordinarily difficult because of the complex nature of product testing and certification, the differences in the U.S. and European regulatory systems, and the need to ensure there was no compromise in health or safety.
Page 44 PREV PAGE TOP OF DOC
The agreements allow EU-required product testing and evaluation in key areas like information technology products and medical devices or good manufacturing practice inspections in pharmaceuticals to be conducted in the United States with the results being recognized in the EU—and vice versa. While MRA's do not require changing legislation nor harmonizing national requirements, they do reduce the cost of submitting to government requirements carried out 4,000 miles away from the manufacturer in another language and open to the biases introduced by another technical culture. The main beneficiaries are small businesses who usually rely on third party testing, since they have no in-house labs themselves, and cannot afford the high cost of international labs. Many smaller U.S. companies will now be able to enter the European market where they were unable to do so before. This agreement is a real breakthrough.
The agreement achieves regulatory cost reductions that are of real and significant benefit to industry, consumers and regulators while still meeting the legal and policy requirements. The MRAs liberalize market access for more than $30 billion of U.S. exports and close to $50 billion of two-way trade and go a long way to achieving the business communities' goal of reducing the exploding costs of meeting worldwide costs of product certification. Industry estimates the overall cost of market entry across the Atlantic will fall by $1 billion, about $500 million of which will accrue to U.S. exporters. It has been estimated that this reduction in market entry cost is equivalent to a 2–3 percent tariff cut—a very impressive achievement. Importantly, the agreement provides all necessary health and safety protections, including the key ability of regulatory agencies ''to take all appropriate and immediate measures'' to protect health and safety.
Commerce's Market Access and Compliance Unit (MAC) conceived the idea of MRA's about four years ago and worked with USTR, U.S. regulatory agencies, the European Commission, and European governments to bring MRA's to reality. Progress, though, was very slow due to the difficulties of attempting to mesh the different U.S. and European regulatory systems. The MRA negotiations got a huge boost from the TABD's 1995 Seville conference, in which U.S. and European industry made it plain that MRA's were their highest priority. Even so, we were unable to agree on the details, and by late 1996 the negotiations were on the verge of permanent collapse.
Page 45 PREV PAGE TOP OF DOC
At the November 1996 TABD conference in Chicago, business made it plain that they did not want to see the talks fail, and the Commerce negotiators encouraged TABD to enter into spirited joint discussions with the U.S. and European negotiating teams in order to find solutions that had eluded the government negotiators. Lodwijk DeVink, President and Chief Operating Officer of Warner Lambert, and Ian Leschly of Smith Kline Beecham led the U.S. pharmaceutical business participation in MRA discussions at Chicago, and their personal efforts led to the breakthrough that business proposed to the government negotiators, and which was accepted on the spot by the U.S. and European trade leadership participating at the Conference. The importance of Mr. DeVink's and Mr. Leschly's strong personal determination and that of the other business leaders cannot be overstated. Industry truly motivated government to achieve an agreement that would meet regulatory objectives and yet provide valuable market access for U.S. and EU companies.
Governments announced a January 1997 goal for finalizing the MRA's, but once again were unable to come to closure on some of the key details. Agreement was finally reached with the personal involvement of Secretary of Commerce Daley and Ambassador Barshefsky in the final negotiations with Sir Leon Brittan on the fringes of both the OECD Ministerial in Paris and the U.S.–EU Summit at The Hague at the end of May. The pressure that both sides felt from the business leadership was the critical ingredient that kept everyone at the negotiating table until an agreement that cut the costs of market entry with no compromise of health or safety could actually be reached. This was a stunning success and showed what can be achieved through an effective public/private partnership.
Further Trade Liberalization
The U.S.-European commercial relationship is already one of the most open in the world, and the NTA process, ably assisted by the TABD, has made great progress in opening it further. We still, however, have much to do to achieve our goal of a completely barrier-free Transatlantic marketplace. We have an agenda of priorities to work on, and we look forward to more; both from the U.S.–EU Joint Study and from the TABD—as well as from other sources.
Page 46 PREV PAGE TOP OF DOC
Certainly our near-term priorities must include implementing the agreements we have recently reached—particularly the MRA's, which have ''confidence building'' periods and other complex implementation aspects. Additionally, we look forward to broadening the scope of the MRA's by expanding them into new sectors that determined to be of priority by the business community and to be of mutual interest to U.S. and European regulators. The TABD can play an important role in identifying the best sectors for new agreements and to work with us for their speedy negotiation.
A global agreement on financial services is another key priority. While this agreement comes under the WTO, it is the United States and the European Union that must take the leadership both in tabling pace-setting offers and in working jointly to ensure that at least a critical mass of other countries participate with attractive offers so that U.S. financial service providers will receive beneficial access to foreign markets from an agreement. This is a necessity before the United States can agree to a final deal.
Electronic commerce also deserves immediate attention. The Administration has taken a leading role in bringing discussion and proposals to the fore, and the TABD views electronic commerce as one of the key areas for the forthcoming Rome conference this November. If electronic commerce is to achieve the scope that many believe it can, it must be fostered with global rules that encourage continued technical improvements while still providing the legal framework for such vital aspects as digital signatures.
Tariff reduction should be another priority. While tariffs across the Atlantic will average about three percent or less after full implementation of the Uruguay Round and the Information Technology Agreement, there are still product sectors in which European tariffs are keeping out U.S. products—including paper products. The United States still has residual tariff cutting or tariff cut accelerating authority in sectors such as wood products, electronics, medical equipment, and paper and paper products to accelerate certain Uruguay Round tariff reductions. We look forward to working with USTR to help focus on these tariffs and find ways to reach agreement with the European Union to bring them down.
Page 47 PREV PAGE TOP OF DOC
Additionally, we should begin to focus not just on mutual recognition of product testing and certification, but also on the development of harmonized standards for the future. The TABD held a very successful automobile standards conference last year, and recommended the development of a new global forum to develop common automotive standards for the future—an approach that would cut the cost of auto production and benefit consumers. Led by the National Highway Traffic Safety Administration (NHTSA), the United States has been actively pursuing the development of a new global auto standards forum. The European Commission has not yet agreed, but we are hopeful that they will see a sufficient consensus in the European auto industry and that they will join with us in this new endeavor. Success here could lead to similar efforts in other sectors.
Finally, let me point out that regulatory differences remain the most significant barriers to transatlantic trade. These differences stem not from a desire to build protective devices against imports, but from genuine differences in approaches to health and safety and other questions of public interest. Nevertheless, their effect can be to reduce trade. We are very concerned, for example, on the approach the European Union has taken on eco-labeling, and see this as a fruitful area for discussion and cooperation to see that the environmental objectives are met without having negative trade effects.
These, Mr. Chairman, are some of the priorities that we see for the near term. There will be others as well. There is no question that through the governmental cooperation in the NTA, the business cooperation through the TABD, and the linkage of these two processes, we have a very effective mechanism for moving ahead.
Thank you, Mr. Chairman.
Page 48 PREV PAGE TOP OF DOC
—————
Chairman CRANE. Thank you, Mr. Hauser.
Ambassador Lang, you mentioned in your testimony that you find ''particularly disturbing recent EU moves to use the WTO dispute settlement process to bring cases that are more political in nature than commercial.''
Is not the United States to blame as well for using trade sanctions, in the first place, in an attempt to influence political issues?
Mr. LANG. Well, I don't think so. I mean, there is a legitimate debate, I suppose, about whether the laws that are in effect are in our National interest or not. I'm not in a position to get into that issue.
But my point was that when we have these issues that are driven primarily by political interests, and by foreign policy and security concerns, the system in Geneva is just not designed to handle those kinds of matters. Whether the legislation was advisable or not is not an issue for me. We're going to enforce the law that Congress has enacted. The question for me is whether the best way to resolve the difference of opinion between the European Union and the United States about the law we are required to administer was to take the matter to the WTO.
As it turned out, Ambassador Eizenstat was able to work with the EU on that matter, and I think we will be able to work out the problems between us, and the result will be consistent with the objectives of the law—at least that's what I hope.
I take your point, but I'm just don't want to speak to the merits of the law, so much as the more technical issue about whether the WTO system can handle this kind of thing.
Chairman CRANE. In your view, how has the enactment of Helms-Burton and Iran, Libya and other sanctions affected the NTA and TABD discussions and the overall U.S.–EU relationship?
Page 49 PREV PAGE TOP OF DOC
Mr. LANG. Well, first, with respect to the TABD, my impression is that the business communities continue to be involved and active. I think the individual members, individual businessmen, may be concerned about these issues, but they continue to be substantively engaged on things like the MRAs, for example, and I assume they will continue to be in Rome.
With respect to the NTA, again, if you look at the actual results, I think things are moving forward reasonably well. We do have an ITA that's in effect today. We have a good telecommunications services agreement. This MRA was an incredibly detailed and difficult negotiation, but it will now be in effect about a year from now. So I think we're able to work through these commercial issues, in spite of these rather high profile, if you will, somewhat political disputes. I think there is some tension about these matters, as there are on our side, with some of the actions that Europe takes or threatens to take, including its pronounce——
[Electrical blackout in hearing room.]
Chairman CRANE. You didn't anticipate the threat of thunderstorms passing through, but it targeted, I think, just our Committee room.
[Recess.]
Mr. RAMSTAD [presiding]. Now that the second coup has failed, we're ready to resume the hearing.
The Chair has one more question, before I defer to my distinguished colleague from Massachusetts, of Ambassador Lang and Under Secretary Hauser, and either or both can address the question.
How far do you gentlemen feel we can press the NTA agenda without fast track authority, and do we need fast track authority for legal or symbolic purposes, or both?
Mr. LANG. Well, from our perspective, we will potentially need it for both. It's certainly important that the United States is seen as speaking with one voice and moving forward on trade, engaging with the rest of the world and all that kind of thing.
Page 50 PREV PAGE TOP OF DOC
In specific situations, I don't have anything specific in mind. But I suppose it is possible in the future that we would come up with some matter that would require a change in U.S. law, other than a tariff change, that would require the use of fast track.
Now, I might say that a number of things that we have moved forward on in the last, say, 6 months, like the information technology agreement and the Mutual Recognition Agreements, required no change in U.S. law. In the mutual recognition area, for example, it was terribly important that we assure everybody in this country that U.S. standards of safety and health and so on would not change at all as a result of this agreement. That was a foundation stone.
But we are studying other areas. There is a joint study process with the EU. We're studying other areas. I don't know what the business community will suggest. I think it's conceivable that it would have a practical utility in the future. But again, I have nothing specific in mind.
Mr. RAMSTAD. Under Secretary Hauser.
Mr. HAUSER. I have nothing to add to what the Ambassador said, Mr. Chairman.
Mr. RAMSTAD. The gentleman from Massachusetts.
Mr. NEAL. Thanks, Mr. Chairman.
Mr. Ambassador, I will direct a question to you, and perhaps Mr. Hauser could follow up on it.
Given the IRA cease fire that was announced last Friday, and President Clinton's interest in Northern Ireland, the new Labor Prime Minister, Tony Blair, in Great Britain, and new Irish Prime Minister, Verdia Hearn, how might the transatlantic union help build some confidence on all sides of the equation in the north of Ireland?
Mr. LANG. Well, of course——
Page 51 PREV PAGE TOP OF DOC
Mr. NEAL. The European Union has been very helpful to the Republic of Ireland.
Mr. LANG. Yes, that's true. That's true.
I would like to think about this a little bit, but my initial reaction is——
Mr. NEAL. We've had 300 years.
Mr. LANG. That's true. There is certainly a set of incentives that—there's a relationship between commercial development and higher standards of living and peace and progress. I think that runs through everything we do in trade, even though it's not our main objective. Our main objective is deals that are of mutual benefit to both sides. So I think there probably is a relationship there.
Now, I don't work on the Northern Ireland matter, as such. I negotiate these trade deals. But I do know that the Republic of Ireland has had significant growth and has even encouraged Irish immigration to reverse because of their development recently, due in part to their further integration to the community. But I think also because American business has gotten involved there. We're responsible for something like 40,000 jobs in the Republic of Ireland, and many of our high technology companies have facilities there. Maybe something like that can be expanded into this area, if we can get peace and security.
I think I had better not go any further, but maybe we can get back to you with a few more ideas, if we consult with our colleagues who work on this issue full time. I expect there is a relationship. I just don't know enough about the situation to respond fully.
Mr. HAUSER. Congressman, if I might add, I think we have taken some steps over the past couple of years to use our commercial efforts as a way to bolster the peace process. Shortly afterward the President asked Secretary Brown to go over to Northern Ireland to take a look at whether, through a process of fostering trade and investment ties, we might give some economic underpinning to the peace process.
Page 52 PREV PAGE TOP OF DOC
We have followed up on that. Last October, I believe, in Pittsburgh, then Secretary Kantor chaired a conference on opportunity for trade and investment in Northern Ireland. We brought over about a hundred firms from the border counties of Ireland and Northern Ireland, got about 350 firms from across the United States in what we call a matchmaker surrounding, to try to build trade and investment ties.
I think that's a notion that, as a new peace process, a new cease fire seems to be in place that Secretary Daley is very interested in following up on. We have already scheduled some promotional events, trade missions, into the region in the fall, but I think this is all aimed at the nexus between economic opportunity, and the stability required to maintain the peace.
Mr. NEAL. The recruits on both sides come from the Falls Road and the Shankle Road. They generally are those that are in the midst of grand poverty. I think there's a tendency on this side of the Atlantic not to view this as a flash point in American diplomacy. But it is the longest standing political dispute in the history of the western world. I think that these sorts of initiatives can go a long way toward building confidence and building some esteem for all parties in these negotiations.
So I would hope, Mr. Ambassador, that you could get back to me with some specific recommendations or suggestions.
Mr. LANG. Yes, sir.
Mr. NEAL. Thank you.
Chairman CRANE [presiding]. Mr. Jefferson.
Mr. JEFFERSON. Let me ask a question, Mr. Lang, about steel and agriculture. My State is mostly concerned with agriculture as a result of our ports and our steel capacity. These have been sticking points in the negotiations between the EU and the United States.
Page 53 PREV PAGE TOP OF DOC
Can you tell me what plan the administration has in your negotiations on these questions?
Mr. LANG. Yes, sir. For one thing, steel was the subject of a zero tariff commitment in the Uruguay round, which is being staged in now. We have had occasional conversations with the European Union about some kind of arrangement on steel that would gain the support of the domestic industry in this country, to eliminate subsidies and dumping.
So far, those have not resulted in a negotiation, let alone an agreement, although we have tried to move forward in the area of specialty steel. Those discussions are underway now. I don't want to predict how they will come out, but there are discussions underway on that subject.
We also have some consultations occasionally with Europe about the effect of their steel trade decisions in the antidumping area on our market—that is, their decisions with respect to steel that flows into the community from the east, from Russia, that sort of thing. So that's kind of the level of conversation we have had about that.
Now, agriculture I could go on for days about. It's a very difficult area with the community. But I guess there are about three levels of this.
At one level there is already agreed a schedule for further negotiations in agriculture under the auspices of the WTO, beginning in 1999, in various forms, preparing for that, including the WTO Agriculture Committee, but other kinds of consultations, like the quad.
The EU, I must say, has continued to agree with that start date. That's very important because we need to work now in the context of the WTO to prepare for those negotiations, so that when the start date hits, we're not talking about the shape of the table; we're substantively working to improve WTO disciplines in the area of agriculture because that's the big deal that will move us forward on opening agriculture markets.
Of course, we're enormously productive in agriculture. It's 10 percent of our exports. We need Europe to be working with us on that subject. That's one level.
Page 54 PREV PAGE TOP OF DOC
At a second level we have some serious problems with the EU on the administration of their domestic programs with respect to a number of very serious issues involving mainly, I think, from their perspective at least, issues about health, and maybe the environment.
This arises, for example, in the biotechnology context. The process for approving food products, or products that might enter the food chains in Europe, we think is flawed. It's not as transparent as we think it ought to be. It is more politicized than the process here in the United States and that makes it difficult for business to plan. We don't think it's good for Europe, and it certainly isn't good for us, notwithstanding the fact that in most cases we have been able to work with the Europeans and get these products approved.
This affects a lot of products that are not biotechnological products but are nonetheless important. So we are trying to work with the Europeans to improve those internal processes in this area. That involves, of course, bringing to their attention the provisions of the sanitary and phytosanitary agreements in the WTO which were intended to bear on this issue of food safety, which has turned out to be a very important issue in Europe. That's the second level.
The third level are the disputes. For example, we have a longstanding dispute with Europe on the use of hormone-treated beef. We find no scientific evidence to support a ban on that product, and nonetheless they continue to ban the product. There, as in many of these disputes, we have put our faith, if you will, in the WTO, because previous to the WTO Europe was able to stall those decisions and we were forced to retaliate on a unilateral basis, or bilateral basis.
But starting last summer, we began to take these disputes through the WTO system. Now, some of them in the grains area, for example, in wheat, rice, barley, we have been able to settle these disputes before they went to a disputes settlement panel on a basis that our industry was able to accept and find favorable. But others, like the beef hormone matter, are going through the process now. We are concerned that some Europeans have said that, no matter what the outcome of the process, they can't comply with it.
Page 55 PREV PAGE TOP OF DOC
I don't know what ultimately the outcome of the process will be, let alone how they will react. But there has been concern expressed in U.S. Government circles, and obviously by our industry, that the process relating to a commercial dispute would not be resolved by the WTO.
So those are the three levels on agriculture, and we could literally have a separate hearing, if not several days of discussion, about the details. But it's a very difficult area.
Mr. JEFFERSON. Thank you very much.
I won't pursue this any further, Mr. Chairman. Perhaps I can ask Mr. Lang some other questions outside of the hearing about this particular set of issues, and to have further responses.
Chairman CRANE. Without objection.
One quicky question before you folks depart. It has to do with the potential for creating a body maybe a unit within the WTO, where you get some degree of international cooperation in establishing these standards—I mean, an international FDA, if you will, so as to eliminate conflicting standards, because this problem is not confined to the EU.
Mr. LANG. That's true. Actually, we have, I think, some of the beginnings of what you're talking about. I would like to talk in more detail with you about it.
But just to respond to that idea, I have two thoughts. One is, within the WTO, I have noticed a lack of attention on the value of the committee process. It used to be that old GATT committees were just talk shops. But the committees in the WTO turn out to be an important part of the process of reaching consensus on what these rules mean. They have a large multiplier, because everybody is at the table and you can move countries off of positions that we think are inconsistent with our obligations into a more mainstream position through the active use of the committee process.
Page 56 PREV PAGE TOP OF DOC
It chews up resources and it's very difficult for us to field the necessary resources to get to all these committees. But I think that's important in this agriculture area and in the sanitary and phytosanitary area, and in the standards area. All those committees need to be areas where the United States is present every single time.
Beyond that, both the standards agreement and the sanitary and phytosanitary agreement encourage agreement on international standards. Working with APHIS and USDA and Commerce in a variety of areas, we have tried to move toward some of those international standards.
Now, sometimes it's very difficult for us because in many areas in the industry, for example, we don't have a federally set standard. We may only have privately established standards. But nonetheless, I think the process is useful.
I would just say that I think some of your question relates to the technical difficulties we had in getting this Mutual Recognition Agreement, because I think we need to keep in mind not only the trade interest in this but the profound interest our public has in confidence in these health and safety systems. Right now in America, we are actually improving our health and safety standards in agriculture, but in a lot of other areas, and I think this helps avoid crises of confidence such as they've had, frankly, in Europe. I think we need to maintain that confidence in our systems and, nonetheless, try and move forward on the acceptability of common standards.
I would say that clarifying the process in Europe a little bit, making it a little more transparent and a little less politicized, would greatly help, because I think when our businessmen go in there, they want to prove the case that they make to the FDA or APHIS or whatever on the merits. That's basically what they tell us they need. So we are obviously negotiating on that basis.
Mr. HAUSER. If I might add a little bit, Mr. Chairman, I agree with what Ambassador Lang said. I would stress a couple of points.
Page 57 PREV PAGE TOP OF DOC
One, the fact that the systems are different. In many of our trading partners, there is a centralized government standards entity as opposed to our system, where it is private sector led. That being said, other countries—and this gets to the resource issue, that these things are terribly complex, extremely resource intensive to negotiate—other countries have raised the possibility of bilateral MRAs. Switzerland and Norway have asked us about it. We've had soundings from Asian companies, countries like Taiwan, Japan, Australia. Our friends at the FDA are, I believe, talking to their Canadian colleagues about this possibility.
I think the thing would be to, one, look at where the opportunities are, and two, because of the complexity of doing these things, it would be useful to look at whether there is some broader way to address this than a series of very intensive bilateral talks. I think your notion of looking at it more broadly is one that deserves some study.
Chairman CRANE. Well, gentlemen, we thank you. We apologize for the inconvenience of sitting in the dark.
With that, I would like to ask our next panel of witnesses to come up here. But before they do, let me tell some of the folks in the room here who are standing, we have chairs over here, if you would like to come over here and get comfortable.
Our next panel of witnesses includes Lodewijk de Vink, president and chief operating officer, Warner-Lambert Co., and U.S. chairman of the Transatlantic Advisory Committee on Standards, Transatlantic Business Dialogue; Janet Wells, chief executive officer of Insta Graphic Systems, and the U.S. chair of the Small and Medium-Sized Enterprise Group of the Transatlantic Business Dialogue; Patrick Yanahan, president and chief executive officer of USA Chicago, on behalf of the American Electronics Association; and Will Berry, president of the European-American Business Council.
I would ask you folks to also try and confine oral testimony to about 5 minutes, but your printed statements will be made a matter of the permanent record.
Page 58 PREV PAGE TOP OF DOC
We will proceed in order, Mr. de Vink.
STATEMENT OF LODEWIJK J.R. DE VINK, PRESIDENT AND CHIEF OPERATING OFFICER, WARNER-LAMBERT CO.; ON BEHALF OF THE TRANSATLANTIC BUSINESS DIALOGUE
Mr. DE VINK. OK. Thank you, Mr. Chairman, Representative Neal.
I am very pleased to have the opportunity to testify today about the New Transatlantic Agenda and the efforts to facilitate it through the Transatlantic Business Dialogue. I am Lodewijk de Vink of Warner-Lambert Co.
The focus of this hearing is on the New Transatlantic Agenda. I want to address one pillar of it, which is strengthening the commercial relations between the United States and Europe.
First, we do applaud President Clinton and Congress' intentions to adopt a bipartisan NTA as the basis for the relations with Europe. It rightly identifies commerce as a principal driver, and our efforts in the TABD are founded in that view and serve as the foundation of that part of the NTA.
The Transatlantic Business Dialogue was created to provide private sector input to government as the NTA was developed in 1995. Since then, the TABD has evolved into a refreshing approach to trade. It allows business leaders to identify problems and solutions with government as partners rather than antagonists.
There are two primary objectives of the TABD. First, to achieve meaningful and measurable improvements in the transatlantic regulatory environment. Our goal is that products be approved once and accepted everywhere in the transatlantic marketplace.
The second objective is to grow the Transatlantic Business Dialogue as a new paradigm for private-public problem solving, and to demonstrate that partnership, rather than confrontation, is a superior approach to meeting challenges. The underpinnings are dialog and trust.
Page 59 PREV PAGE TOP OF DOC
In its short life of about 2 years, the Transatlantic Business Dialogue has numerous achievements. In my written testimony are many examples, especially the role of TABD and the breakthrough package of Mutual Recognition Agreements that are listed.
Why has the Transatlantic Business Dialogue been so successful? I think there are several keys. First of all, the engagement of top level government officials and corporate management are essential. Our work matters because decisionmakers make decisions.
It has also been successful because the four sides of the table—government and business from both sides of the Atlantic—are realistic about expectations. We undertake to solve only solvable problems.
As importantly, the word dialog is not a slogan but a defining characteristic. Look at the MRAs, when there was a dialog, there was progress.
And finally, trust. Regulators and industry have and always will disagree on some issues. Europeans and Americans will disagree as well. But as long as the Transatlantic Business Dialogue is founded on trust, solving problems for an open marketplace can work.
The TABD leadership is presently surveying new areas of targets. We hope to unveil the second round of TABD activity at our meeting in November in Rome. But I would like to stress here, too, that fast track authority for future trade negotiations is important for many of the things we hope to accomplish across the Atlantic.
As Chair of the TABD Working Group on Regulatory Policy, as well as an executive of a science-based company, I would like to offer one final thought. When GATT began in 1947, tariffs were the key issue. Since then, protectionism has become more sophisticated, replacing tariffs with more complex and less transparent nontariff barriers.
Today, trade policy is entering a new, third level. The global economy is becoming more science-based as trade grows in health care technologies, information management, and electronic commerce. Regulation of science is creating new trade barriers. American leadership is uncontested in science, but growth can be stalled by technical barriers. Now it's time to harmonize scientific rules.
Page 60 PREV PAGE TOP OF DOC
In sum, we applaud the NTA that meaningfully addresses the concerns of the business community and facilitates export-driven growth. As an offshoot, the Transatlantic Business Dialogue is helping to achieve measurable improvements. We offer to break the paradigm and help to bring a new paradigm about where the public and private can solve problems.
Thank you.
[The prepared statement follows:]
Statement of Lodewijk J.R. de Vink, President and Chief Operating Officer, Warner-Lambert Company; on Behalf of the Transatlantic Business Dialogue
Good afternoon, Chairman Crane and Members of the Committee. I am pleased to testify today about the New Transatlantic Agenda (''NTA'') and specifically about our efforts to facilitate the success of that initiative through the Transatlantic Business Dialogue (''TABD'').
I am Lodewijk de Vink, President and Chief Operating Officer of Warner-Lambert, a worldwide company which employs approximately 40,000 people devoted to developing, manufacturing and marketing quality health care and consumer products. The members of the Subcommittee may be familiar with some of Warner-Lambert's brand name products, such as Listerine, Sudafed, Benadryl, Schick and Wilkinson Sword shaving products, Tetra, Rolaids, Halls, Trident, Dentyne and Certs. Our Pharmaceutical Sector is comprised of two divisions: Parke-Davis, which has been engaged in the pharmaceutical business for 127 years, and Capsugel, the world leader in manufacturing empty, hard gelatin capsules.
As you know, Mr. Chairman, Warner-Lambert has two operations in Illinois. Our primary U.S. distribution center is located in Elk Grove, and our Adams confectionery business manufactures products for global markets in Rockford. We are proud to have over 1,400 Warner-Lambert colleagues in Illinois. Our Parke-Davis pharmaceutical division has its global research headquarters and two manufacturing facilities in Representative Dave Camp's home state, Michigan, where we employ 2,800 colleagues.
Page 61 PREV PAGE TOP OF DOC
I am accompanied today by my colleague in the Transatlantic Business Dialogue, Ms. Janet Wells, Chief Executive Officer, Insta Graphic Systems. We are testifying on behalf of Mr. Dana Mead, Chairman and Chief Executive Officer of Tenneco, who serves as U.S. co-chair of the TABD, and the many other senior business leaders who have committed themselves to making this process such a success.
New Transatlantic Agenda
While the focus of this hearing is on the New Transatlantic Agenda, my particular comments will focus on its third pillar—the strengthening of the commercial relationship between the U.S. and Europe.
Taken as a whole, the NTA is an initiative that sets out to redefine relations between Europe and the U.S. in the post-Cold War era. It rightly identifies commerce as a principle driver. Our efforts in the TABD both are founded in that view and serve as the foundation of that part of the NTA. It is appropriate that U.S. foreign policy recognize that commerce—business—is more than one of the many facets of relations between our two continents. Commerce is at the core. It is the flywheel of that relationship.
In my view, it always has been. Think of all that we do in free societies. Think of all that we accomplish through our free markets. Consider all that we bring to others through our intellectual and communications freedoms. All of this is ultimately moved by commerce.
This is not news to the Committee on Ways and Means. The notion of commerce as the flywheel of progress has been around for many centuries. As the Ways and Means Committee reflects upon the NTA, or trade policy in general, I recommend to it a fascinating new book by Professor Lisa Jardine, entitled Worldly Goods. In it, Professor Jardine rejects the widespread notion that the Renaissance was sparked by the spontaneous combustion of cultural identity. Rather, she argues, it was commerce that launched it.
Page 62 PREV PAGE TOP OF DOC
She points to that period's widespread appetites for printed books and new artworks, an emerging ''consumerism'' among the expanding European upper classes, and the newfound practical application of emerging sciences. Professor Jardine goes on to argue that the geopolitics of the period were also driven by commerce—in forging trading routes to the East, in the scramble for distribution and landing rights in port regions, and in the rapid exchange of ideas through the mass communication of print.
Now if the Renaissance was sparked by new information technologies, a radical shift in geopolitics, the birth of new sciences, and emerging markets, what does that tell us about today?
Those conditions, Mr. Chairman, are precisely the conditions we face today. And that is why the issue this Committee is addressing is so critically important not only to secure peace and prosperity for the citizens of the U.S. and Europe today, but to secure it for future generations as well. Our transatlantic partnership has been and should continue to be the leading force for peace, democracy, prosperity and development for ourselves and for the world.
I applaud President Clinton, the Congress, and this Committee in particular for the vision to adopt the bipartisan NTA as the basis for our relations with Europe and for recognizing the increasingly important role of commerce in this relationship.
Transatlantic Business Dialogue
Creation of the Transatlantic Business Dialogue was largely driven by the desire of government officials to have input from the private sector as they developed the NTA prior to its unveiling in Madrid in December 1995. Since then, the TABD has evolved into a refreshing new approach to addressing trade barriers, by allowing business leaders to identify problems and solutions with government as a partner rather than antagonist.
Page 63 PREV PAGE TOP OF DOC
There are two primary objectives of the TABD. One is to achieve meaningful and measurable improvements in the transatlantic regulatory environment on both a sector-specific and cross-cutting basis. The process has focused on the vision that, when our goal is reached, products will be ''approved once, accepted everywhere in the Transatlantic marketplace.''
The second objective is to grow the TABD process as a new paradigm for public-private problem solving and to demonstrate that partnership, rather than confrontation, is a superior approach to meeting challenges. The underpinnings of this new paradigm are dialogue and trust. The various agreements negotiated through the TABD process are built on a bridge of trust and efficiency across the Atlantic: trust between regulators and industry and between nations.
In its short life—two years—the TABD has numerous achievements. In general, it has created a more positive climate to allow discussions to take place, negotiations to progress, and the potential to exist for meaningful improvements in trade in the transatlantic region—the largest bilateral trade relationship in the world. We are helping to change the way trade negotiations are conducted.
Our most recent accomplishment was the successful conclusion of a package of Mutual Recognition Agreements (the ''MRAs'') in a number of important sectors such as telecommunications equipment, electronics, pharmaceuticals, medical devices, electrical equipment, and recreational marine. William Daley, U.S. Secretary of Commerce; Charlene Barshefsky, U.S. Trade Representative; and Sir Leon Brittan, Vice Chair of the European Commission, have all credited the TABD with making the agreement possible.
The TABD has become a force for entrepreneurial diplomacy. Many credit TABD as the principal driving force in the successful completion of the Information Technology Agreement and the Customs Cooperation Agreement.
TABD also established the Transatlantic Small Business Initiative which provides partnering opportunity and information for joint ventures. It developed guidelines for the development of an Organization for Economic Cooperation and Development (OECD) accord on the criminalization of corruption and bribery which the OECD recently adopted. It established the Transatlantic Advisory Committee on Standards which provides a forum to focus on specific sectoral regulatory issues.
Page 64 PREV PAGE TOP OF DOC
Mutual Recognition Agreements
Let me take this opportunity to illustrate how the TABD works to solve problems. A good example of the process in action is the recently concluded talks on the MRAs.
The process was successful because many talented people labored hard and smart within the process. Secretary Daley and his talented staff were the hub of the process. U.S. Trade Representative Barshefsky, her Deputy, Jeff Lang, and their colleagues were vital. And the various regulatory bodies, particularly the Food and Drug Administration led by Dr. Michael Friedman, the Lead Deputy Commissioner, were impressive in their willingness to experiment with this new process for addressing complex, science-based commercial issues. In Europe, European Commissioners Sir Leon Brittan and Martin Bangemann were visionary in their approach.
As mentioned earlier, the MRAs cover a broad range of cutting edge sectors including telecommunications equipment, electronics, pharmaceuticals, medical devices, electrical equipment, and recreational marine craft. For each of the sectors covered, the agreement provides a different form of regulatory relief.
For example, the medical device annex streamlines the approval process for medical device equipment and also manufacturing practices between Europe and the U.S. The annex related to recreational marine craft industry is fundamentally different. Under the agreement, a group such as the U.S.-based National Marine Manufacturers Association can now be approved as a third party inspectorate, thus reducing the backlog caused by limited E.U. resources. These are real problems with practical solutions.
In all, these sectors represent $47 billion in transatlantic trade each year. The trade impact of the MRAs is clear: efficiencies to be gained are comparable to eliminating a tariff of three percent of sales. As the Journal of Commerce editorialized, the MRAs are merely the ''first fruit'' of the TABD and much more should be expected in the future. But that first fruit shows how critically important the interaction between business leaders and government officials—on a cooperative, problem-solving basis, rather than an antagonistic one—can be.
Page 65 PREV PAGE TOP OF DOC
The history of the MRAs is long but my testimony about it will be brief. In sum, the government-to-government discussions first began five years ago. Little progress was made until November 1995 when the first meeting of TABD in Seville identified completion of the MRAs as a priority. Over the next year, government negotiators worked hard to finish the package in time for the next TABD meeting in Chicago one year later. Several sectors lagged behind others and government negotiators debated whether to strip apart the package and move forward on only those where substantial agreement had been reached.
At that point, government leaders put the TABD resource to work by enlisting business leaders at the Chicago meeting to help sort out the issues in the failing sectoral MRAs and revive them. The most contentious issue in the MRA package was the annex pertaining to pharmaceutical good manufacturing practices. A working group on the pharmaceutical MRA was assembled, and included FDA officials, officials from both Directorates General I and III of the European Commission, and six executives from the pharmaceutical industry from both sides of the Atlantic: Rolf Krebs, Boehringer Ingelheim Corporation; Sean Lance, Glaxo Wellcome; Jan Leschly, SmithKline Beecham, p.l.c.; Sidney Taurel, Eli Lilly and Company; Robert Shapiro, Monsanto Company; and me.
In three hours, that group developed an agreement-in-principle that reshaped the framework for that MRA. The business contribution was simple: several issues assumed to be problematic for industry on a policy level proved not to be on a practical, business level. It was decided at that time that the pharmaceutical agreement needed to be a two step process: first, a transitional, confidence-building period in which each importing country would receive inspection reports from the inspectors of the exporting country; the confidence building period would ultimately be followed by a final MRA. Essentially, this two step process is predicated on the need for regulators from each country to build trust and confidence in each other's regulatory systems. It was also agreed that the scope of the MRA would include pre-approval inspections as well as post-approval inspections.
Page 66 PREV PAGE TOP OF DOC
At several junctures since, it became necessary for industry input. Jan Leschly and I traveled to Washington for one such meeting last Winter and we made our staff available on an ongoing basis throughout the process.
The result is clear. By helping government negotiators understand more precisely the practical ramifications of the policy decisions before them, we helped facilitate an agreement. We hope to build upon this success, as well as our other successes, as we approach our next TABD conference in Rome this November.
Keys to Success
Why has the TABD been so successful? There are several keys to its success.
First, the engagement of top level corporate management and government officials has been essential. The leadership of Paul Allaire of Xerox, Alex Trotman of Ford, and Dana Mead of Tenneco has been vital, as has been the participation of the late Ron Brown, Mickey Kantor, and European Commissioners Brittan and Bangemann. In full, over 125 U.S. corporate leaders have played a role over three years. The work product is meaningful because decision-makers make decisions.
It has also been successful because the four-sides of the table—government and business from both sides of the Atlantic—are realistic about expectations. We identify and undertake to solve only solvable problems. Business and government may debate the underlying premises of regulation in other policy arenas, but within the TABD context we look instead at those regulatory regimes which can be made more efficient and avoid the broader debate. Industry accepts the necessary role of government in assuring health and safety; government accepts industry's need to meet these standards with the least amount of red tape and duplication.
Page 67 PREV PAGE TOP OF DOC
As importantly, the word ''dialogue'' is not a slogan but a defining characteristic of the process. Look at the MRAs: when there was dialogue, there was progress. The MRA on pharmaceutical good manufacturing practices is a good example. The greatest progress was made in Chicago, when negotiators and the TABD participants sat down and compared the policy questions with the practical issues and at several junctures later when the four sides were assembled. Conversely, when there wasn't dialogue, there often wasn't progress.
And finally, trust among the participants is a sine qua non. Regulators and industry have and always will disagree on some issues; Europeans and Americans will as well. But as long as the TABD is founded on trust—that we are all trying to solve common problems to facilitate a more open transatlantic marketplace—the process will work.
Future Agenda of TABD
The TABD leadership is presently surveying sectors and identifying new areas to target in the coming few years. We hope to unveil the second round of TABD activity at our meeting in November in Rome. It would be premature to discuss a ''future agenda'' of the TABD, but certain issues deserve mention.
The TABD will continue to focus on sector-specific problems. Many sectors, including automotive, chemicals, electronics, electrical, telecommunications and information technology, have developed aggressive, sector specific agendas to build on the MRAs. Other sectors, like medical devices, will concentrate efforts to push for changes in the U.S. regulatory system as well as implementation of the MRA.
We are also looking at several cross-cutting issues. For example, the issue of data protection reaches from internet personal security, a foundation for electronic commerce, to the harmonization of protections for clinical data in biomedical research, a foundation for the sciences of genomics and biotechnology, to ensuring commercial information remains confidential, a foundation for financial services and so many other data intensive industries.
Page 68 PREV PAGE TOP OF DOC
TABD is also looking at broader bilateral issues effecting the transatlantic marketplace. For example, issues of corruption and business ethics have been a central focus. This is our responsibility, as business leaders, not the government's. It is both the right thing to do and an essential initiative to protect the competitiveness of American businesses that meet the highest legal standards.
The TABD will continue to focus on global issues. The transatlantic marketplace is often affected by multilateral issues, like investment policy and intellectual property, and there is a substantial amount of work underway in forums like the OECD and the WTO. It is critical that the U.S. and E.U. continue to work closely in these areas where our economies mutually benefit.
Let me give you an example. Warner-Lambert is in the business of research and development. Protecting our ideas is central to our economic survival. The fact that we, or for that matter our European competitors like SmithKline Beecham or Glaxo-Wellcome, cannot protect our innovations in countries like India, Argentina or China is simply not acceptable for both competitive and ethical reasons. On a transatlantic basis, we must work together to make sure that other countries live up to standards that protect investment and innovation.
This is simply a sampling of the broad range of issues that the TABD intends to focus on in the next few years. For your information, I would be pleased to provide the Committee with a copy of a mid-term report, TABD Priorities For the Mid-Year Summit, that was presented to the U.S./E.U. Summit in The Hague. This will help demonstrate the breadth and depth of the TABD's work.
Finally, it is important to stress to you, the Committee on Ways and Means, that authorization of fast track authority for future trade negotiations is an important building block for many of the things that TABD hopes to accomplish in the future. The business leaders who have committed so much time and energy to this process strongly encourage you to move forward on it.
Page 69 PREV PAGE TOP OF DOC
Future Trends in Trade Policy
As Chair of the TABD Working Group on Standards, Certification and Regulatory Policy and as an executive of a science-based company, I would like to offer an additional thought on trade policy in the future.
TABD will continue to view our goal in the regulatory and standards area to be ''approved once, accepted everywhere in the Transatlantic marketplace.'' But achieving this goal requires a rethinking of some of our basic approaches to trade policy. When GATT began in 1947, tariffs were the key issue in trade disputes and that was the appropriate focus. While there are still substantial issues related to tariffs that need to be addressed, protectionist trade policy has evolved to a more sophisticated level. Many tariff barriers have been replaced by more complex and less transparent, non-tariff barriers. The global trade policy debate has now shifted to address these more subtle forms of protectionism.
Now, the global economy is becoming more science based as trade grows in health care technologies, information management, and electronic commerce. As it does, trade policy is entering a third level. The term ''technical barriers to trade'' has been coined, buts its meaning is still evolving. I encourage the Committee on Ways and Means to help shape its development, because its long-term impact on America's growth industries is tremendous.
Appropriately, governments will continue to have the duty to protect the health and safety of their citizens. But scientific facts are just that—facts. Unless conventions are adopted on the regulation of science, varying systems could create unintentional trade barriers. Worse, others may use scientific standards intentionally to frustrate free trade. The tough negotiations over the MRAs are just an example of what lies ahead.
Senator Daniel Patrick Moynihan has called the 21st century the ''Biomedical Century.'' Others point to the internet and information technology as America's strongest growth opportunity in the future. Whatever moves our economy forward, American leadership is uncontested today in these and other areas, but it can be stalled by technical barriers to trade. I strongly encourage the Committee on Ways and Means to consider this trend as it sets the trade policy agenda for the coming decade.
Page 70 PREV PAGE TOP OF DOC
Conclusion
In sum, we commend the NTA as a worthwhile initiative that meaningfully addresses the concerns of the business community and facilitates export-driven growth. As an offshoot of the NTA, the TABD is helping to achieve meaningful and measurable improvements in the transatlantic regulatory environment on both a sector-specific and cross-cutting basis. The TABD process also offers a new paradigm for public-private problem solving.
With this, Mr. Chairman, I would be pleased to answer any questions.
—————
Chairman CRANE. Thank you, Mr. de Vink.
Ms. Wells.
STATEMENT OF JANET WELLS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, INSTA GRAPHIC SYSTEMS; U.S. COCHAIR, SMALL AND MEDIUM-SIZED ENTERPRISE GROUP, TRANSATLANTIC BUSINESS DIALOGUE
Ms. WELLS. Chairman Crane and Members of the Committee, it is an honor for me to provide my views on the New Transatlantic Agenda on behalf of small- and medium-sized exporting companies of the United States.
I am Janet Wells, president and chief executive officer of Insta Graphic Systems. Insta Graphic Systems is the world's leading manufacturer of heat transfer machines and a worldwide, full-service apparel printer. We currently export to over 100 countries around the globe.
Page 71 PREV PAGE TOP OF DOC
I have the privilege of serving as the U.S. cochair for the Transatlantic Business Dialogue's Small and Medium-Sized Enterprise Group. In my remarks, I hope to emphasize how the strengthening of the business-government partnership through the TABD process will improve the prospects for increased trade liberalization, especially among small- and medium-sized enterprises.
SMEs represent 30 percent of merchandise export revenue and 90 percent of the companies involved in international trade. Coincidentally, these statistics mirror each other on both sides of the Atlantic. Within the SME category, there is tremendous potential for export revenue growth and the associated creation of new jobs.
What small companies need from their government is assistance in finding ways to facilitate trade and investment opportunities. We urge government to eliminate bureaucratic processes, be it regulatory requirements or burdensome customs procedures, which do not add value or strengthen the safety of a product but, rather, slow the process of getting a product into the market and in so doing act as a barrier to trade.
As the chief executive officer of a medium-sized business, I strongly support the TABD principle ''approved once, accepted everywhere'' within the transatlantic marketplace. American and European regulatory agencies need to harmonize their standards across a wide range of industrial sectors. The conformity process is burdensome to all companies, but in particular to small- and medium-sized firms, who lack the resources to properly make their way through what can seem like an intricate maze.
Let me provide a specific example. In 1994, Insta Graphic Systems was notified by our German distributor that our machines did not comply with German safety standards. In 25 years, we never had a safety related problem with our equipment in Europe. It was only after we contacted the U.S. Department of Commerce that we were directed to a European-approved, U.S.-based organization that set us on a path to solve the problem on certification. It has been a costly and time-consuming process.
Page 72 PREV PAGE TOP OF DOC
To acquire TUV approval for one of our 12 machines, we had to change or modify every electrical component and many of the mechanical components. All of this was performed to comply with just the German directives. The resources expended for a medium-sized business were significant. Manuals had to be rewritten, new labeling prepared, safety systems redesigned, new wiring harnesses installed, and new testing performed.
It took our company 1 year to receive German regulatory approval for our machines. During this delay, we lost sales to European competitors, and market share as well. In addition to the costs incurred to redesign and testing, the regulatory approvals added over two percent to the cost of our machines.
The recently enacted Mutual Recognition Agreement makes significant progress in addressing many of the trade problems for a variety of industrial sectors. Both the U.S. and EU Governments, especially the U.S. Department of Commerce, deserve praise for enacting this historic initiative.
I have participated in the two conferences of the TABD in Seville and Chicago. One of the many results of our initial meeting in Seville was the creation of the Small and Medium-Sized Enterprises Group. The SME group's objective is to ensure that the views of smaller companies are taken into account in developing TABD recommendations.
While all the TABD priorities are also priorities for the SME group, we are focusing in particular on some of the TABD issues which we feel are critical to the export success of smaller companies.
In conclusion, the SME group believes that the recommendations of the Transatlantic Small Business Initiative (TASBI) and the TABD will lead to increased business between the two regions, provide new employment opportunities, improve the profitability of the SMEs, and result in tangible benefits to consumers.
TABD gives small- and medium-size enterprises an unprecedented voice to the governments on both sides of the Atlantic. The formal recognition by the U.S. Government and the European Commission of SMEs as a key element in the TABD process presents small business with an opportunity to work with our larger business partners in creating a flourishing economic future under the New Transatlantic Agenda.
Page 73 PREV PAGE TOP OF DOC
Thank you for this important and valued opportunity to testify.
[The prepared statement follows:]
Statement of Janet Wells, President and Chief Executive Officer, Insta Graphic Systems; U.S. Cochair, Small and Medium-Sized Enterprise Group, Transatlantic Business Dialogue
Introduction
Chairman Crane and Members of the Committee, it is an honor for me to provide my views on the New Transatlantic Agenda, on Behalf of small- and medium-sized exporting companies in the United States.
I am Janet Wells, President and Chief Executive Officer of Insta Graphic Systems. Insta Graphic Systems is the world's leading manufacturer of heat seal transfer machines and is a worldwide, full-service custom apparel printing resource specializing in the activewear, entertainment, and promotional apparel markets. We have 150 employees at our headquarters in California and maintain a bonded machine warehouse in Holland to service the European market. Our customers include Nike, Reebok, Levi Strauss and Company and The Walt Disney Company Japan. Insta currently services accounts in over 100 countries around the globe, and international machine sales account for over 53% of our machine sales volume.
I have the privilege of serving as the U.S. Co-Chair for the Transatlantic Business Dialogue's Small and Medium-sized Enterprise (SME) group. In my remarks, I hope to emphasize how the strengthening of the business-government partnership through the Transatlantic Business Dialogue process will improve the prospects for increased trade liberalization, especially among small and medium-sized enterprises.
SMEs represent 30% of merchandise export revenues and 90% of the companies involved in international trade. Coincidentally, these statistics mirror each other on both sides of the Atlantic. Within the SME category, there is tremendous potential for export revenue growth and the associated creation of new jobs.
Page 74 PREV PAGE TOP OF DOC
What small companies need from their governments is assistance in finding ways to facilitate trade and investment opportunities. We urge government to eliminate bureaucratic processes, be it regulatory requirements or burdensome customs procedures, which do not add value or strengthen the safety of a product, but rather simply slow the process of getting a product into the market and in so doing act as a barrier to trade.
SME View on the MRA
As the CEO of a medium-sized business, I strongly support the TABD principle ''approved once, accepted everywhere.'' American and European regulatory agencies need to harmonize their standards across a wide range of industrial sectors, including the machine and electrical equipment sectors.
Insta Graphic Systems has manufactured heat seal transfer machines since 1959 and has exported them to Europe for over a quarter of a century. Our machines are UL (U.S.) and CSA (Canada) approved. The adaptation of our products to the varying and new types of international, national and regional standards is costly, time consuming and confusing. The conformity process is burdensome to all companies, but in particular, to small and medium-sized firms who lack the resources to properly make their way through what can seem like an intricate maze.
Let me provide a specific example. In April 1994, Insta Graphic was notified by one of our German distributors that our machines did not comply with German safety standards. We have never had a safety-related problem with our equipment in Europe. We contacted Underwriter Laboratories (UL), our U.S. component supplier, our European distributors, and our international attorneys. No one could give us a clear sense of what the standards issue was, or how we could remedy the problem. It was only after we contacted the Export Assistance Office at the U.S. Department of Commerce, were we directed to a European-approved U.S.-based organization that set us on a path to solve the problem on certification. It has been a costly and time-consuming process, but we are now TUV and CE approved.
Page 75 PREV PAGE TOP OF DOC
To acquire EU approval for just one of the twelve machines Insta Graphic Systems offers, we had to change or modify every electrical component and many of the mechanical components. All of this was performed to comply with just the German directives. The resources expended for a medium-sized business were significant, manuals had to be rewritten, new labeling prepared, safety systems redesigned, new wiring harnesses installed, and new testing performed.
It took our company one year to receive German regulatory approval for our machines. During this delay, we lost sales to European competitors and market share, as well. In addition to the costs incurred in redesign and testing, the regulatory approvals added over 2% to the cost of the machines.
I know the problem U.S. firms now have in selling to Europe apply to European firms selling in the U.S. A unified set of standards, coupled with a reciprocal approval process, would greatly alleviate the burdens to trading with Europe.
The recently enacted Mutual Recognition Agreement, makes significant progress in addressing many of the trade problems for a variety of industrial sectors. Both the U.S. and EU governments, especially the U.S. Department of Commerce, deserve high praise for enacting this historic initiative.
TABD and TASBI
I have participated in the two conferences of the TABD in Seville and Chicago. The TABD process is truly valuable. As Undersecretary of State Stuart Eizenstat has often said, ''if the TABD didn't exist—we would have to create it.'' It is amazing to see what can happen when the business communities of Europe and the U.S. come together with a common agenda and sit down with government representatives to work collaboratively in achieving tangible and mutually beneficial results.
Page 76 PREV PAGE TOP OF DOC
One of the many results of our initial meeting in Seville, was the creation of the Small and Medium-sized Enterprises group. The SME group's objective is to ensure that the views of smaller companies are taken into account in developing TABD recommendations.
The Transatlantic Small Business Initiative
The keystone of the SME group is the Transatlantic Business Initiative (TASBI). TASBI is a joint U.S./EU program that consists of two major components.
1. We are encouraging the development of partnering, or matchmaker, events that will focus on stimulating sector specific SMEs from both sides of the Atlantic to form business alliances and partnerships. Several match-maker events have been organized as part of TASBI including a European Automotive Suppliers' Mission to Michigan and the EuroBenefit which was held in Brussels in April. Additional events will be planned for the coming years.
2. The development of database systems on both the EU and U.S. sides linked to each other that will assist SMEs to better understand the economic environment in each region as well as to identify potential partners that will result in increased transatlantic business.
In six months, considerable progress has been made toward the development of TASBI, as summarized in the TABD's 1997 Priorities Report, developed as input into the Mid-Year EU–U.S. Summit at the Hague on May 28, 1997:
Partnering Events
Several match-making meetings have been organized under the umbrella of the TASBI. One such meeting, The European Automotive Suppliers' Mission to Michigan, was held in Detroit in February 1997. Over 100 European SMEs were matched with compatible American firms in over 450 individual meetings. Another TASBI matchmaker event, EuroBenefit, was held in Brussels in April 1997. This event linked 22 American SMEs with a number of suitable potential European partners. The agenda included an extensive briefing on business conditions in Europe for SMEs by both the European Commission and U.S. government officials.
Page 77 PREV PAGE TOP OF DOC
Furthermore, the TASBI is involved with the preparations for the Europartenariat in France in October. The event is similar to a multi-sectoral trade mission, in which business representatives from French and EU companies will meet with invited American representatives in discussing trade opportunities. The Europartenariat meetings cover twelve broad areas of economic activity: food and beverages; textiles; clothing, leather & footwear; wood and furniture; chemicals, pharmaceuticals, hospital supplies and cosmetics; rubber and plastics; marble ceramics and building materials; metal processing; machinery equipment; electrical and electronic engineering; other related products; and services.
Another proposed TASBI event, called ''Interprise,'' will be held in 1998 and will bring 300 European SMEs to Texas to discuss strategic alliances with U.S. high technology firms. Events under the EU's Interprise program are much smaller than events held under the Europartenariat program, and is focused on only one or two sectors. The EU, in co-ordination with TASBI, will seek the assistance of Department of Commerce and Transatlantic Business Dialogue in recruiting U.S. attendees.
The EU and U.S. Issue Group for SMEs expect that by TABD's Rome conference, additional TASBI matchmaking events, in conjunction with Europartenariat events, will be scheduled for 1998 in both the U.S. and Europe.
Joint Database Development
Another TASBI initiative is the development of a functional database which will be available for European and American SMEs to access information on available companies for potential partnering.
The U.S. Department of Commerce and the European commission are working together to determine the feasibility of developing such a joint database. We hope to have a solid proposal by the time the TABD Rome conference is held on November 6–7.
Page 78 PREV PAGE TOP OF DOC
With the successful implementation of the Transatlantic Small Business Initiative, it is expected that an increasing number of SMEs on both sides of the Atlantic will benefit in the future from partnerships of all types. Through sustained promotion of this program by various government and private sector resources, we anticipate that small to medium-sized companies will gain an increased level of appreciation for the ease in which transatlantic business can be initiated.
SME Input Into Other TABD Working Groups
While all the TABD priorities are also priorities for the SME group, we are focusing in particular on some of the TABD issues which we feel are critical to the export success of smaller companies. These include: Standards and Certification harmonization, Streamlined Custom Procedures, Electronic Commerce, Intellectual Property Rights, and Investment. Each of these areas represent impediments to trade by small and large businesses alike and deserve the attention they are receiving by the TABD.
Standards and Regulatory Cooperation
I have already discussed the Standards & Certification issue which falls under the leadership of Warner-Lambert and my colleague Mr. de Vink.
Customs Cooperation
Customs procedures have provided significant impediments to trade among small and medium-sized enterprises, again, since the financial resources are not as abundant, costly custom procedures bear a heavy burden to transatlantic exporters. The TABD Customs issue group, headed by Federal Express, is working closely with the U.S. Government to streamline customs procedures. This work has already resulted in the Custom Cooperation Agreement, but more work needs to be done toward implementation. To increase the prospects of trade for smaller businesses, we can call on the governments to continue their partnership with the business community to implement these recommendations, or to ensure their immediate effect.
Page 79 PREV PAGE TOP OF DOC
Electronic Commerce
The TABD, led by EDS, is heeding the governments call for the private sector to take the lead on the development of policy regarding the Internet. The SME group will work with EDS to be sure the small business voice is part of this initiative.
Intellectual Property Rights
The IPR Committee of the TABD, led by Time-Warner and Pfizer, will be hosting a Conference on October 6–7 in Washington. This conference will follow up on a conference which was hosted by the European Commission in May 1996 to develop initiatives where the U.S. and EU can cooperate in protecting intellectual property rights in third countries and within the U.S. and EU.
Investment
The issue group on Investment, led by AMP Incorporated and the U.S. Council for International Business, supports the conclusion of the Multi-lateral Agreement (MAI) on Investment within the OECD. The MAI remains a priority for small business as well as large.
Other Initiatives for Action
To fully develop the recommendations of the SME group, we support the formation of an EU and U.S. government and private sector ad hoc committee to monitor development of the TASBI and to continue to dialogue regarding SME perspectives.
Page 80 PREV PAGE TOP OF DOC
Conclusion
The SME group believes that the recommendations of the TASBI and the TABD will lead to increased business between the two regions, provide new employment opportunities, improve the profitability of the SMEs, and result in tangible benefits to consumers.
TABD gives the small- and medium-sized enterprise an unprecedented voice to the governments on both sides of the Atlantic. The formal recognition by the U.S. government and the European Commission of SMEs as a key element in the TABD presents small business with an opportunity to work with our larger business partners in creating a flourishing economic future under the New Transatlantic Agenda.
Thank you for this important and valued opportunity to testify.
—————
Chairman CRANE. Thank you, Ms. Wells.
Mr. Yanahan.
STATEMENT OF PATRICK J. YANAHAN, JR., PRESIDENT AND CHIEF EXECUTIVE OFFICER, USA CHICAGO, INC.; ON BEHALF OF THE AMERICAN ELECTRONICS ASSOCIATION
Mr. YANAHAN. Mr. Chairman, Members of the Subcommittee, good afternoon. My name is Patrick Yanahan. I am president and chief executive officer of USA Chicago. I am pleased to be here to discuss the U.S.–EU trade relations.
Page 81 PREV PAGE TOP OF DOC
Today I am testifying on behalf of the 3,000 member companies of the American Electronics Association. As a member of AEA, USA Chicago is an international marketing and advertising firm that has been developing online and Internet systems since 1985. We are here because of the accomplishments and successes of the New Transatlantic Agenda.
AEA would like to further the transatlantic cooperative effort into the area of electronic commerce. To that end, there are certain key principles AEA believes are critical to fostering electronic commerce. We have adopted these principles because we believe electronic commerce is an important factor in driving the growth of the Internet. Continued expansion and innovation of the Internet is revolutionizing commercial exchange as we know it by expanding local markets globally, and making international markets accessible to all.
The five principles that should guide the evolution of electronic commerce are the following. One, electronic commerce should be market-driven. Increased innovation, expanded participation, broader services and lower prices result in a commercial environment where market forces prevail. A robust electronic marketplace, with its needs for high capacity transmission capabilities and nondiscriminatory access and reliability, can help drive private sector investment strategies.
One of our member companies in Illinois has increased his business by 20 percent in 1 year using the Internet, and 80 percent of that business is from EU countries.
Two. Electronic commerce should remain unfettered by undue government intervention and/or regulation. Government has a responsibility to understand the unique nature of the Internet as an electronic medium and should refrain from any undue regulation. The goal is to encourage growth and innovation of the Internet and electronic commerce globally. The successful Internet economy will have a significant multiplier effect on economic development, job growth, and competitiveness.
While AEA supports the principle of protecting American and European citizens from harmful content, we are very concerned about initiatives to regulate content through legislation. Industry self-regulation and technological solutions which empower the user to manage questions on content should be given precedence over legislative answers to content control.
Page 82 PREV PAGE TOP OF DOC
Three. Electronic commerce should feature protection of the security and the integrity of the data. Rapidly expanding markets for information technology demand the privacy and integrity of data be secure through encryption technology. These global market opportunities will not be realized if encryption technology cannot be used and imported and exported freely to protect information exchanged over public and corporate global networks.
Given these principles, AEA maintains that individuals and businesses should be free to choose the degree of strength of encryption products suitable to their needs. AEA supports the decontrol of export restrictions on encryption products which are globally available. The United States does not have the lock and key on encryption algorithms that are available in printed textbooks and libraries around the world. Any key recovery feature applied to encryption products should be market driven, not government mandated.
For these reasons, AEA supports H.R. 695, which rightfully proposes an encryption policy that recognizes both the U.S. IT industries need to be first to market, as well as the widespread foreign availability and the inability of the United States to control competitive encryption.
AEA also supports the European Commission's efforts to reach these objectives within the EU and at the international level using OECD cryptology guidelines.
Number four, electronic commerce should allow the global free flow of data. Data protection standards should not be utilized to erect new trade barriers which would frustrate the development of electronic commerce. In support of this principle, AEA is concerned that the data protection policy of the EU may act as an impediment to data flows, since it puts the European Commission in the unenviable position of deciding whether the United States has adequate levels of privacy.
The question of whether a given third country grants an adequate level of protection to data transfers should be dealt with with flexibility and on a case-by-case basis. AEA is supportive in its redeveloped answers to issues of privacy and market-driven solutions to ensure customer satisfaction regarding how private data is handled.
Page 83 PREV PAGE TOP OF DOC
And five, electronic commerce should be tax-neutral. The electronic commerce environment must not be subject to a more onerous tax regime than traditional forms of commerce. Therefore, AEA commends the EU Commission's recent rejection of the much discussed bit tax, and in the United States AEA supports the Cox-Wyden bill, which would ensure that no new taxes are levied on Internet activities.
Though certain differences remain, the developments of the New Transatlantic Marketplace is on its way to realization. AEA looks forward to the opportunities presented by electronic commerce and is confident that the continued U.S.–EU cooperation will lead the way in opening up markets and opportunities worldwide.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Yanahan follows:]
Statement of Patrick J. Yanahan, Jr., President and Chief Executive Officer, USA Chicago, Inc., on Behalf of the American Electronics Association
Mr. Chairman and Members of the Subcommittee, the American Electronics Association (AEA) appreciates the opportunity to present our views on the recent accomplishments of the New Transatlantic Agenda and on the ripe opportunities to advance trade relations between the U.S. and the European Union (EU), most notably in the area of electronic commerce. We commend you and the Subcommittee for holding this timely hearing and look forward to working with you and the Administration to enhance an already deeply interdependent transatlantic relationship.
The U.S. High-Technology Industry
I am testifying this afternoon on behalf of the American Electronics Association which represents more than 3,000 member companies across the spectrum of electronics and information companies—from semiconductors and software to computers and telecommunication systems. As largest high-tech trade association in the U.S., AEA represents American high-tech companies nationally through 17 council offices and globally through our offices in Tokyo, Beijing and Brussels.
Page 84 PREV PAGE TOP OF DOC
The U.S. high-tech industry is our nation's largest employment sector, attracting 4.3 million highly-skilled, highly-paid Americans in every U.S. state. In international trade, the technology industry excels—accounting for one-quarter of all U.S. merchandise exports, deriving half of its overall revenue from those exports and commanding a competitive advantage in many products and services in markets worldwide.
USA Chicago is an international marketing and advertising firm specializing in high-technology industries. Since 1985, the company has been developing on-line and Internet systems to support clients' worldwide marketing and sales operations. With offices in Germany, the United Kingdom and Singapore, USA Chicago was an early pioneer in the information superhighway, establishing its first on-line, interactive sales presentation in 1985. Given its impressive record of expediting two-way communications between company and customer, USA Chicago has recently fielded two first-of-its-kind studies among America's industrial leaders on their perceptions of how the information superhighway and on-line systems will reshape their marketing and distribution activities into the next millennium.
U.S.–EU High-Tech Trade
The U.S.–EU trade and investment relationship is the largest in the world. In 1996, two-way trade in goods between the U.S. and EU totaled $271 billion, with two-way, high-tech trade accounting for 20 percent (or $55.5 billion). Of the $127.7 billion in aggregate U.S. merchandise exports to Europe last year, high-technology products comprised 28 percent (or $36 billion). The U.S. currently enjoys a healthy $16.4 billion trade surplus with Europe in information technology (IT) products.
I. Recent Accomplishments of the New Transatlantic Agenda
Page 85 PREV PAGE TOP OF DOC
Since the introduction of the New Transatlantic Agenda in December 1995, we have seen numerous improvements in transatlantic trade and investment. Encouraging the development of a New Transatlantic Marketplace, the Transatlantic Business Dialogue (TABD) has proven an effective and productive forum for developing and communicating business-driven recommendations on policies affecting transatlantic trade. Two items that are particularly noteworthy are the Information Technology Agreement (ITA) and the U.S.–EU Mutual Recognition Agreement (MRA).
The Information Technology Agreement
The ITA clearly is a high point for U.S.–EU cooperation in producing a trade agreement of extraordinary value not just to U.S. and European IT companies, but to all users of information technology products and the global economy as a whole. The ITA eliminates most tariffs on IT products by the year 2000. The agreement expands trade in products such as computers, telecommunications, semiconductors, software, semiconductor manufacturing equipment and computer-based analytical instruments. It affects $500 billion in global IT trade, including $80–100 billion in U.S. exports alone. Tens of billions of dollars per year that are spent on import tariffs will now be dedicated to productive uses. AEA now looks forward to working with the EU to further liberalize trade in information technology by commencing in the Fall an ''ITA II,'' which anticipates expanded product and country coverage, as well as an effort to resolve non-tariff measures that have a direct bearing on IT trade. The current plan is that negotiations should begin in earnest in the Fall of 1997 to conclude around the Summer of 1998, with implementation beginning January 1999.
However, we are not without some disagreements over IT trade with Europe, particularly regarding how the EU defines certain IT products for customs tariff purposes and its implications for good-faith implementation of the ITA. Currently pending, for example, is a case brought by the United States Government against the European Commission in a WTO dispute settlement panel regarding tariff increases that resulted when the EU reclassified certain IT products into higher-tariff categories. By arbitrarily deciding to call eceive television signals ''televisions,'' and computer networking equipment ''telecommunications,'' the EU effectively quintupled and tripled, respectively, the tariffs charged on those products as they are imported into the European market. We consider this a violation of WTO rules, because the new tariffs exceed the duty rate agreed during the Uruguay Round on those products as they were classified at that time. We urged the U.S. to take action against this last Fall, and we are confident the U.S. will prevail when the panel issues its ruling at the end of September.
Page 86 PREV PAGE TOP OF DOC
The U.S.–EU Mutual Recognition Agreement
Another successful accord encouraged by the TABD process was U.S.–EU Mutual Recognition Agreement (MRA). The accord includes mutual recognition of testing, inspection and certification procedures for telecommunications equipment, information technology products, medical devices, pharmaceuticals and sports craft. Eliminating redundant quality and safety standards, the MRA saves businesses and consumers on both sides of the Atlantic nearly $50 billion. Absent duplicative testing and certification requirements, U.S. exports of these products is expected to substantially increase, as manufacturers will save up to 10% of the cost of sales to Europe. An estimated $1.37 billion per year will be saved on telecom and information products certification. Due to a limited number of inspectors and backlog of demand, certification for electro-magnetic compatibility of telecommunications could have taken up to eight months. As the Agreement is implemented, the time line for approval will be reduced to under six weeks. Such slashing of transatlantic red tape benefits business and consumers on both sides of the Atlantic. Introducing innovative products to market at lower costs allows business to invest in newer technologies, and new workers, while offering consumers quality products at a competitive price.
II. Electronic Commerce
Building upon these accomplishments, AEA would like to further the transatlantic cooperative effort into the area of electronic commerce. Electronic commerce is certain to be an important factor in driving the future growth of the Internet.
What is Electronic Commerce?
Page 87 PREV PAGE TOP OF DOC
At its core, electronic commerce is involves the electronic transaction of commercial exchange between buyer and seller. Electronic commerce unites the client and producer more efficiently, streamlining the transparency and accessibility of the global marketplace.
Electronic commerce is possible through the interconnection of worldwide electronic information networks. The Internet, in particular, is fundamentally changing the way governments, citizens and businesses interact. Continued expansion and innovation of the Internet has the potential to revolutionize commercial exchange as we now know it by expanding local markets globally and rendering international markets accessible to all. The Internet, as an electronic medium, is based on multiple computer and communications technologies and is reliant upon rapid advances in semiconductor technologies fostering nearly instantaneous information exchange. Businesses of all types benefit from the Internet by reaching customers more readily, not only to present products but also to provide service and support. All of these features focus on the customer—individuals, corporations and governments.
In Europe, the Internet and electronic commerce have the potential to be major integrating factors and to complement major European initiatives such as the introduction of the Euro, a single European currency. Common currency and price transparency are attractive features of an electronic commerce environment.
AEA Principles on Electronic Commerce
The Internet and Electronic Commerce Working Group of the AEA-Europe office has developed a paper entitled, Internet: is Europe Ready? in order to consolidate and summarize the views of the industry sectors representing the information and communication technology (ICT) domain within AEA Europe. The paper was submitted at the Global Information Networks Ministerial Conference in Bonn July 6–8, 1997. I would like to take this opportunity to share the principles and recommendations of the AEA paper and to comment on the results of the Bonn Ministerial.
Page 88 PREV PAGE TOP OF DOC
Electronic Commerce:
• Should be market-driven: Increased innovation, expanded participation, broader services and lower prices result in a commercial environment where market forces prevail. A robust electronic marketplace, with its needs for high-capacity transmission capabilities and non-discriminatory access and reliability, can help drive private sector investment strategies.
• Should remain unfettered by undue government intervention and/or regulation: Governments have a responsibility to understand the unique nature of the Internet as an electronic medium and should refrain from any undue regulation. The goal is to encourage growth and innovation of the Internet and electronic commerce globally. The successful Internet economy will have a significant multiplier effect on economic development, job growth and competitiveness.
• Should feature protection of the security and of the integrity of data: Rapidly expanding markets for information technology demand the privacy and integrity of data through cryptographic products. These market opportunities will not be realized if encryption technology cannot be used and exported freely to protect information exchanged over public and corporate global networks.
• Should allow the global free flow of data: Data protection standards should not be utilized to erect new trade barriers which could frustrate the development of electronic commerce.
• Should be tax-neutral: The electronic commerce environment must not be subject to a more onerous tax regime than traditional forms of commerce; it should be tax-neutral.
Page 89 PREV PAGE TOP OF DOC
Electronic Commerce Should Remain Market-Driven
The rapid growth and enormous potential of the Internet can be greatly attributed to the fact that it is not a government-regulated environment. Therefore, AEA believes:
• It is essential governments allow industry self-regulated and market-based solutions to facilitate successful functionr continued growth of the Internet.
• The continued development of electronic commerce should be market-driven, accompanied by the uninhibited, competitive private sector investment of the Internet.
Electronic Commerce Should Remain Unfettered From Regulation
New technologies and related industries resulting from the advance of the Internet should not be subject to old rules and regulations. Therefore, AEA submits:
Due to the global nature of electronic commerce, any national infrastructure regulations must not serve as barriers to market access. While national governments may come under increasing pressure to enact legislation to facilitate or to control Internet activities, the application of national rules to the Internet will have repercussions far beyond national frontiers. Any attempt to devise regulatory rules and distinctions could:
• hamper growth of the Internet and the economy developed around it;
• cause distortions and dislocations as businesses are forced to respond to regulatory disincentives; and
• be neither manageable nor capable of execution.
Page 90 PREV PAGE TOP OF DOC
Generally, regulatory neutrality should be encouraged; there should be no special rules applicable to Internet commerce. Shopping in a virtual store should not be subject to any additional restrictions to shopping in a ''real'' store.
Specific Internet regulation, if it is being considered, should only address problems as they arise—regulating today for tomorrow's perceived problems in a dynamic, fast-paced environment may have unforseen and/or unsuitable repercussions. In accordance with the General Agreement on Trade in Services (GATS), any potential regulation should be non-discriminatory. Further, any proposed regulation should be light-touched, proportional and technology-neutral. If an objective can be achieved by less-restrictive means, then these means should be adopted (the case law of the European Court of Justice under Article 59 of the EC Treaty offers useful guidance).
AEA is increasingly concerned about the emergence of different notions of liability for content within the U.S. and the EU. Concern specifically surrounds attempts to try and attribute liability to Internet service providers whose role is limited to providing connections to the Internet. Liability for content should be placed on the author. Companies which provide Internet service should not be liable for the content. While AEA supports the principle of protecting American and European citizens from harmful content, we are very concerned about initiatives to regulate content through legislation. Self-regulation and technological solutions which empower the user to manage questions on content should be given precedence over legislative answers to content control.
Any legal framework should be based on general principles, not sector-specific laws.
Common rules on electronic contracts, notably digital signatures, should be promoted at the international level. The United Nations Commission on International Trade Laws (UNCITRAL) Model Electronic Commerce Law is an appropriate starting point.
Page 91 PREV PAGE TOP OF DOC
AEA supports greater market access in telecommunications services which will lead to increased competition, improved telecommunications infrastructures, more customer choice, lower prices, improved services and broad access to the Internet. High telecommunications costs have been a major hurdle for electronic commerce in Europe. Both the U.S. and the EU have assumed commitments in the World Trade Organization (WTO) negotiations on liberalization of basic telecommunications services. In addition, the EU has established a harmonized internal market telecommunications liberalization time table for January 1, 1998. AEA believes that initiatives which encourage a pro-competitive marketplace at all levels should be implemented as quickly as possible in order to ultimately create more data-friendly networks.
Among EU regulations governing electronic commerce, the Transparency Directive offers the European Commission and Member States an opportunity to consult with one another before disparate national measures regulating new information services are enacted. Arresting future fragmentation on the national level, AEA supports the principles and goals contained in the Transparency Directive and urges its expeditious adoption and ensuing implementation.
Electronic Commerce Should be a Secure Environment
Last year, AEA conducted a survey of its 3,000 member companies asking about their business and customer concerns surrounding the Internet. The #1 response: security.
As businesses begin to use the Internet and as Internet-based commerce develops, users are concerned about security. These concerns are restricting development of security products and limiting use of the Internet for commercial transactions. It has been estimated that potential worldwide losses in the year 2000 from electronic system penetrations will range from $40 to $80 billion. Trepidations surround:
Page 92 PREV PAGE TOP OF DOC
• the potential interception of confidential personal or company information during transmission over the Internet,
• outsiders gaining access to confidential information stored in local networks or computers connected to the Internet,
• other parties impersonating the identity of the sender or the receiver to capture information intended for others.
AEA recognizes that there are legitimate needs of governments to enforce the law and maintain national security. There must be a balance between the needs of governments and business. Therefore, AEA advises:
• International communication and commerce will suffer if a commment for use of encryption is not provided. Electronic commerce cannot realize its potential without worldwide application of high-quality encryption technology to ensure confidentiality and the harmonization of digital signature policies which is market-led.
• AEA supports the decontrol of export restrictions on encryption products which are widely available around the world. Any key recovery features applied to encryption products should be market-driven, not government mandated.
• AEA supports further deregulation of the market for encryption technology within an internationally-accepted framework. The Organization for Economic Cooperation and Development (OECD) has developed guidelines on Cryptography Policy which try to explain how to balance the various principles. AEA supports the Commission efforts to reach these objectives within the EU and at the international level using the OECD Cryptography Guidelines.
Electronic Commerce Should Allow for Data Protection and Privacy
AEA is committed to fostering an environment for international co-operation and dialogue on the implementation of appropriate privacy and data collection policies. We are supportive of a privacy strategy that will encourage international support for a market-based approach to privacy while continuing international discussions—particularly with the European Union—to resolve policy conflicts that could threaten the free flow of data on the Internet.
Page 93 PREV PAGE TOP OF DOC
Within the United States and the European Union, protection of privacy is considered a fundamental right. In the U.S., it is safeguarded by the Fourth Amendment of the Constitution. In the EU, it is enshrined in a number of national laws and constitutions and in Article 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. The Community has clearly recognized that Europe will not be ''Internet-ready'' unless European citizens are confident that their privacy will not be at risk. Therefore, AEA submits:
• The data protection policy of the EU may act as a impediment to data flows, since it puts the European Commission in the unenviable position of deciding whether the U.S. has adequate levels of privacy. As electronic commerce relies upon the free flow of data worldwide, the EU Privacy Directive has the potential to seriously restrict the ability of businesses, individuals and governments to freely engage in electronic commerce. While the U.S. recognizes the fundamental rights of protecting personal information, the 1995 EU Data Protection Directive (95/46/EC) must not be used as a barrier to the transnational flow of data. Mandatory provisions (enforced by an independent body) prohibiting data flows are likely to provoke unnecessary confrontation, trade disputes and legal uncertainty. The question of whether a given third country grants an adequate level of protection to data transfers should be dealt with flexibly and on a case-by-case basis.
• Europe's citizens must be reassured that the level of protection in an Internet context is at least as high as in more traditional sectors and that effective resources are available to prevent abuses. Companies involved in the Internet and electronic commerce should promote, and be seen to promote, self-regulation in relation to data protection, as well as support European and international cooperation in this area (For example, the Open Profiling Standard (OPS) which allows users to manage the disclosure, or non-disclosure, of personal information is part of a broader effort known as the Platform for Privacy Preferences driven by the World Wide Web Consortia).
Page 94 PREV PAGE TOP OF DOC
• The powers retained by Member States in relation to public security must be applied to the same constitutional safeguards as prevail in traditional media. European citizens must be reassured that in using the Internet, they are not subject to new forms of policing and censorship. Further, the unlawful processing of data must be rapidly investigated and prosecuted within a framework of European and international cooperation.
• Companies involved in electronic commerce should promote self-regulation in relation to data protection, and also support European and international cooperation in this area. Further, the issue of privacy should not be linked to parallel discussions on security (i.e. lawful access/key management) issues.
Electronic Commerce Should Be Tax-Neutral
Currently, companies are faced with two currents of opinion on taxation: those governments which want the Internet to be a duty-free zone in order to encourage its development, and those governments which wish to tax everything that moves on the Internet in order to clean coveted tax revenue to finance public deficits. Therefore, AEA recommends:
• No new taxes should be imposed on Internet commerce. Neutrality requires that the tax system treat economically similar income equally, regardless of whether earned through electronic means of through more conventional channels of commerce.
• If possible, tax relief should be pressed in order to encourage the use of electronic commerce; however, such relief must not constitute State aid.
• Tax obligations arising from electronic commerce operations should be clear, unambiguous, transparent and predictable. Because of the unanimity required in tax matters under Article 100a, EC Treaty, the harmonization of rules in problematic within the EU. The Tax Policy Group, established by the Commission to examine issues such as ''tax competition'' between Member States, may be an appropriate forum to provide useful industry input.
Page 95 PREV PAGE TOP OF DOC
• Pending the emergence of a Europe-wide consensus on the appropriate tax regime for the Internet and electronic commerce, a moratorium should be introduced on any new taxes directly or indirectly aimed at electronic commerce or the Internet. Any EU Member State seeking to invoke new taxation of the Internet will simply discourage Internet-related investment and the creation of employment in that market.
• AEA member companies categorically object to the rumored levy of a European ''bit tax'' based on the amount of transmitted data. The inappropriate and/or premature assessment of any Internet taxes will likely bring in less tax revenue, not more, over the long run.
III. Reactions to Bonn Ministerial
Many of the issues outlined above were discussed at the Global Information Networks Ministerial Conference in Bonn July 6–8, 1997. Government ministers and business leaders from about 30 European nations and the U.S. convened in Bonn to discuss electronic commerce policy and produced a policy statement referred to as the Bonn Declaration.
• AEA applauds the Administration for pressing a market-driven approach as outlined in the Framework for Electronic Commerce. AEA appreciates Secretary Daley's vision of, ''commerce and ideas flow[ing] between nations without interruption, interference or interception.''
• However, AEA does continue to differ with the Administration's and certain EU Member States' encryption technology policy. The Bonn Declaration states, ''If countries take measures in order to protect legitimate needs of lawful access, they should be proportionate and effective and respect applicable provisions relating to privacy.'' AEA supports the decontrol of export restrictions on encryption products which are widely available around the world. Any key recovery features applied to encryption products should be market-driven, not government-mandated. Individuals and businesses should be free to choose the degree of strength of encryption products suitable to their needs.
Page 96 PREV PAGE TOP OF DOC
• Differences persist between the U.S. and EU with regard to content. In Bonn, the Ministers declared, ''...third party content hosting services should not be expected to exercise prior control to content which they have no reason to believe is illegal. Due account should be taken of whether such intermediaries had reasonable grounds to know and reasonable possibility to control content.'' Such wording, clearly taken from Germany's Information and Communications Services law is vague and places undue legal responsibility for content on Internet Service Providers. Companies which provide Internet service should not be liable for the content. While AEA supports the principle of protecting American and European citizens from harmful content, we are very concerned about initiatives to regulate content through legislation. Industry self-regulation and technological solutions which empower the user to manage questions on content should be given precedence over legislative answers to content control.
• In the area of data protection, the Bouggests, ''that appropriate legal safeguards and technical tools should be provided to protect the user's right to privacy.'' AEA believes that the ''legal safeguards'' referred to are too vague, potentially over-restrictive and distorting of the market. AEA is supportive of industry-developed answers to issues of privacy and for market-driven solutions to insure customer satisfaction regarding how private data is handled.
Conclusion
As the world's largest trade relationship, the U.S. and EU have well-established and well-functioning avenues for cooperation. Though certain differences remain, the development of the New Transatlantic Marketplace is on its way to realization. With the efforts of policy-makers and industry leaders, barriers to trade and investment are being identified and eliminated. The area of electronic commerce we hope will also enjoy the same level of cooperation and teamwork, particularly with regard to allowing the unfettered growth and development of the Internet. AEA looks forward to the opportunities presented by electronic commerce and is confident that continued U.S.–EU cooperation will lead the way in opening up markets and opportunities worldwide.
Page 97 PREV PAGE TOP OF DOC
Thank you, Mr. Chairman. I'll be pleased to take any questions.
—————
Chairman CRANE. Thank you, Mr. Yanahan.
Mr. Berry.
STATEMENT OF WILLARD M. BERRY, PRESIDENT, EUROPEAN-AMERICAN BUSINESS COUNCIL
Mr. BERRY. Mr. Chairman, thank you for the opportunity to testify today. I am Willard Berry, president of the European-American Business Council.
The Council offers companies actionable information on policy developments and works with officials, both here and in Europe, to secure a more open trade and investment climate. Our 80 member companies include U.S. and European owned firms. Therefore, our work is aimed at improving the business environment on both sides of the Atlantic.
First of all, I would like to say the Council strongly supports the New Transatlantic Agenda. We wait especially for the results of the joint study, which will identify new areas for trade liberalization. There is plenty of room for improvements for business in what is already a strong and mutually beneficial relationship.
Others have mentioned the size and the magnitude of the economic relationship, and you yourself, Mr. Chairman, have noted that in Illinois alone that European investment and trade supports more than 130,000 jobs. The point I would like to make is that there is a substantial economic impact on every State and, therefore, every Member should have a concern with the health of the relationship between Europe and the United States.
Page 98 PREV PAGE TOP OF DOC
To help the Congress better understand U.S.-European economic relations, the Council recently established, with your support, Mr. Chairman, a congressional study group on Europe. We are organizing monthly briefings on specific topics of interest to members and staff. We will be addressing such issues as European monetary union, WTO financial services negotiations, bilateral agricultural disputes and other issues over the next year.
The Council has been active in opposing economic sanctions at both the State, Federal, and sub-Federal levels. To prove to policymakers that sanctions harm business, we have conducted a survey to quantify the impact on international companies. Our hope is that legislators will come to realize that many sanctions measures, while motivated by desirable ends, are doing nothing to improve repressive regimes and are instead eliminating jobs in the United States.
We only have preliminary results that I can address today, but among the firms surveyed, which include both European and U.S. companies, 76 percent said sanctions had already affected their worldwide operations, and another 62 percent said that it affected U.S. operations. We have found that sanctions cause both U.S. and foreign companies doing business in the United States to lose out on joint ventures, to lose supply relationships with other companies, to cut their levels of U.S. employment, and to reduce exports.
We are aware that Congress is likely to consider amendments to strengthen Helms-Burton this summer. Our survey shows 60 percent of companies have already been affected by Helms-Burton, even though it has only been applied in limited circumstances. Strengthening the law is unlikely to bring democracy to Cuba but will reduce foreign investment and jobs in the United States.
U.S. and EU officials are currently negotiating disciplines for expropriated property. The Council believes it would be better for the United States to give those negotiations a chance, rather than to endanger them by acting unilaterally. A binding agreement in the OECD is a desirable solution for all parties concerned with expropriation.
Page 99 PREV PAGE TOP OF DOC
Therefore, we are opposed to the amendment offered by Representative Ros-Lehtinen to the Foreign Policy Reform Act, H.R. 1757, that would impose new reporting requirements on the implementation of Helms-Burton. If enacted, the provisions would endanger U.S.–EU talks. We are similarly opposed to H.R. 2179, Mr. McCollum's bill, which would repeal the waiver of title III of Helms-Burton, thereby opening the door to more lawsuits for companies.
We also hope that Congress will not pass Senator Helms' amendment to the Foreign Affairs Reform and Restructuring Act, S. 903, which would expand title IV to apply worldwide instead of targeting only activities in Cuba.
We are pleased with the mutual recognition results. We support more negotiations of additional MRAs. In fact, to give us the best possibility for a new set of far-reaching MRAs, we would like to see a mandate from Congress that would allow the administration to negotiate agreements that require legislative changes.
Another area that could produce major trade problems between the United States and the European Union is biotechnology-derived food products. The Council is active within the TABD in the hope of resolving this issue. A dialog has begun. This is important because this year there are 30 million acres of land planted with biotechnology products, including soybeans, corn and cotton, up from 5 million last year, and zero 5 years ago. There is progress in this area and we hope that the TABD will be able to bring us to great progress in this area.
We do support the World Trade Organization and the ongoing negotiations, particularly in services in agriculture, and we think the extension of fast track is important for these and other issues.
The last thing I would like to mention is investment. It is a very important issue for our members, that foreign investors are not discriminated against in either the United States or the European Union. Unlike trade rules, which require national treatment in measures affecting trade, the same thing is not true in investment. We support the talks going on in the OECD and we hope to have strong rules, commitments to liberalize investment regimes, and a strong dispute settlement mechanism.
Page 100 PREV PAGE TOP OF DOC
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Willard M. Berry, President, European-American Business Council
Introduction
Mr. Chairman, thank you for the opportunity to testify today. I am Willard Berry, President of the European-American Business Council. The Council is the only truly transatlantic organization that provides actionable information on policy developments and works with officials in both the US and Europe to secure a more open trade and investment climate. Our 80 member companies include US-and European-owned firms—therefore our work on trade, tax and investment issues is devoted to improving the business environment on both sides of the Atlantic. We are active on our own and through the Transatlantic Business Dialogue (TABD) in strengthening the economic relationship between the US and Europe, heading off trade disputes, and increasing US–EU cooperation in the World Trade Organization (WTO) and other multilateral fora. We aim to be the definitive source of knowledge and leading business advocate on US and European political activity affecting transatlantic companies.
The Council strongly supports the New Transatlantic Agenda (NTA), which was established by the US and EU in 1995. We eagerly await the joint study that the governments are conducting under the NTA to identify new areas for trade liberalization. There is plenty of room for action by the governments, especially in the economic area, to help business improve what is already a very strong and mutually beneficial relationship. In my testimony today, I will highlight some of the important issues for our members and discuss what we would like to see the US and EU do to help companies and workers on both sides of the Atlantic.
Page 101 PREV PAGE TOP OF DOC
Trade and investment flows between the US and Europe provide real benefits for Americans. Nearly six million US jobs depend on European investment in the US, including 2.9 million Americans directly employed by European-owned companies. In fact, 12.5 percent of US manufacturing jobs are supported by European investment. US exports to Europe support 1.3 million jobs. Two-way trade between the US and Europe reached $544 billion in 1996, as Europe purchased more than $135 billion worth of US manufactured goods. Cross investment between the US and Europe is more than $776 billion, which is split almost evenly between US investment in Europe and European investment in the US.
Europe is the largest foreign investor in 41 of 50 US states and the number one or number two export market for 44 states. Just to cite one example, Mr. Chairman, your home state of Illinois sold $5.9 billion of goods to Europe last year. Those exports supported 12,300 jobs, and another 130,800 jobs in Illinois are supported by European investment. The Council will soon release its annual survey of trade and investment between the US and Europe, which includes similar figures for each of the 50 states.
Perhaps the most remarkable aspect of our trade and investment relationship with Europe is that it is balanced, free of the long-term deficits that have characterized our relationship with Asian countries in particular. Obviously, we have many points of friction, but that is inevitable in an economic relationship of this size. The Council hopes that while we try to manage the disputes, we do not let them characterize the relationship. For too long, problems in agriculture held up progress on other trade issues. Even now disputes over the EU banana regime, hormone ban, and an ongoing dispute over veterinary equivalency for poultry have soured relations between the governments. Recently, various U.S. sanctions measures—the Helms-Burton law in particular—have become major problems, threatening to disrupt U.S.–EU cooperation in the WTO and endangering other trade initiatives.
To help Congress better understand U.S.-European economic relations, the Council has recently established a Congressional Study Group on Europe. We will organize monthly briefings on specific topics of interest to you, featuring expert speakers, for the benefit of members and staff. We have been consulting with this committee and others to ensure that the group is properly focused on issues of importance to Congress and would appreciate any additional input in the future. Last week we held the first meeting of the group, where EU Ambassador Hugo Paemen and Special Assistant to the President for International Economic Policy Robert Kyle gave an overview of the current status of relations and some of the most important ongoing issues. In the fall we will schedule meetings to focus on European Monetary Union, the WTO financial services negotiations, bilateral agricultural disputes, and other issues.
Page 102 PREV PAGE TOP OF DOC
Sanctions
The proliferation of economic sanctions in the U.S. continues to strain the U.S.–EU relationship. The Council opposes the use of unilateral economic sanctions, especially when they are extraterritorial in nature, because they cause numerous problems for companies that operate internationally. Economic sanctions, while rarely having any of their desired impact in influencing other countries' policies, mainly restrict the activities of multinational companies, to the detriment of U.S. workers, U.S. exports, and investment in the U.S.
The Council has been active in opposing economic sanctions at both the federal and subfederal levels. To prove to policymakers that sanctions harm business, we have conducted a survey to quantify the impact on international companies. Our hope is that legislators here, in state capitals, and other cities and towns throughout the country will come to realize that many sanctions measures, while motivated by noble intentions, are doing nothing to improve repressive regimes and are instead eliminating jobs in the jurisdictions where they are enacted.
Our study findings are not complete, but I can share some preliminary data with you today. We will be happy to provide you and your colleagues with the entire study when it is complete. Among the firms we surveyed, which include both U.S. and European companies, 76 percent said that sanctions had had an effect on their worldwide operations and 62 percent said that their U.S. operations had been affected. Forty-four percent of companies said they had had to forego a business opportunity to comply with a sanction law and 81 percent had been forced to spend money on routine compliance measures.
We have found that sanctions cause both U.S. and foreign companies doing business in the U.S. to lose out on joint venture opportunities, to reduce their levels of U.S. employment, to sever supply relationships with other companies, and to reduce exports from the U.S. Companies said that the measures with the greatest negative impact include secondary boycotts, such as the Helms-Burton Act, trade and investment embargoes, such as the Iran and Libya Sanctions Act, and U.S. export restrictions. State and local sanctions, which are another extremely important problem for business, have to a large extent been spurred by congressional action. Therefore, we believe that restraint by Congress would have a positive impact at the State and local level.
Page 103 PREV PAGE TOP OF DOC
We are aware that Congress is likely to consider amendments to strengthen Helms-Burton this summer. I would like you to be aware that in our survey, 64 percent of companies said they had already been affected by Helms-Burton, even though it has only been applied in limited circumstances. Strengthening the law is not likely to bring democracy to Cuba, but according to our survey, strengthening the law would be likely to further threaten joint ventures involving U.S. companies and reduce foreign investment and jobs in the U.S.
U.S. and EU officials are currently negotiating disciplines for expropriated property. They hope to incorporate a bilateral agreement into the proposed Multilateral Agreement on Investment being negotiated in the Organization for Economic Cooperation and Development (OECD). Therefore, the Council believes it would be better for the U.S. to give those negotiations a chance to succeed rather than to endanger them by acting unilaterally. A binding multilateral agreement would be a better solution for everyone involved because it would improve the prospects for individuals and business not to be harmed by expropriation without compensation, while also avoiding a trade dispute caused by U.S. action that is considered extraterritorial by all of its trading partners.
Therefore, we are opposed to the amendment offered by Rep. Ileana Ros-Lehtinen (R–FL) to the Foreign Policy Reform Act, H.R. 1757, that would impose new reporting requirements about the implementation of Helms-Burton. If enacted, that provision would endanger the U.S.–EU talks. We are similarly opposed to H.R. 2179, the legislation introduced by Rep. Bill McCollum (R–FL) that would repeal the waiver of title 3 of Helms-Burton, thereby opening the door to lawsuits against foreign companies doing business in Cuba. We also hope that Congress will not pass Senator Jesse Helms' (R–NC) amendment to the Foreign Affairs Reform and Restructuring Act, S. 903, which would essentially expand Title IIII to apply worldwide, instead of targeting only expropriated property in Cuba.
Page 104 PREV PAGE TOP OF DOC
Mutual Recognition Agreements
The Council was extremely pleased that the U.S. and EU were able to conclude agreement on a package of Mutual Recognition Agreements (MRAs) last month. The first round of MRAs, which were one of the most important priorities of the TABD, represented an important breakthrough and is expected to reduce manufacturers' costs on about $50 billion in two-way trade. Because tariffs between the two sides are already low, eliminating non-tariff barriers is critical to expand the economic relationship. The MRAs will lead to more competitive U.S. companies, more U.S. jobs, and less expensive products—and the same benefits for Europe. By eliminating duplicative compliance burdens, the MRAs will allow U.S. and EU companies to bring products to the market faster and at less cost than is now possible.
A number of working groups within the TABD are now discussing the possibility of a new round of MRAs between the U.S. and EU, with the first candidates likely to be chemicals and industrial fasteners. The Council strongly supports the negotiation of additional MRAs. We are aware that some parts of the U.S. government are not enthusiastic about another round, given the difficulty of the first set and expected opposition from some regulatory agencies, such as the Environmental Protection Agency and the Occupational Safety and Health Administration.
We believe that we should not let those potential hurdles stand in our way. In fact, to give us the best possibility of a new set of far-reaching MRAs, we would like to see a mandate from Congress that would allow the Administration to negotiate agreements that require legislative changes. In the first agreements, the U.S. could not go very far on medical devices or pharmaceuticals without going beyond the bounds of current law, and changing the law did not seem feasible. A mandate from Congress that would allow the consideration of legislative changes would help negotiators immensely in the next round.
Page 105 PREV PAGE TOP OF DOC
Biotechnology
Another area that could produce major trade problems between the U.S. and EU is biotechnology-derived food products. The Council is active within the TABD in the hope of resolving some existing problems and heading off future disputes, and to facilitate increased trade in biotechnology products. The TABD Biotechnology Group has already begun an active dialogue to make recommendations to governments and it agreed to an agenda during a conference in Brussels in April. The group is co-chaired by Monsanto on the U.S. side and Unilever on the European side—both companies are Council members.
The formation of the Biotechnology group in the TABD represents an important opportunity for U.S. and EU companies to weigh in with governments about the need for a transparent and consistent regulatory process. The discussion is especially timely given that the EU is in the process of revising directive 90/220, which governs the sale of genetically modified organisms, and has recently issued new regulations covering so-called novel foods. Calls in Europe for labeling of products containing genetically modified organisms have already resulted in trade tensions, given the difficulty of segregating goods such as soybeans and corn throughout the production, processing, distribution, and retail chain.
The TABD group was formed based on the recognition that trade in biotechnology products between the U.S. and EU has led to friction in the past and is likely to do so in the future if there are no improvements in the regulatory environment. Problems will become more frequent as the use of biotechnology in food products continues to increase. Production of biotechnology food products is growing rapidly in the U.S., and Europe is a very important market for those products. This year there are 30 million acres of land in the U.S. planted with biotechnology products, including corn, soybeans and cotton, up from 5 million last year and zero just five years ago.
Page 106 PREV PAGE TOP OF DOC
Action by U.S. political leaders to resolve disputes is especially important given that the EU Commission, while demonstrating some interest in responding to business concerns, has held back because of domestic political problems. Strong U.S. interest in advancing this issue, and in distinguishing the business/trade issues from concern over mad cow disease and cloning, could provide a catalyst for a common European response to business concerns. Despite the difficulty in overcoming public acceptance issues in the EU, there is a good basis for progress within the TABD this year. U.S. and EU companies are united in their desire to work toward a more consistent, transparent approval process for biotechnology-derived products.
World Trade Organization
The Council is also working to promote U.S.–EU cooperation in the WTO, recognizing that no multilateral action of any significance is completed without agreement between the two biggest trading entities. The Council hopes that the U.S. and EU can agree on priorities for new negotiations in agriculture and services, which are scheduled to begin in 1999 and 2000, respectively. Those pending negotiations are but one of many reasons Congress should work with the Administration to reauthorize fast-track trade negotiating authority this year.
U.S.–EU cooperation will be especially critical this year in the ongoing financial services negotiations. The Council, which represents a number of both European and American financial services companies, is gratified to see that the U.S. and EU have both made good offers to open their markets to foreign financial services firms. Now they need to work together to secure similarly good offers from other key players, especially in Asia, so that a good deal can be struck in December. The U.S. and EU also should work together in the WTO in professional services negotiations, in the Committee on Trade and Environment, and in new groups on competition policy and investment.
Page 107 PREV PAGE TOP OF DOC
Electronic Commerce
U.S.–EU cooperation in the WTO led to last year's landmark Information Technology Agreement (ITA), which will eliminate most tariffs in that sector by the year 2000. Our members feel that continued transatlantic cooperation is imperative to broaden and deepen that agreement with a so-called ITA II. Once again, Congress must work with the Administration to renew fast-track authority so that ITA II can be concluded.
Cutting tariffs on information technology is only one of many actions that the U.S. and EU need to take to ensure the growth of electronic commerce. Our members largely support the recommendations of the Administration and the European Commission to boost electronic commerce, particularly where they promise to limit regulation. We also hope that the EU will help the Administration negotiate an agreement within the WTO to prevent duties from being applied to electronic transactions.
Multilateral Agreement on Investment
A very important issue for our members is that foreign investors are not discriminated against in either the U.S. or the EU. Unfortunately, there are no global rules on investment comparable to the WTO rules which require national treatment in measures affecting trade. As a result there are many instances both here and in the EU which underscore the need for such rules. The Council has been active in supporting the MAI negotiations in the OECD. We hope that the negotiations will finish on time next Spring and produce strong rules, commitments to liberalize investment regimes, and a strong dispute settlement mechanism.
Page 108 PREV PAGE TOP OF DOC
Taxation
The Council and a number of its member companies are active in the TABD's working group on taxation issues. The group has already issued a list of recommendations to the U.S. and European governments to improve the tax systems on both sides of the Atlantic. Probably the most common form of tax disagreement between European governments and the U.S. is how to calculate particular transfer prices. A top priority for the TABD group is the establishment of an arbitration mechanism for transfer pricing disputes. The Council will continue to advance the working group's agenda and work toward new recommendations this year in the lead-up to the November TABD summit in Rome.
Conclusion
I hope that my testimony has demonstrated the importance of the U.S.-European economic relationship and the need for Congress to be involved. With our economy becoming increasingly dependent on export markets and international investment, we should not underestimate the potential benefits of a closer relationship with Europe. Better transatlantic ties will bring direct benefits in the form of increased bilateral trade and investment, while also driving forward multilateral trade liberalization to the benefit of all nations.
Thank you, Mr. Chairman and Members of the Committee, for the opportunity to testify today.
—————
Page 109 PREV PAGE TOP OF DOC
Chairman CRANE. Thank you, Mr. Berry.
To all of you, in your view, how cooperative were U.S. regulatory agencies in negotiating the MRAs?
Mr. DE VINK. If you want to go down the line here, Mr. Chairman, I should say that the USTR and Department of Commerce have been very supportive in making the MRAs a reality. Also, the Food and Drug Administration has done their best to deal with the different issues on both sides of the Atlantic. But I can say it was the urging of the USTR and Commerce which made a lot of it happen. So I'm very pleased with their support.
Chairman CRANE. Ms. Wells.
Ms. WELLS. I agree with what Lodewijk has said. I feel the Department of Commerce in particular has been very supportive of the small- and medium-sized business and very concerned about our issues in particular.
Chairman CRANE. Mr. Yanahan.
Mr. YANAHAN. Commerce has been very supportive of our activities, sir.
Chairman CRANE. Mr. Berry.
Mr. BERRY. I think both the Commerce Department, the USTR, and the European Commission have been supportive. I think there are difficult issues, but the key really was the strong consensus among companies, both in Europe and the United States.
Chairman CRANE. Can the process, in anyone's estimation, be significantly improved?
Mr. DE VINK. I'm sure there's room for improvement. We perhaps took the first area of opportunity and we will now look at the second one. I think bigger issues on horizontal parts—whether it is the competition or investment law—are going to be very troublesome. But I think it's the commitment of all the parties to be involved. The commitment of USTR and Commerce is to stay with it because U.S. trade with Europe gets less attention, as you previously said, than when we look toward China and Japan. We have to keep focused on that. It's a tremendous generator of commerce, of profits for all American companies.
Page 110 PREV PAGE TOP OF DOC
Chairman CRANE. Do any of you have any direct relations with FDA in your business contacts?
Mr. DE VINK. We live and die by it, I would say. [Laughter.]
Yes, we do.
Chairman CRANE. And could FDA be improved? I mean, I know it approved Thalidomide, but——
[Laughter.]
Mr. DE VINK. Well, that's a different dispute.
I'm sure any organization can be improved, including the performance of our own companies. So from that point of view, I think the FDA can be improved, and some of the FDA reforms which are presently pending before the government are ones which we would support. But with respect to the TABD discussions, I think they have come a good way and have tried to make it work.
Chairman CRANE. Very good.
Has the TABD taken a position concerning the treatment of labor and environmental issues in the multilateral agreement on investment being negotiated under the OECD? Anybody.
Mr. BERRY. There is a position supporting the OECD negotiations on investment. As far as I know, there is no position—generally, the TABD is organized around issues where there is strong agreement on both sides of the Atlantic, so controversial issues are basically not given any priority. That is why labor and environment are not given much attention in the dialog.
Chairman CRANE. They fall in the controversial category?
Mr. BERRY. Yes.
Chairman CRANE. Anyone else?
Page 111 PREV PAGE TOP OF DOC
Mr. DE VINK. I would like to say that, between the European and American situation, human rights and labor issues are, frankly, not there. I mean, they are far and few between. So it is only if we were to go to other parts of the world jointly where it could make a statement. At this time it has dealt purely with trade between the two sides and, therefore, TABD has not been actively involved in trying to solve the human rights or labor problem.
Chairman CRANE. Do you believe it will be possible to expand the MRAs, both in terms of product coverage and country participation?
Ms. WELLS. I think the MRA, as we see it today, is a stepping stone. I think it's very important that we do expand it to cover broader sectors. Right now we're talking about the transatlantic trade. Going to other parts of the world would obviously be another stepping stone.
Chairman CRANE. Does anyone else have a comment?
Mr. BERRY. I believe you, yourself, may have been the one to say it, but the MRAs are a real breakthrough in trade negotiations. It changes everything, in terms of the kinds of issues, the number of governmental institutions and agencies involved, and the whole method of negotiation. But it is the wave of the future and I think for business it's probably the most promising thing on the horizon.
Chairman CRANE. Mr. Neal.
Mr. NEAL. Thank you, Mr. Chairman.
I was curious, based upon some of the answers that were offered. I was thinking that we annually debate MFN, we're still arguing about NAFTA, and Burton-Helms seems to have the Executive amend it from time to time. Do you think there's a danger here in the Congress that we lose perspective or lose sight of how important European trade is for all of us?
Mr. DE VINK. I believe it falls under the category of the squeaky wheel gets the oil. In the case of Europe, I think we have to recognize that there are many opportunities. I think it was the representative of the Department of Commerce who said even the small growth in Europe gives an enormous opportunity for American businesses to grab, and 3 percent growth is translated into $250 billion equal to two times one. I think these are opportunities which do not frequently occur. I think we need to give this attention and make sure that we pay enough support to make the grade.
Page 112 PREV PAGE TOP OF DOC
Mr. BERRY. We represent, of course, a lot of large European companies with substantial investments in the United States, and similarly, U.S. companies who probably make more money in Europe than any other market. The relationship is important, and there has been a concern over the last number of years that people in Congress do not appreciate this relationship. There is not enough dialog between the Congress and counterpart organizations in Europe, and until this New Transatlantic Agenda concern, there wasn't enough dialog at the government-to-government level.
Clearly, it's changing. I mean, how many people talked about these figures today and how substantial they are. I don't believe there is still, in the Congress, enough awareness to that, or the kind of awareness that is needed to really nurture this important relationship.
Mr. NEAL. Thank you, Mr. Chairman.
Chairman CRANE. I want to thank all of you witnesses. Please keep the channels of communication open to us on the Trade Subcommittee, and the Full Committee as well.
With that, our final panel is made up of Hon. Paula Stern, president of The Stern Group, and U.S. working chairwoman of the Transatlantic Committee on Standards, Certification, and Regulatory Policy of the Transatlantic Business Dialogue. And Ellen Frost, senior fellow at the Institute for International Economics, who has recently written a book on the New Transatlantic Agenda.
After you ladies get seated, you may proceed in order. Again, I would ask you to try and summarize your verbal presentations. Your written remarks will be made a part of the permanent record.
STATEMENT OF HON. PAULA STERN, PRESIDENT, THE STERN GROUP, INC.; ON BEHALF OF TRANSATLANTIC BUSINESS DIALOGUE
Page 113 PREV PAGE TOP OF DOC
Dr. STERN. Thank you so much, Mr. Chairman. I appreciate very much the opportunity to share with you my enthusiasm for the Transatlantic Business Dialogue.
You have heard quite a bit so far about its work in two short years, and its significance as a model of entrepreneurial diplomacy. So I would like to skip over the details that I have in my longer testimony, as well as even in my shorter testimony, to the future agenda, to see and spell out how TABD can maintain its uniqueness as a platform for trade expansion.
That, I believe, requires pragmatically selecting achievable goals. But it also requires some big and bigger, and yes, biggest thinking. So let me briefly present my so-called big recommendations, which attempt to do the following:
They attempt to be consistent with the goals of trade expansion, trans atlantically and globally; to be constructive, from a commercial viewpoint, for both American and European based firms; to be compatible with other goals of consumer and worker protection in both regions; and to be reinforcing of U.S. and European foreign policy goals.
The TABD has been successful because it has ferreted out concrete obstacles to trade for removal in an efficient timeframe that is both understandable to pragmatic businesspeople as well as to the impatient public who is, at best, skeptical about the work of government trade negotiators. So let me go very quickly to the big ideas.
First, we should see to it that the Transatlantic Business Dialogue focuses on reining in the technical barriers to trade, building on the MRA, which you have heard so much about. And the TABD should act as an ombudsman, nurturing its creation, the MRA, and making sure that any potential implementation dangers do not engulf the MRA's future success.
Another big idea is to launch an MRA II, to include products and sectors not covered by the first phase—for example, chemicals and biological products. Likewise, the TABD could also urge greater focus on the technical barriers to trade that is part of the WTO agreement and the Uruguay round that Jeff Lang made reference to. TABD could specifically advance its goals by raising the profile of the TBT, which has been, overshadowed by other issues; urge all WTO members to sign and implement fully their prior TBT undertakings; and also call for the WTO to consider drafting new MRA guidelines.
Page 114 PREV PAGE TOP OF DOC
Additionally, the Information Technology Agreement, which was a very important success that TABD has fostered, should be built upon. Specifically, I would suggest TABD advocating an accelerated timetable for marrying the ITA's tariff liberalization with the nontariff goal of a worldwide technical standards harmonization and product certification agreement.
Finally, in the big category, I would suggest looking at the notion of a global automotive agreement to eliminate tariff barriers and to harmonize regulations. A tariff-free trade agreement in autos, married to the progress in adopting functional equivalency of standards, would be a bold step.
I will pass over the controversial areas, which are the so-called bigger areas that I think TABD could make some contributions to, to my biggest ideas. They are two.
One has to do with metric only labeling. The European Union has legislation, which it will revisit in September, which requires that products sold in the European Union be labeled only in metric. Now, this harms both American-based and European-based companies who have to be globally competitive and label, market, inventory and so forth for both the metric standards and for the imperial-based standards. I think the TABD is uniquely suited to push the European Union to think globally and competitively for the benefit of companies on both sides of the Atlantic.
Finally, my last biggest idea is to use the TABD to forge a trade policy that fits the post-cold war geography of Europe. NATO is being enlarged to include the former Soviet bloc nations of Poland, the Czech Republic and Hungary. Meanwhile, this month, the European Union recommended admitting new members, those three countries, plus three others.
I believe that U.S. leadership must adjust its policy to the evergrowing importance of trade in every part of the globe, Europe included. I think Representative Matsui's comments are compelling—that in his 18 years of service in Congress, he can't recall a single hearing up until today, thanks to you, on this very important U.S.-European trade relationship. So, while business forges ahead, it's good to see government now keeping up.
Page 115 PREV PAGE TOP OF DOC
Fifty years ago, the Marshall Plan resurrected Europe from the Second World War, but that era is long gone. So reinvigorating the economies of Europe, especially those nations that are about to enter NATO, requires, I think, a business and commercial, not a government sponsored, economic outreach. Just as NATO expansion brings security, TABD's equivalent expansion to include the new NATO economies enhances security by advancing trade and prosperity. Meanwhile, TABD can serve as a natural agent for helping those new NATO countries modernize their economies. Therefore, I would suggest TABD consider sponsoring a dialog with those emerging economies: Poland, the Czech Republic, and Hungary.
I thank you very much, and I hope that some of these ideas provoke some interest.
[The prepared statement follows:]
Statement of Hon. Paula Stern, President, The Stern Group, Inc.; on Behalf of Transatlantic Business Dialogue
Introduction
This year, the U.S. is engaged in redesigning through enlargement its European military and strategic alliance in the North Atlantic Treaty Organization (NATO). As economic and military security are so closely linked, it is appropriate to examine U.S. trade and economic policy with Europe as well. In 1997, the transatlantic community is also celebrating the fiftieth anniversary of the Marshall Plan that revived the U.S.–E.U. relationship after World War II. Today, the U.S.-European trade relationship is not only the largest and most important bilateral trade relationship for the United States and the European Union, accounting for over 20% of total U.S. and 17% of total E.U. exports, but is also the largest two-way trade and investment relationship in the world. It has thrived both because of the seeds for growth sown by the Marshall Plan and strong transatlantic cultural and commercial bonds. While the extraordinary trade relationship built upon that foundation continues to flourish, a new economic initiative is needed to reinvigorate the transatlantic market and advance prosperity in the post Cold War era.
Page 116 PREV PAGE TOP OF DOC
The TABD is a unique example of entrepreneurial diplomacy by American and European businesses. This business driven exercise ferrets out concrete obstacles to trade that the U.S. and E.U. governments can eliminate in an efficient time frame that is understandable to pragmatic business people as well as to the public, which is at best skeptical about the work of government trade negotiations. In effect, this ''virtual organization'' uses an open and flexible framework to tackle issues ranging from the Information Technology Agreement (ITA) to harmonization of technical standards via the June 1997 U.S.–E.U. Mutual Recognition Agreement (MRA). In fact, virtually every market-opening move undertaken by the United States and the E.U. in the last couple of years has been suggested by the TABD.1 Its ultimate goal is a New Transatlantic Marketplace and eventually a global system whereby a product is tested once and approved everywhere.
The TABD operates four working groups: Business Facilitation works towards regulatory convergence in areas including electronic commerce, accountancy standards, export controls and product liability. Global Issues focuses on ways to leverage the transatlantic relationship to develop the global trading system vis-a-vis the WTO. Small and Medium-sized Businesses aims to boost trade opportunities and links at those commercial levels. The Transatlantic Advisory Committee on Standards and Regulatory Reform, the TABD's permanent and core working group, is detailed next.
The Transatlantic Committee on Standards and Regulatory Reform (TACS): a Business-Driven Agenda for Standards and Regulatory Reform
Continuing to lower tariffs between the two governments via the WTO enhances the U.S.–E.U. trade relationship, but the existence of heterogeneous standards and duplicative regulatory requirements on both sides of the Atlantic places a heavy burden on trade and business. Of the approximately $110 billion of U.S. merchandise exports to the EU, one half or $66 billion required some form of EU certification in addition to any domestic certification requirements.2 Such redundant testing and certification increase the base cost of exports by up to 15 percent.
Page 117 PREV PAGE TOP OF DOC
The costs of such testing can also mean lost business opportunities. For example, a 1991 U.S. Environmental Protection Agency study on the costs of environmental testing reported that costs of accreditation averaged over $4000 per audit, audits that are required every three years. When separate testing is required for each market, the costs can quickly skyrocket. For example, a typical U.S. machine manufacturer may spend $50,000 to $100,000 annually complying with foreign regulatory requirements—an overwhelming burden, particularly for small- to medium-size exporters. The consequences of such requirements are higher prices and, where the additional costs become prohibitive, foregone export sales and lost jobs.
The question is not whether private industry ought to be regulated—often it must in the interest of consumer and worker safety—but how to do so most efficiently. In the era of the transnational corporation and rapid global economic integration, the nation-based regulatory regime is no longer rational nor efficient. National regulatory regimes can act as de facto trade barriers, denying foreign access to a national economy, and in the case of the most protected sectors of world trade like agricultural products and food, national health and safety standards may merely mask pure protectionism.
The primary goal of the TACS is to eliminate trade barriers that result from standards and regulatory requirements, including duplicative product testing, redundant standards certification, and differing technical regulations. Duplicative regulations, whether legitimate or not, provide no value-added protection to workers and consumers, rather they add costs to the producer and, ultimately, to the consumer. The ultimate goal of the committee is to fulfill the principle approved once, accepted everywhere in the Transatlantic Marketplace. The instruments recommended by the TACS to achieve this principle include:
(1) Mutual Recognition Agreement (MRA) for standards testing to eliminate duplicative procedural requirements;
(2) Greater acceptance of Manufacturer's Declarations of Conformity to standards and technical regulations;
Page 118 PREV PAGE TOP OF DOC
(3) Harmonization of technical standards and regulations;
(4) Increased transparency and regulatory cooperation between the two economies; and
(5) Use of functional, performance-based standards rather than design specifications.
The TACS operates sectoral working groups that seek to identify and prioritize action items sector by sector. In June 1997, the U.S.–E.U. succeeded in reaching agreement on its first MRA covering more than $47 billion in two-way trade.3 The MRA is expected to boost U.S. exports by eliminating costs equivalent to a two or three point reduction in tariffs.4 The MRA covers network and electromagnetic compatibility (EMC) for telecommunications and information technology equipment and radio transmitters, EMC and electrical safety for electrical and electronic products, good manufacturing practices inspections for pharmaceutical products and certain medical devices, and the safety of recreational marine craft.5
Among the specific achievements of the MRA:
• In the information technology and telecommunications sectors, consumers and industry in the U.S. and E.U. will save an estimated $1.37 billion annually in unnecessary costs by reducing the approval time necessary for product certification of electromagnetic compatibility of telecommunications equipment from eight months to six weeks.6
Groups such as the National Marine Manufacturers' Association will become E.U.—approved third party inspectors replacing the two E.U. inspectors currently working in the United States.
Page 119 PREV PAGE TOP OF DOC
• Duplicative manufacturing process inspections for medicine will be streamlined, replacing the frequent exchange of inspectors visiting 200–300 pharmaceutical manufacturers a year. Elimination of this inefficiency frees companies' resources to develop better medicines for the future.
• Having seen the positive and concrete work of the TACS, a number of other sectors—including toy manufacturers, dietary supplements, tires and the heavy equipment industry—are increasingly engaged.
Non-Economic Benefits: a New Paradigm for Trade Liberalization
The MRA signed in 1997 is a win-win for businesses, consumers and workers in both the U.S. and E.U. Beyond the purely economic gains to be realized through the fulfillment of the TACS recommendations, the unique business-driven TABD working groups have also produced recommendations on a broad range of issues including taxation, customs facilitation, product liability and international business practices.
The approach of TABD has yielded a broad benefit by providing a new paradigm for trade liberalization. Such a strategy helps to build consensus between businesses, domestically and between regions. While competitors in commerce, the companies involved in the TABD process are learning that there are many issues, particularly in the area of standards and regulatory policy, that can best be solved through cooperation. These issues are not firm-specific, though they are often sector-based. It has been recognized that the solutions, too, are often best pursued at the sector-wide level, and sector specific cooperation has been extended across the Atlantic. The joint recommendations presented by American and European businesses in the Brussels Progress Reports of May 1996 and 1997 are testimony to the great achievement derived from this new paradigm.
Page 120 PREV PAGE TOP OF DOC
These two Brussels Progress Reports symbolized how the Transatlantic Business ''Dialogue'' transformed itself, effectively, into a Transatlantic Business ''Combined Chorus'' directed at the two governments. With businesses on both sides of the Atlantic presenting a united front vis-a-vis their respective governments, government negotiators feel hard-pressed to argue against the benefits of such proposals to their domestic industries.7
The structure of the TABD, itself, reinforces the trade expansion constituency. Although the TABD has relied on the role of U.S. and E.U. CEO's and their individual companies in the process, it has also taken advantage of existing business organizations and associations in both the U.S. and the EU. The result is a built-in constituency, with strong organizational structures, that is technically knowledgeable and politically available to push for changes in regulation and legislation. In the U.S., the National Association of Manufacturers, the U.S. Chamber of Commerce, and the European-American Chamber of Commerce are active participants in the TABD process, providing recommendations, administrative support, and outreach programs to business and industry. Likewise, on the European side, a number of industry organizations—including the Unione des Confédérations de l'Industrie et des Employeurs d'Europe (UNICE) and the Transatlantic Policy Network—are actively involved in the process, mobilizing their members and providing input. In addition, the process has empowered the European business community vis-a-vis the European Union apparatus in Brussels. Many of the groups involved in the TABD help to provide a bridge across the Atlantic. The TABD has effectively utilized the ready-made support-network for the trade liberalization process to impact and respond to government action.
TACS' sectoral organization provides clarity and concreteness to its proposals, a feat rarely achieved in traditional trade negotiations. By making its recommendations on a sector-by-sector basis, the result promises to be a regulatory system with more clear and enforceable rules of the road. Often disputes over trade agreements result from misunderstandings over exactly what is or is not covered. The more detail included in the future regulatory road map means more clarity, less room for misunderstanding and, thus, fewer disputes down the road. In addition, such specificity is more meaningful to businesses by addressing issues that are specific to their given sectors. While the broad goal of the TACS remains regulatory harmonization, harmonization can mean very different things for different industries. In the automotive sector one goal has been ''functional equivalency,'' a performance-based standard in which there has been substantial progress. In accountancy services, the goal was the mutual recognition of qualifications, an objective largely achieved through the WTO's July 1997 accountancy qualifications recognition guidelines.8 Meanwhile, the telecommunications equipment, information technology products, medical devices, pharmaceuticals, and marine sportscraft sectors are harmonizing by means of an MRA on testing standards. Through sector-by-sector negotiations, such specifics can be hammered out in detail.
Page 121 PREV PAGE TOP OF DOC
In addition, by giving industry not just a voice, but the initiative in trade negotiations, the agreements reached will more likely fulfill the requirements needed by industry to maintain its global competitiveness. As a business-driven agenda, the TABD can realize the benefits of ''subsidiarity,'' the decentralization of responsibility to those most affected by a given issue, a concept more than familiar to the Europeans and complementary to American federalism. It is more efficient to give the responsibility of identifying barriers to trade and of supplying recommendations to eliminate them to those that are most intimately affected by—and, therefore, more intimately knowledgeable of—such issues. And when CEOs—whose talents combine decisiveness and organizational skillfulness—sit down to work together, decisions get made decisively. Business knows best what is in its best interests, what is needed to be globally competitive.
A Brief Background
The TABD was launched at Seville, Spain in November 1995 at a conference attended by more than 100 U.S. and E.U. business leaders, the U.S. Secretary of Commerce and senior EU representatives led by the Commissioners for Trade and Industry. At Seville, harvesting ''low hanging fruit'' in the form of transatlantic trade barriers most visibly affecting the bottom lines of U.S and E.U. companies, emerged as a key theme for the TABD.
In November 1996, TABD members met in Chicago to expand and deepen the process. The Chicago conference succeeded on several fronts. It significantly influenced the results of the WTO conference in Singapore in December 1996, which led to the ITA and produced a resolution on E.U. business practices with respect to Cuba which became a key factor in allowing the Clinton Administration to avoid Title 3 suits pursuant to economic sanctions required by the Helms-Burton Act. One of the most important outcomes of the Chicago conference was the agreement reached to base an MRA on the assumption that existing certification mechanisms in the U.S. and EU are mutually trustworthy. Establishing and maintaining trust and confidence on both sides of the Atlantic is just as critical to the TABD's success and in turn U.S./EU relations overall as the technical language of the MRA itself.
Page 122 PREV PAGE TOP OF DOC
Mid year meetings have been held in Brussels in May 1996 and 1997 to review progress and to present new recommendations. At the 1997 Brussels meeting, TACS' main priority was the reduction of product marking requirements to a single global symbol showing conformity to an international standard. Global Issues emphasized the need to achieve a permanent, MFN-based, General Agreement on Trade in Services (GATS) by expanding the Interim Agreement to include more countries undertaking improved market access commitments. Business Facilitation made progress on electronic commerce, specifically, recommending that data protection standards not be used as trade barriers. Copyright protection on the Internet was a key area addressed.
Looking towards the future: The TABD has established a ''Veterinary Equivalence'' framework covering $3 billion in transatlantic trade in animals and animal products which will initially be used to resolve the protracted U.S.–E.U. dispute over poultry products. Other areas to be targeted by the TABD include; the completion of a financial services agreement by September, conclusion of the Multilateral Agreement on Investment (MAI) by Spring 1998, and the identification of new sectors for tariff negotiations, particularly in wood and paper.
The next TABD CEO conference is scheduled for November 1997 in Rome, Italy. CEOs and their staffs are busy laying the groundwork for that meeting. The second half of this paper endeavors to assist their work on setting the agenda.
Obstacles to Reform
While a major goal of the TABD has been achieved in the form of the MRA, many issues remain to be addressed. First, the existence of two different regulatory systems in the U.S. and E.U., each with its own structure and history will continue to complicate regulatory convergence. The regulatory framework in the EU, established in 1985 as part of the move toward the Single Internal Market, was intentionally created as a ''global approach'' to standards creation, making it more amenable to the principles behind an M.R.A. Technical rules and standards are the means to two ends: (1) to ensure product and worker safety; and (2) to remove internal trade barriers within Europe. Three standards bodies, operating under mandates from the European Commission—the European Committee for Standardization (CEN), the European Committee for Electrotechnical Standardization (CENELEC), and the European Telecommunications Standards Institute (ETSI)—have control over standards-setting within the EU for their respective sectors. Conformity assessment is conducted by ''notified bodies'' which are private testing and certification services approved by the relevant standards-setting bodies. A ''CE Mark''—which stands for Conformité Européenne—is legally required for the distribution or sale of manufactured goods within the Single Market. The mark certifies that products conform to given standards and ensures the free movement of goods within the European Union.
Page 123 PREV PAGE TOP OF DOC
While the highly centralized E.U. system lends itself to the coordination necessary for government-to-government MRA negotiations, the E.U.'s system reflects fundamental differences with the U.S. framework which relies far more on private testing and certification through a loosely organized network of independent testing laboratories and certification bodies.
A second obstacle to the creation of the Transatlantic Marketplace stems from pressures within the regulatory bodies themselves. Testing services and certifying bodies on both sides of the Atlantic can feel threatened by regulatory change. Some organizations—including those in the U.S. that operate at the federal level such as the FDA, FCC, and OSHA—strive to maintain control over the certification and standards-setting process, fearing that their respective jurisdictions could be usurped by the implementation of an MRA that allow exporters to fulfill regulatory requirements without certification directly from these bodies. In addition, such organizations are often more sensitive to Congressional concerns that represent disparate domestic constituencies rather than global interests. For example, in the U.S., the FDA maintains its preference for internal review procedures versus third-party certification. And the EPA currently has no policy mandate requiring the agency to consider harmonization with international standards in its regulatory activities. These agencies naturally resist reform that might compromise their sovereignty over regulatory matters. However it should be noted that an MRA was finally achieved in June 1997, with the FDA acquiescing partly because it recognized that the MRA reinforced internal reform and helped the FDA cope with budget restraints. In this way, the MRA neither undermines nor supersedes the authority or mission of regulators, but rather strengthens both.
Third, the two governments' regulatory regimes each have their own supporters who resist change. In the U.S., strong grass-roots, citizens organizations and their Congressional champions wish to maintain a major say in regulatory policy-making. These groups have over the years successfully achieved legislation—such as the Administrative Procedures Act, the Freedom of Information Act, the Federal Advisory Committee Act, and general rights of representation to sue—that give ample time for comment, input, and representation by any interested party but also have the effect of retarding or even blocking regulatory change. These groups, including Ralph Nader's Public Citizen and the Consumers' Union, fear the loss of national sovereignty in regulatory matters. Assuming standards were harmonized, they fear that they would need to get permission from EU bureaucrats to promulgate legitimate regulations that may be needed in the future. Likewise, on the EU side, there is a strong constituency that resists regulatory harmonization. There, the opposition tends to come from sectoral trade associations and consortia that have had the privilege of setting industry and product standards.
Page 124 PREV PAGE TOP OF DOC
Fourth, the TABD faces resistance by government career negotiators unaccustomed to dealing with standards, which had been mostly overlooked in the pursuit of other more high-profile initiatives. Some inside the U.S. Trade Representative's office have voiced reservations about the value of expending so much time and bureaucratic resources on the MRA which required specialized technical knowledge as well as a strenuous final political push to seal the agreement. These skeptics question how long it will be to see benefits materialize. Some U.S. career negotiators felt uncomfortably diverted onto the recent MRA negotiations and away from their traditional work agenda at the OECD and WTO. Furthermore, in negotiating the MRA, U.S. negotiators had to work with regulators from other U.S. agencies like the FDA, which was unfamiliar terrain. The MRA exercise thus highlighted the need for enhanced interagency coordination.
On the European side, some negotiators have expressed fear that the implementation of MRAs may slow the process toward global standardization because the agreement applies exclusively to the U.S. and E.U. However the standards bodies involved have played and will continue to play an important role in the movement toward standards harmonization globally. When the U.S. and E.U. can agree on a standards issue, this forms a firm platform for universal agreements. All have worked closely with the International Standards Organization (ISO), the international standards and certification body, in an effort towards global harmonization. The American National Standards Institute (ANSI) has developed a working relationship with the European standards bodies to facilitate the movement toward the harmonization of manufacturing and technical standards. Rather than an impediment, the TACS sees harmonization that emphasizes functional equivalence as an important first step with universal applicability.
A fifth obstacle are those observers mired in ''old think'' who try to doom TABD politically by saying that what is good for business must be bad for labor. Business, in the case of the TABD, is not a synonym for ''management'' but encompasses both management and labor in pursuit of more ''business''—in other words, more trade, commerce, customers, markets, and economic expansion.
Page 125 PREV PAGE TOP OF DOC
Sixth, there has been some concern on the part of consumer, environmental, and labor advocacy groups that the TABD process is moving too fast, leaving such organizations unable to digest and respond effectively to the dialogue's recommendations. This can be remedied by governments' sponsoring hearings and individual businesses' sponsoring dialogues with their customers (e.g. consumers) and workers (e.g. labor). The July 1996 public hearings on the recommendations in the automotive sector are a model for providing organizations the opportunity to participate without slowing progress unnecessarily. Similarly, in October 1996, the Food and Drug Administration (FDA) held an unprecedented hearing for interested parties to comment on the U.S. pharmaceutical MRA proposal.
What is needed is a public relations and press campaign to educate the public, labor, government officials, regulators, legislators, and consumer and environmental special interest groups about the unequivocally negative effects of regulatory trade barriers. The TABD should state clearly that its intention is not to lower levels of protection for health, safety, and the environment; regulatory reform is not the same as deregulation. Instead, the goal is to eliminate the costs of duplicative testing and standards certification that offer no additional health or safety protection to the consumer, only higher prices.
Last, and perhaps, most important, the two governments must make the political commitment to continue acting on future TABD recommendations. The TABD originated as a joint initiative of the two governments, and the two business communities rapidly organized themselves to take advantage of the unique opportunity they were offered. The business communities of the TABD have committed themselves to the process. The conclusion of the May 1996 and May 1997 Progress Reports, their efforts in the November 1996 Chicago Declaration to deepen and widen their agenda, and the significant planning taking place for the Rome CEO conference in November 1997, are all testimonies to their commitment.
Page 126 PREV PAGE TOP OF DOC
Setting the Future Agenda for TABD, A Unique Platform for Trade Expansion—Thinking Big, Bigger, and Biggest
Planning for TABD's future requires thinking big, but it also demands thinking pragmatically in keeping with TABD's approach of ''harvesting low hanging fruit'' first. The following recommendations are my personal views for TABD's future. They are designed to be (1) consistent with the goal of trade expansion in both the Transatlantic context and globally, (2) constructive from a commercial viewpoint for both American and European-based firms, (3) compatible with other goals of consumers and worker protection in both regions and (4) reinforcing of both U.S. and European foreign policy goals. They are organized as big, bigger, and biggest ideas—not necessarily as short versus long-term plans.
''Big''—Stick With Technical Barriers
Ombudsman for the MRA:
Although reaching the U.S.–E.U. MRA in June was a great achievement, ensuring its effective implementation is a task equal to its arduous negotiation. Contingencies may arise which the Agreement does not concretely address. Differences in interpretation cannot be ruled out either. Bureaucracies on either side of the Atlantic affected by the MRA may impede implementation. As its principal sponsor, the TABD should act as an ombudsman, nurturing its creation until potential implementation dangers are past.
MRA II:
Page 127 PREV PAGE TOP OF DOC
The establishment of the TACS was recommendation number one at the 1995 Seville Conference. The achievement of an MRA in 1997 between the U.S and E.U. was a clearly visible sign of the TACS' influence at work. Appropriately then, the preeminent ''big'' idea is to launch a phase two to follow on the MRA. An MRA II would expand the MRA scope to include other important products and sectors not covered by the first phase, for example chemicals and biotechnology products.9 MRA II would also deepen agreements for the first products covered in MRA I. In some of the sectors such as medical devices, phase one of the MRA covers a limited number of products while a substantially greater number could be identified as candidates for MRA treatment.
Focusing the World Trade Organization on Global Technical Barriers to Trade (TBT):
The critical efforts made to date on the bilateral MRA between the U.S. and E.U. have created valuable momentum for multilateralizing that shining effort, and point towards an even larger role for TABD and its work in this area. While trade barriers in the form of tariffs and other traditional trade impediments are issues that dominate the radar screen today, just over the horizon lies another huge task in global trade liberalization: the elimination of technical barriers to trade (TBTs)—a task that the TABD is pioneering.
The Uruguay Round of the GATT included a formal TBT Agreement that has been incorporated into the WTO. The purpose of the Agreement is to ensure that technical regulations, standards, and testing and certification procedures do not create unnecessary trade barriers. The Agreement requires that procedures for determining the conformity of products to national standards be transparent and in particular that domestic and their equivalent foreign products be given the same (national) treatment. Each member must also provide a single source of information at ''national enquiry points'' on standards and regulation information for exporters worldwide. In addition, the Agreement encourages, but does not require, the mutual recognition of conformity assessments, and includes language to the effect that governments should respect each others' determination of standards conformity, thereby eliminating duplicative testing.
Page 128 PREV PAGE TOP OF DOC
To date, work on eliminating TBTs has been virtually overlooked in discussions about the future WTO work plan. The Singapore Ministerial of December 1996 which was intended to highlight priorities in the WTO's work program did little to emphasize the increasing importance of TBTs now that more traditional trade barriers are coming down worldwide. Only one third of all signatories have even established procedures for implementing the Agreement's administrative architecture. At the April 1997 triennial review of the TBT Agreement at the WTO in Geneva, member governments submitted issue papers, but no concrete steps were taken to strengthen TBT's provisions.
One of the main objectives of the existing TBT is ''portability of certification.'' This concept refers to the ability of manufacturers to have products tested and approved once in a single market and then be accepted without further testing in all other member markets. The TBT promotes the use of international standards like the ISO 9000 and 14000 series to achieve this goal, but has no mandatory provision for the international recognition of certifications. Thus, most members currently using international standards continue to maintain local certification requirements.
The TABD can advance the goals of the TBT through the WTO by:
1. Raising the profile of the TBT within the WTO. The TABD should urge the elevation of Technical Barriers to Trade at future WTO committee meetings and ministerials.
2. Urging all WTO members to sign and implement fully their prior TBT undertakings. A proliferation of non-multilateral MRAs would run counter to the global spirit of the WTO. Indeed, some WTO members that have not yet implemented the TBT administrative architecture implementation procedures are setting up MRA negotiating mechanisms. U.S.T.R. officials also cite the E.U. for not honoring the TBT's mandatory transparency provisions in the promulgation of standards and regulations by failing to notify the WTO of what standards and regulations the E.U. is developing. The TABD should advocate that all signatory countries fully implement existing TBT provisions.
Page 129 PREV PAGE TOP OF DOC
3. Calling for draft MRA guidelines: In the wake of the U.S.–E.U. MRA, Canada's MRA with Europe, the New Zealand/Australian MRA, and the ongoing negotiations between Europe and New Zealand/Australia, it would be useful for the WTO to sponsor a discussion among members that have concluded MRAs and to draft global guidelines for future MRAs. The TABD's speedy and far-reaching work on the U.S.–E.U. MRA gives the TABD a natural platform to push the WTO TBT committee to launch this initiative at its next meeting in October of 1997 and then elevate it to the WTO Ministerial in May of 1998.
The Information Technology Agreement (ITA) that has recently become a key part of the WTO is a model for similar multilateral sectoral proposals. The signatures of 38 nations to the ITA sprang from a much more modest bilateral reciprocal tariff semiconductor agreement between the U.S. and Japan reached in the 1980's which led to a push by the U.S. and E.U. for broader coverage, which in turn led the U.S. to use Asia Pacific Economic Cooperation (APEC) to push the EU to further liberalizations in the ITA and Basic Telecommunications Agreement. Similarly, the TABD could place the proverbial grain of sand in the oyster that becomes the pearl: of a worldwide technical standards harmonization and product certification agreement. The potential for TABD success should not be underestimated given the proven speed and effectiveness of its business-driven format.
Information Technology Agreement II:
Assisting in expanding the Information Technology Agreement is a highly suitable mission for the TABD. Instrumental in building the basis for the ITA, the TABD can claim a significant knowledge base from which to expand the ITA into an ''ITA–II.''
In Building ITA II, the TABD should advocate:
Page 130 PREV PAGE TOP OF DOC
1. Accelerating the timetable for elimination of tariffs in the E.U.
2. Marrying tariff liberalization with the non-tariff goals of standards harmonization.
3. Targeting electronic commerce and standards to advance regulation harmonization. In May 1997, the TABD Brussels Report made recommendations in this area. In a July 1997 memorandum, President Clinton directed the U.S. Trade Representative to ensure that the Internet become a free trade zone within a year as part of an ITA II. He also ordered the Trade Representative and Secretary of Commerce to resist governmental efforts that require technical standards for the Internet or use technical standards as non-tariff trade barriers.
4. Addressing data protection, essential for biomedical research, information technology, financial services as well as across a wide range of other industries. The TABD's work on ITA I, and overall familiarity with standards and technical regulations makes TABD's guidance in data protection in electronic commerce particularly valuable.
A global Automotive Agreement to eliminate trade barriers and harmonize regulations: In April 1996, automotive firms from around the world called for the establishment of a global forum for the harmonization of auto regulations and for the development of means for reaching functional equivalency of standards and certification procedures. The automotive manufacturing sector is the largest in the world, employing over 10,000,000 people and generating over $1 trillion a year in business. The TABD has strenuously advocated functional equivalency in the U.S. and E.U. automotive sectors. Achieving that goal would create yet another TABD-based platform from which to reach a multilateral functional equivalency agreement in this critical sector of world trade. A tariff-free trade agreement in automobiles married to progress in functional equivalency would be a bold step for the TABD given the millions of jobs and industries with attendant standards and certification bodies involved in the automotive industry.
Page 131 PREV PAGE TOP OF DOC
''Bigger:'' Thinking in Some Controversial Arenas
Coordinating export sanctions: One of the more fractious issues in the bilateral relationship related to the increase in Congressional mandates to impose unilateral export controls against third countries, often as a means for achieving political ends.10 The dispute with Europe over the Helms-Burton Act and similar legislation targeted against Cuba, Iraq and Libya provide valuable cases in point. While unilateral trade sanctions and embargoes must remain an option for the President to protect American security interests, such policies should be used with the overall welfare of America in mind, including the impact on the domestic economy and international trade. To ensure the effectiveness of trade sanctions, the State Department, which is responsible for the formulation of such policies, should utilize the vast store of knowledge from private industry. A State Department advisory committee of industry leaders could estimate the costs of export controls for domestic industry and the economy as a whole. This committee could also draft recommendations that include the latest information on available technology. Sanctions formulated with this information in mind could be far more effective and efficient.
Unilateral sanctions can disadvantage domestic producers when foreign competitors, including Europeans, move in to fill the export gap. While extraterritoriality is designed to prevent this, it damages the U.S. relationships with others—the costs of which often outweigh any benefits derived from the imposed sanctions. The United States and Europe, important economic allies and NATO security partners, are also two of the most important producers of advanced, technologically sensitive or strategic products. Transatlantic cooperation would stabilize and enhance this relationship. Therefore a bilateral understanding to advance a multilateral strategy incorporating industry input could result in economic sanctions that are both more effective and efficient, minimizing the costs to the world economy while increasing the possibility of successfully achieving their objectives. The creation of a TABD sponsored advisory committee of U.S. and European business leaders could advance a more effective export sanctions policy.
Page 132 PREV PAGE TOP OF DOC
Competition policy harmonization:
While the Transatlantic Committee on Standards and Regulatory Harmonization (TACS) addresses technical standards and certifications in specific product sectors, competition policy harmonization is an area in which the TABD should increase its attention. The TABD has endorsed the U.S. Department of Justice's ''positive comity'' policy, and is assisting with the new U.S./E.U. draft of that agreement. Positive comity obliges countries participating in the program to undertake antitrust investigations of companies in their jurisdiction if the U.S. Justice Department affirms that it believes it has enough evidence in the U.S. to go ahead with an investigation and vice versa. The European Commission has gone further by calling for U.S. support for an international agreement at the WTO on the application of competition policy rules.11 Transatlantic competition policy harmonization could have trade liberalizing effects similar to the TACS standards harmonization through enhanced transparency and predictability. Such regional harmonization would also spark momentum toward global harmonization.
The 1997 Boeing/McDonnell Douglas merger controversy in July 1997 points to the need for a more harmonized competition policy. The high profile merger passed antitrust scrutiny in the U.S., but E.U. officials nearly blocked it, President Clinton intervened personally, Boeing made some last minute concessions, and a trade crisis was narrowly avoided. Intra- and inter-national mergers are an increasingly common phenomenon as globalization accelerates. To facilitate the merger process, reduce unnecessary costs incurred in having to operate under multiple legal systems and reduce friction from extraterritoriality, competition policy harmonization is needed. Boeing Chairman Philip Condit stated, ''[I]n a global economy, a single set of global rules is, in fact, preferable.'' 12 Competition policy has traditionally been government's exclusive domain, but the concrete, pragmatic focus of TABD might be a desirable forum to explore areas of common interest regionally that might eventually have universal applicability.
Page 133 PREV PAGE TOP OF DOC
International business practices is another issue previously broached by the TABD. Corruption undermines trust, which retards business and commerce which, in turn, eventually corrodes societies on both the giving and receiving ends. The November 1996 Chicago Conference urged governments to fulfil their commitments to fight corruption and bribery through their criminalization. In May 1997, the 29 member countries of the Organization of Economic Cooperation and Development (OECD) agreed to ratify an international treaty criminalizing corporate bribery to win business. Hopefully, that agreement will be advanced through passage of E.U. legislation by the April 1998 deadline set at the June 1997 Summit of the Eight outlawing tax deductibility for bribery expenses. The TABD should continue its involvement in the fight against corrupt business practices by sponsoring and carefully monitoring the progress of these new measures undertaken in the E.U., O.E.C.D., and parliaments of individual member states.
''Biggest''
Metric-only labeling:
In 1989 the E.U. adopted legislation requiring metric-only labeling after 1999 on all products sold in the E.U., America's largest export market 13 If implemented as planned, the law will cause significant disruption in a broad range of U.S. and E.U. companies that is both unnecessary and antithetical to the global movement towards open markets. U.S. and E.U. companies exporting to each others' markets will be forced to develop separate ingredient measurements, packaging, labeling, and warehousing and inventory systems. Manufacturing metric-only batches separate from products prepared for metric and imperial (inch/pound) systems raises the cost to the manufacturer and consumer on both sides of the Atlantic. To make matters worse, the U.S. prohibits metric-only products from being sold in the U.S.14 While the U.S. should surely become more metric-literate, it serves neither region to enforce a 1989 E.U. law that hampers globalization in the 21st Century.
Page 134 PREV PAGE TOP OF DOC
The 1989 legislation provided a 10 year ''supplemental labeling'' grace period to permit both metric and imperial labeling. This September 1997, the E.U. will revisit the legislation and a decision is soon needed by manufacturers preparing products for commerce in 1999. The TABD's unique format and capabilities should be deployed to persuade the E.U. to extend the supplemental labeling provision permanently to the mutual benefit of both European and American-based firms producing for both systems.
Adjusting TABD to The Post Cold War Geography of Europe: U.S. foreign policy toward Europe has been largely shaped by the geography of the membership of the North Atlantic Treaty Organization (NATO) which will celebrate its fiftieth anniversary in 1999. NATO has been enlarged to include three former Soviet bloc nations, Poland, the Czech Republic and Hungary. Military and security issues, to be sure, will remain important in the Twenty-first century, but U.S. leadership also must adjust policy to the ever-growing importance of trade in every part of the globe. While businesses forge ahead, government must keep up. It is absolutely unacceptable for U.S. trade policy planners to treat the European trade relationship as merely a source of bilateral agricultural conflict, or at best, an afterthought. Congress must act too; Rep. Robert Matsui (D.–CA) observed that in his 18 years of service, he cannot recall a single Ways and Means Committee hearing on U.S.-Europe trade.15 In addition to raising trade negotiators' consciousness to U.S.–E.U. relations, the TABD should initiate a dialogue that expands beyond the old 1945 lines drawn in Yalta to include the emergent European economies in Poland, Hungary and the Czech Republic.
Fifty years ago, the Marshall Plan resurrected Europe from the Second World War. That era is long gone. Big government programs have been supplanted by private foreign direct investment. Invigorating the economies of Europe, especially those nations about to enter NATO, requires another form of economic outreach, one that is business and commercial, not government sponsored. Just as NATO expansion brings security, TABD's equivalent expansion to include the new NATO economies enhances trade and prosperity, while also serving as a natural agent for helping the new NATO countries modernize their economies.
Page 135 PREV PAGE TOP OF DOC
This initiative is critical from both the E.U and the U.S. foreign policy points of view. U.S. relations with the emerging markets of Europe requires more than bilaterals and more than an indirect policy of encouraging the European Union to take in new members from the East. When the E.U. expanded to include Greece in 1981, Portugal and Spain in 1986 and Austria, Finland and Sweden in 1995, it disadvantaged American commercial interests and created a rippling of trade frictions across the Atlantic. Further E.U. expansion has been distracted by the exercise in deepening E.U. integration via the European Monetary Union. However, in July 1997, the European Commission recommended that the E.U. admit as new E.U. members Poland, Hungary, the Czech Republic, Cyprus, Estonia and Slovenia on various timetables. Meanwhile, U.S. commercial interests are being compromised when E.U. entities enjoy preferential tariff treatment from E.U. applicant nations at the expense of American business. For example, the U.S. accounts for one fourth of all foreign investment in Poland, and yet E.U. members face a preferentially lower tariff duty than the 15 percent average levied against U.S. companies. This disadvantages U.S. imports, and discourages American retail investment because European retailers can more cheaply source Western European imported goods. The TABD acting as a forum to discuss the prospective membership of these Eastern European countries could avert such problems. The TABD should also play a helpful role in the expansions of both the NATO and the E.U. For example, the TACS can assist in advancing intellectual property rights protection and harmonizing the new economies' technical standards with those of the U.S.–E.U. MRA and other means of aligning standards.
Conclusion
The TABD process has so far proven to be a faster, more consensus-based method of setting priorities than traditional government-to-government negotiations and has the potential to produce agreements that are more politically sustainable. Despite the formidable obstacles still facing the TABD and the TACS, their accomplishments to date are a testimony to the effectiveness of the bottom-up, business-driven approach to trade talks. The TABD is a model of efficiency and action. The breakthrough MRA demonstrated that this dual business-driven agenda could result in government action in both the U.S. and E.U. The utilization of existing industry organizations and associations has provided valuable input and a built-in constituency able to influence and respond to government action or inaction. The process itself has fostered a collaborative relationship between firms, domestically and across the Atlantic, to find common solutions to common problems. The implementation of the TACS' recommendations to reduce regulatory barriers to trade will lead to more exports, higher economic growth and more jobs across the Atlantic. In turn, the Transatlantic case serves as a significant basis for eventual multilateral expansion—a win-win situation for all.
Page 136 PREV PAGE TOP OF DOC
Critical to the long term success of the TABD is member confidence, resolution, and above all patience in the eventual implementation of its recommendations. Clearly, the business community and government are two very different animals with different agendas and objectives. The business community must be patient with governments that do not operate at the speed of business; international agreements—with all their constituent interests represented—do not happen overnight. Meanwhile, government must appreciate that when it comes to setting priorities in commercial policies, business does have a very definite comparative advantage.
Endnotes
1. Acting Undersecretary for Commerce for International Trade, Timothy J. Hauser, Testimony before the Subcommittee on Trade of the House Committee on Ways and Means, Washington D.C., July 23, 1997.
2. John Wilson, ''Standards, Certification, and Regulatory Policy,'' Information Technology Industry Council, p. 1, November 1996.
3. U.S.T.R. press release, May 28, 1997.
4. Dept. of Commerce press release, June 13, 1997.
5. Each new aircraft model must currently undergo $50,000 of electromagnetic compatibility testing in order to assure that such equipment does not harm networks or other devices. The MRA will make only one set of these tests necessary since test results in the U.S. will be recognized in the E.U. and vice versa. The Journal of Commerce, June 20, 1997.
6. Wilson, ''Standards, Certification, and Regulatory Policy'' p. 1.
7. As stated by Sir Leon Brittan, Vice President of the Commission of European Union, and EU trade commissioner, ''Where [businesses] agree, there will be a powerful incentive for the EU and U.S. to act on their recommendations....If [both sides] are able to identify areas which they think [the two governments] should work on, the pressure on governments to proceed will be almost irresistible.'' It is incumbent on the two governments to explain why they do not act when the U.S. and EU business executives, who are competitors in the marketplace, can agree on recommendations for government action.
Page 137 PREV PAGE TOP OF DOC
8. The WTO Council on Trade in Services approved a set of guidelines that are intended to overcome the national differences in accountancy licensing systems and to facilitate the recognition between member countries of the licensing, certification, education and experience of accountants. These guidelines are voluntary and non-binding, and may be useful for other professions that are interested in facilitating their international presence. U.S.T.R. press release, July 2, 1997.
9. These sectors were waiting in the wings during the last MRA negotiating round. Undersecretary of State for Business, Economic and Agricultural affairs, Stuart Eizenstat, Speech to the U.S. Chamber of Commerce, Washington D.C., June 20, 1997.
10. Optimally, the U.S. should formulate trade sanctions within a multilateral framework, such as the Wassenar Group which is the post-Cold War successor to the Coordinating Committee for Multilateral Export Controls (COCOM). Though the Wassenar Group is slow in getting off the ground, its success might improve the effectiveness of sanctions against rogue states. A multilateral approach would: (1) advance the interests of U.S. trading partners by consideration of if and when unilateral action is deemed necessary; (2) help to prevent the disputes that often arise when such unilateral sanctions are imposed; and (3) advance that sanctions that are more productive.
11. The Financial Times, July 25, 1997.
12. Philip Condit, The Washington Post, July 24, 1997.
13. Article 3 of Directive 80/181 of 12/20/79, amended by Council Directive 89/617 of 11/27/89.
14. Exceptions are small seed packages, camera film, video and audio recording tapes, and media for retail sale.
15. Representative Robert Matsui, (D.–CA), Remarks at the Subcommittee on Trade of the House Committee on Ways and Means Testimony, Washington D.C., July 23, 1997.
Page 138 PREV PAGE TOP OF DOC
—————
Chairman CRANE. Most assuredly. Thank you, Dr. Stern.
Dr. Frost.
STATEMENT OF ELLEN L. FROST, SENIOR FELLOW, INSTITUTE FOR INTERNATIONAL ECONOMICS
Ms. FROST. Thank you very much, Mr. Chairman, for inviting me to testify. If Dr. Stern's excellent proposals are big, bigger and biggest, then what I'm going to propose is gigantic. [Laughter.]
Specifically, in my written testimony, I support the Mutual Recognition Agreements and the TABD, for all the reasons that you've heard here today and a few more. What I would like to do in my few minutes is focus on what I think the key issue is for this Subcommittee, and that is, how to harness the transatlantic partnership to the achievement of our global trade and trade-related objectives.
A global focus is appropriate for several reasons. The transatlantic relationship is one leg of a strategic triad that connects the United States with the three biggest and/or fastest growing markets in the world: Asia-Pacific, Latin America, and Western Europe. As Ambassador Lang said, the transatlantic partners set the pace in global trade liberalization. I would go further and say that the transatlantic partners have been the architects of the entire post-war political-economic order.
I think we have an opportunity here to build on the momentum of the Madrid summit and to go further than we have to date. To take advantage of that opportunity, I propose a framework that I call NATEC, a North Atlantic Economic Community, which would combine APEC-like business and trade initiatives with a NATO-like strategic political-economic orientation.
Page 139 PREV PAGE TOP OF DOC
Today, of course, achievement of such an ambitious framework is not realistic, but long-term and ambitious initiatives have to start somewhere. This Committee is a good place to begin.
There are a number of achievements resulting from the New Transatlantic Agenda that I cite in my written testimony, but several things seem to be are missing.
Above all, there has been a dwindling of political momentum, a channeling of the initiative into very useful but relatively narrow grooves. Consequently, there is a need to do something above and beyond the excellent work that you've heard about today. I say this both positive and negative reasons.
The positive reason, so to speak, is that Europe is going through a series of very important internal decisions, ranging from the expansion of the EU to the reform of decisionmaking institutions, the adoption of a common currency, and the need to deal with the problems of growth and unemployment. All of these decisions have an important effect on the United States, one way or the other. Nevertheless, there is little high level political engagement on these issues on a Transatlantic level. As the deepening of the European market proceeds, Americans have a stake in encouraging open and market oriented behavior. This is why I favor high-level engagement.
The negative reason for a high-level initiative is the high degree of tension mentioned here already. Ambassador Lang mentioned biotechnology in beef and a whole range of other trade disputes, especially sanctions.
Since you have a special interest in sanctions, let me say something quickly about that in a transatlantic context. As you may know, the Institute for International Economics released a study in April that showed that on the basis of 1995 sanctions, the United States loses annually $15 to $19 billion in exports, which translates into 200,000-plus jobs. In addition, a prior study found that the application of sanctions had an economic impact on the targeted country only about one in five times. In these so-called successes, most of the time the behavior of the target country did not change. Sanctions may make people feel good but for the most part, they just don't work.
Page 140 PREV PAGE TOP OF DOC
Now, in a transatlantic context, they impose a particular cost. A report issued by the President's Export Council, which received the endorsement of labor as well as business, said that the most significant impact of sanctions was the cumulative weakening of U.S. competitiveness in our major markets, including friendly markets such as Europe.
Unilateral economic sanctions also violate transatlantic norms and thus undermine transatlantic trust, the importance of which was mentioned by several of the witnesses today. They add an element of unpredictability to American behavior that is threatening to long-term business relationships. Moreover, they risk undermining the WTO, as you heard earlier.
Finally, there in addition to the problem of sanctions are pressing issues not being addressed by the transatlantic partners. These include the treatment of China, anticompetitive behavior in Japan, issues of competition in third countries, the governance of the WTO as an organization, and, of course, the WTO's own built-in trade agenda. So, for those reasons, I think that something ambitious is in order.
My version of an ambitious proposal is something called NATEC. NATEC would be a nonpreferential, globally oriented framework, neither a new organization nor a new bureaucracy. NATEC should not be considered as an alternative to what you've heard here today. It is rather an effort to inject strategic purpose and momentum into the transatlantic relationship.
A NATEC initiative would feature a deadline for the achievement of free and open trade, tentatively 2010, which is the same as the industrial country deadline for APEC. It would be comprehensive. No sector would be excluded. NATEC would serve to promote what Fred Bergsten calls competitive liberalization, especially vis-a-vis APEC. APEC would not want to slow down its momentum if the transatlantic relationship seemed to be achieving something meaningful. Conversely, APEC could act as a lever on the transatlantic relationship if Europe appeared to be dragging its feet.
For that reason alone, there is a strong case for renewing fast track authority. We may or may not need fast track in the context of a narrow, technically oriented transatlantic initiative, but we certainly do need it to take full advantage of global liberalization, and to harness the transatlantic partnership toward that end.
Page 141 PREV PAGE TOP OF DOC
NATEC would also encompass trade-related foreign policy issues, notably sanctions, but also others. In many of these cases the transatlantic powers are divided and conquered by other countries. There is no excuse for the degree of incoherence and friction that now exists I would like to see a strategic dialog address that problem.
What can Congress do to help deepen the transatlantic business and trade relationship? First, personal involvement and contacts among elected leaders are important. In my testimony I suggest something loosely corresponding to the North Atlantic Assembly for the political-economic issues. Second, I think there are likely to be specific occasions when regulatory laws need changing. Timely Congressional action would help here. Third, I think you need to ensure that the negotiators have adequate resources. The expansion of the scope of trade rules and the enormous increase in WTO membership have combined to create a great staffing crunch in U.S. trade agencies. Fourth, the renewal of fast track authority is important. Passage of fast-track legislation vitally would illustrat the symbolic will and the political ability of the United States to lead. Finally, it would help if there was a kind of transatlantic ceasefire on sanctions. Ideally, this should occur both at the Federal level and at the state and local level.
I have three further comments based on what I heard today. First, Ambassador Lang's emphasis on the pragmatic and the achievable is very understandable. Clearly what I'm proposing is not realistic now. But there's a matter of judgment here. I think there is a case for a comprehensive approach that transcends the sector-by-sector, ad hoc deals. To my mind, focusing only on low-hanging fruit leaves the harder issues higher in the tree and precludes the kind of comprehensive tradeoff that I think we will need later on.
Second, Ambassador Lang said that tackling difficult, politically charged subjects risks threatening the business relationship. I think that the opposite is true. Allowing difficult issues to fester is what threatens the business relationship. I would like to see them tackled more broadly in a high-level, constructive, political initiative.
Page 142 PREV PAGE TOP OF DOC
Finally, I think that deadlines matter. In my last job in government, served as Counsel or to Ambassador Mickey Kantor. When the deadlines for APEC and the Free Trade Area of the Americas were negotiated, you could feel a ripple effect within USTR as people began the planning process and established interim milestones. So I am not skeptical about the value of deadlines, even if they are very far off in the future.
In short, the Transatlantic Marketplace has established a very positive record to date, but I think we have a broader historical opportunity. This Subcommittee can play a very key role in defining and seizing that opportunity.
Thank you.
[The prepared statement follows:]
Statement of Ellen L. Frost, Senior Fellow, Institute for International Economics
Mr. Chairman, and Members of the Subcommittee, thank you for inviting me to testify on trade aspects of the New Transatlantic Agenda.
I am currently a Senior Fellow at the Institute for International Economics, headed by C. Fred Bergsten. My most recent government job was in the Office of the U.S. Trade Representative, where I served as Counselor—a position roughly analogous to director of policy planning and economic analysis—from 1993 to 1995.
In my testimony I evaluate the achievements and limitations of the so-called ''Transatlantic Marketplace'' announced in 1995, including the Mutual Recognition Agreements (MRAs) signed earlier this year. Based on that analysis, I propose a more ambitious initiative centered on trade, investment, and trade-related foreign policy issues, which I call the North ATlantic Economic Community or ''NATEC.''
NATEC would not be a new organization, but rather a framework combining APEC-like trade and business initiatives with a NATO-like strategic, political-economic orientation. It would——
Page 143 PREV PAGE TOP OF DOC
• establish a deadline to achieve free and open transatlantic trade and investment by 2010 on a nonpreferential basis;
• promote agreement on such Transatlantic trouble spots as economic sactions, competition in third country markets, and policy toward Japan and China;
• initiate bilateral agreements in areas inadequately addressed by the World Trade Organization (WTO) or not yet covered by WTO rules, such as competition policy and civil aviation; and
• strengthen the global trade and investment system by stimulating liberalization in other regions and ''ratcheting up'' multilateral agreements.
Finally, I conclude with a few suggestions about how members of Congress could help deepen the Transatlantic trade and investment relationship, whatever form it takes.
I. The Transatlantic Marketplace: Achievements to Date
At the 1995 Madrid Summit, the centerpiece of the economic component of the New Transatlantic Agenda was a commitment by Presidents Clinton and Santer to create a ''Transatlantic Marketplace.'' This Marketplace is to be achieved by ''progressively reducing or eliminating barriers that hinder the flow of goods, services and capital'' across the Atlantic.
Thus far the most significant negotiating achievement of the Marketplace initiative has been agreement on a package of Mutual Recognition Agreements (MRAs). These agreements have to do with the development and content of standards and the way a given product is judged on whether it meets those standards (conformity assessment). As the name implies, MRAs provide for mutual acceptance of such procedures.
The elimination of duplicative test and conformity assessment procedures in the current package of MRAs is a big step forward. Estimated savings to companies over time are in the range of $40–50 billion.
Page 144 PREV PAGE TOP OF DOC
The most impressive procedural innovation associated with the Transatlantic Marketplace has been the prominent role of the Transatlantic Business Dialogue (TABD) throughout the MRA process—and, more generally, in the design of the trade-related negotiating agenda as a whole. The TABD is focusing actively not only on standards and regulatory policy, but also on business facilitation (e.g., taxation and customs), global issues (e.g., WTO issues), and ways to enhance the participation of small and medium-sized enterprises.
This is the first time in the history of trade negotiations that a trans-national business coalition has taken quite such a prominent and high-level initiative in defining an agenda of this kind. This makes sense because these companies are most familiar with real-life Transatlantic trade and investment and can identify the barriers most readily.
Another ''first'' for the TABD is the emerging role of major European companies as pro-trade ''lobbyists'' or advisors to their governments and to the Commission. While European governments have long promoted the exports of their national firms, involvement in trade and investment policy is a relatively new role for these companies. Their new voice is a ''plus'' for Transatlantic business.
Why Mutual Recognition Agreements (MRAs) Make Sense
MRAs make sense because they correspond to changes in the pattern of Transatlantic trade and investment.
With certain important exceptions (notably agricultural products, textiles and apparel), Transatlantic tariffs are low. Once the Uruguay Round is implemented, U.S. exports to the European Union will face average tariffs of 6.36%; the average U.S. tariff on imports from the EU will be 3.19%.
As bilateral traders, however, the United States and the European Union account for only about one-fifth of each other's exports and imports. 1995 U.S. trade with the EU–15 was slightly below trade with Canada. In recent years Transatlantic trade has become less important to each side as trade with developing countries has mushroomed.
Page 145 PREV PAGE TOP OF DOC
What makes the Transatlantic economic relationship unique is not trade but investment. In 1995 EU companies accounted for about 58% of total foreign direct investment (FDI) in the United States. About 44% of U.S. FDI went to the EU. By contrast, in 1995 Asia Pacific companies accounted for only 22% of FDI in the United States, and only 18% of U.S. FDI went to the Asia Pacific region. In 6 of the last 7 years, Transatlantic FDI has grown faster than trade. In some sectors there is a substantial degree of market integration.
The Transatlantic combination of extensive cross-investment and relatively low tariffs means that competitive conditions in domestic markets are of key importance. If we define ''globalization'' as the dispersal of the various phases of the production cycle around the world, how a company is treated in domestic markets is a key determinant of worldwide competitiveness.
What shapes the form of domestic (and therefore global) competition, in large part, is regulatory policy—including technical standards, competition policy, labor policy, protection of health, safety, and the environment, and other forms of regulation. Just as the drive toward the Single Market led European decision-makers to promote regulatory harmonization, so the Transatlantic Business Dialogue is correct to focus on the removal of regulatory barriers to Transatlantic trade and investment. This key issue, however, is only one among several that deserve high-level political attention in the Transatlantic community, as I will explain.
The Transatlantic Relationship and the Global ''Ratcheting Up'' Effect
The proposed Transatlantic Marketplace, including the role of the Transatlantic Business Dialogue and the new MRAs, also has global significance. This influence redounds to the benefit of the United States.
Page 146 PREV PAGE TOP OF DOC
The Transatlantic trade and investment relationship is the third leg of a strategic triad connecting the United States with the world's three largest and/or most rapidly growing markets: the Asia Pacific, Latin America, and Western Europe.
Of the three sets of relationships, the United States and the European Union (EU) have the largest combined trade and investment relationship in the world. If intra-EU trade (trade among EU members) is included along with the EU's external trade, the Transatlantic partners account for more than half of world trade in goods. They also account for more than half of world GDP.
Ever since World War II, the United States and Western Europe have been at the forefront of efforts to promote an open, rules-based, market-oriented global economic system. This leadership has been uneven, to be sure, but it is impossible to imagine a major breakthrough in the global trading system without the agreement of the two main trading powers. Japan has become a major trading power, but thus far it has not shown corresponding leadership. Responsibility for the global economic system still falls implicitly and primarily—though by no means exclusively—on American and European shoulders.
To put the same point in less grandiose terms, if these two giants agree, sooner or later other countries have to go along. When agreements are negotiated between the United States and the European Union, other countries often follow their example. This happens either because other countries don't want to be left out of the emerging ''club,'' or because Transatlantic agreements subsequently find their way into the World Trade Organization and become the basis for the further development of global rules.
Since Transatlantic trade is already relatively free, the Transatlantic partners have more to gain from global trade liberalization than from any bilateral free trade arrangement. In much of the developing world, tariffs can range from 20% to 100% or higher. Moreover, growth in Latin America and the Asia Pacific regions is proceeding rapidly. The most sophisticated economic analysis to date, conducted by economists Richard Baldwin and Joseph Francois, concludes that the benefits of global liberalization outweigh those associated with Transatlantic trade liberalization by as much as 5 to 1.
Page 147 PREV PAGE TOP OF DOC
This suggests that a key component of any Transatlantic initiative should be the strengthening and expansion of WTO-based liberalization. The Uruguay Round added a ''built-in agenda,'' that is, a series of deadlines—in most cases, the years 1999 and 2000—by which progress in key areas would be reviewed and renewed. It would help if Brussels and Washington could begin now to coordinate their positions in advance and work to minimize inevitable disagreements.
''Reverse Ratcheting:'' Getting Europe's Attention
Sometimes this pattern of Transatlantic influence on global liberalization is reversed, and Americans have to use other regional initiatives to bring pressure to bear on European governments.
During the Uruguay Round, for example, negotiations bogged down in part because of European reluctance to make concessions on agriculture. Washington signalled that the United States would proceed with free trade on a regional basis with or without a successful Round, by negotiating separate agreements with the Asia Pacific region and with Latin America. The 1993 Seattle and Miami summits, inaugurating trade breakthroughs with the Asia Pacific and Latin America, respectively, clearly hit home in Europe. I would not exaggerate the impact of this U.S. message, but it was a factor (among many) that broke the impasse and brought the Round to a successful conclusion.
At present this reverse effect could become most useful. The European Union is preoccupied with a number of internal decisions of historic importance: European monetary union, the expansion of EU membership, budget reforms, and the reform of decision-making institution, to name the most important.
The United States has an enormous stake in the outcome of these decisions. As Europe approached the target date for the Single Market in 1992, then-Secretary of State James Baker made a landmark speech asserting that the United States wanted Transatlantic cooperation to keep pace with European integration and institutional reform. This was one was one way of saying, in a constructive way, that Americans may not have a seat at the European table, but they need to protect their interests by becoming even more actively engaged with Europe.
Page 148 PREV PAGE TOP OF DOC
This need is equally compelling today. European unification may be slower and more difficult than expected, but the historical imperative remains and new leadership is emerging. U.S. policy must be active, not reactive—broad in scope, and not limited to case-by-case ''deals.'' Simply put, it should be designed to encourage the openness and outward orientation that Americans would like to see emerging from a more integrated Europe.
Further progress within APEC and the Free Trade Area of the Americas (FTAA) could be useful tools in such an effort. That is a major reason why we need fast track legislation. What is at stake are not merely the legal authority to negotiate particular agreements with Europeans or anyone else, but the symbolic willingness and political ability of the United States to pursue the further expansion of rules-based, market-oriented trade and investment on a worldwide basis, using all the tools at our disposal.
II. Limitations of the Current Approach
Thus far I have been praising the achievements and highlighting the significance of the Transatlantic Marketplace and the recently concluded MRAs. What, then, is missing?
I would highlight two gaps: the absence of a more comprehensive framework, including a deadline; and the need to address problems plaguing Transatlantic relations on a more strategic level.
Despite the broad language of the 1995 Madrid summit, the drive to create a Transatlantic Marketplace has been channeled into relatively narrow grooves. The Marketplace initiative features no specifically defined outcome, no commitment to comprehensive coverage, no guarantee against unilateral remedies, and—a key omission—no overarching deadline by which the Marketplace should be achieved. In these circumstances, it is tempting to knock off ''low-hanging fruit''—that is, sectors in which further liberalization is politically easier—and leave more stubborn sectors on the branch. Doing so precludes more comprehensive trade-offs later on.
Page 149 PREV PAGE TOP OF DOC
In theory, harmonization of regulatory policy should be easy to achieve, since West Europeans have more or less the same values as Americans and the same high standard of living. In practice, however, mutual acceptance of each other standards and procedures has proven to be extremely difficult. Since there is no strong overarching vision or deadline, there are few if any opportunities for political breakthroughs. This is one reason why negotiating each MRA is like pulling teeth.
Moreover, progress in creating the Transatlantic Marketplace has been clouded by high-level political disagreements. Chief among them at present are unilateral U.S. economic sanctions (including state and local measures), which I discuss below; the planned merger of Boeing and McDonnell-Douglas; and a variety of trade disputes, ranging from the treatment of fur from animals caught in leghold traps to labelling requirements for bio-engineered agricultural products.
Quarrels between the Transatlantic trading partners are inevitable, but at present they seem to be particularly acute. They are so all-consuming that they drain political energy and attention from the larger challenge of managing the post-Cold War global political-economic order. This is a good time to ''think big,'' if only to put these disputes within a larger and more positive framework.
The number one dispute dividing the Transatlantic powers stems from the extraterritorial provisions of the Helms-Burton Act and the D'Amato sanctions legislation. The former mandates restrictions on companies that have trafficked in expropriated U.S. property in Cuba; the latter requires the President to impose sanctions against companies undertaking further investments of more than $40 million in Iran and Libya. These two pieces of legislation have brought down a shower of European anger and resentment on American heads, with serious consequences not only for Transatlantic business but also potentially for the World Trade Organization.
Page 150 PREV PAGE TOP OF DOC
A new study released by the Institute for International Economics (IIE) found that at the 1995 level, sanctions reduce U.S. exports by $15–19 billion each year, reducing employment in the high-wage export sector by more than 200,000 jobs and cutting wage premiums by nearly $1 billion.(see footnote 1)
Moreover, unilateral economic sanctions usually fail to change the behavior or the government of target countries. A separate IIE study found that U.S. sanctions had positive outcomes in fewer than 1 in 5 cases in the 1970s and 1980s, when the United States exerted a more dominant role in the global economy than it does today. The overwhelming majority of those ''successes,'' measured in terms of an economic cost imposed on the targeted country, did not produce changes in the regime's offensive behavior.(see footnote 2)
The President's Export Council (PEC) concluded recently that the most important economic impact of unilateral economic sanctions is the ''cumulative weakening of U.S. competitiveness in friendly third-country markets, including those of our largest trading partners'' (emphasis added).(see footnote 3)
In the case of Western Europe, the corrosive effect of U.S. unilateral economic sanctions goes well beyond business interests. Such sanctions violate Transatlantic norms and expectations, thus undercutting the encouraging trend towards a widely accepted, rules-based, market-oriented trade and investment system. Americans have the most to gain from such a system. Together with the European Union, the United States makes the most use of the dispute settlement system established by the Uruguay Round of trade negotiations. In the case of Europe, sanctions have a high political cost because they consume high-level attention, sour good will, and stifle cooperation on other fronts.
Page 151 PREV PAGE TOP OF DOC
Despite these disadvantages, unilateral U.S. sanctions have been proliferating dramatically, affecting 35 countries accounting for 2.3 billion consumers and almost one almost fifth of the world's export markets. These measures are reactive and ad hoc in nature. Supporters of each form of sanction say, ''I realize that unilateral economic sanctions impose a cost and don't work, but for the sake of principle there has to be an exception for country X or issue Y.'' The cumulative effective is extremely damaging to U.S. interests and to the Transatlantic relationship in particular.
The United States and the European Union should undertake a broader dialogue on economic sanctions. They might examine jointly the effectiveness of previous sanctions, alternative and/or complementary tools available, and the development of joint criteria and thresholds for action in the future. Key members of Congress should participate actively in this discussion.
III. Towards a North Atlantic Economic Community?
In light of these limitations, I propose something far more ambitious than the Transatlantic Marketplace in its current form: a non-preferential, globally oriented initiative that might be called a North Atlantic Economic Community (''NATEC'') consisting of the United States, Canada, and the European Union.
My proposal is best understood not as an alternative to the present approach, but rather as an effort to inject high-level political momentum and strategic purpose into the Transatlantic economic relationship. Indeed, I could imagine a ''bottom up'' approach that builds up from the current set of activities as well as a ''top down'' approach driven by political vision. Whichever way it works—and I would favor both ''bottom up'' and ''top down'' methods—the process will take time. A NATEC is clearly unrealistic at the present time, but all ambitious initiatives are unrealistic in the near term. What I propose is to begin laying the groundwork. Congress is a good place to start.
Page 152 PREV PAGE TOP OF DOC
NATEC would establish a deadline for free and open Transatlantic trade and investment (say, 2010) on a Most Favored Nation basis. (To avoid the ''free rider'' problem, it would draw in other major suppliers in a process similar to the negotiation of the Information Technology Agreement.) All sectors would be covered.
A significant portion of NATEC's agenda would be devoted to strengthening the existing multilateral system according to the WTO's ''built-in agenda.'' Every aspect of the negotiating process would be designed to be consistent with WTO principles and would be voluntarily submitted for WTO review. At the same time, NATEC would commit the two powers to a pioneering role in areas not yet covered by WTO rules (e.g., civil aviation, competition policy, and...more MRAs).
NATEC could stimulate other regions, particularly APEC, to quicken the pace of liberalization to avoid being left out. When Latin America is added to the picture, the potential gains would expand even further. The various regional negotiations will influence each other heavily, because they are driving in the same direction, at the same time, across roughly the same sectors. Eventually the APEC liberalization process must engage the European Union, and the Transatlantic process must engage APEC.
As these cross-regional negotiations gradually yield results and become global in nature, they must be meshed into the WTO. The United States and the European Union must move the WTO forward at the same time that they are implementing NATEC so that the WTO can accommodate regional liberalization. The WTO's ''built-in agenda'' offers an opportunity for the Transatlantic powers to bridge the short-term gap between regional and global liberalization.
The inclusion of trade-related foreign policy issues would stimulate more Transatlantic coherence and help restore much-needed Transatlantic leadership. NATEC would address such Transatlantic trouble spots as economic sanctions, the entry of China into the world trading system, the treatment of anti-competitive behavior in Japan, competition in third markets, and the management and governance of the World Trade Organization.
Page 153 PREV PAGE TOP OF DOC
Ideally, a NATEC should span not only trade and investment but also macroeconomic coordination, monetary policy, exchange rates, and other financial aspects of the Transatlantic relationship, as well as trade and investment. Assuming that steps toward a common European currency do not falter, the impending creation of the euro will soon justify new currency management arrangements between the European Union and the United States (and Japan). These arrangements need to be addressed in parallel with any new trade and investment framework.
IV. What Members of Congress Can Do
Members of Congress—and the members of this Subcommittee in particular—could contribute substantially to the deepening of the Transatlantic Marketplace in a number of ways.
First, members could take the time to become familiar with the issues and participate more actively in the process. Participation of this kind would strengthen the political foundation of a Transatlantic initiative here at home.
Second, they could strengthen personal contacts with their European counterparts, thus building a stronger political consensus on a Transatlantic basis—perhaps through a new organization loosely patterned on the North Atlantic Assembly.
Third, they could help to bring about, where appropriate, needed changes in regulatory legislation corresponding to newly emerging MRAs. This is of crucial importance.
Finally, they could pass fast track legislation, which will be of direct or indirect benefit to virtually everything that the United States is trying to do in the field of trade.
Thank you for this opportunity to present my views.
Page 154 PREV PAGE TOP OF DOC
—————
Chairman CRANE. Thank you.
I agree with you wholeheartedly about the economic cost to businesses and to workers in America when we utilize unilateral economic sanctions. It does have damaging effects with our trading partners.
But what alternatives do you see to economic sanctions and how should we pursue a dialog with Europe on these issues?
Ms. FROST. I would like to answer your questions in reverse order.
At my Institute, there has been a study of every economic sanctions case since World War I. On the basis of what was done to date, the authors produced nine lessons learned, drawn from these real-life cases. That study is now being updated.
One way to begin the dialog with Europe is to look at those lessons learned, to sit down together and go over the historical record, to see what has worked and what hasn't worked. That is how I would begin to build a consensus with the Europeans.
With respect to your question about alternatives, I sympathize very much with people who want to do something about regimes that violate international norms. I happened to be involved in an advisory committee that is addressing the question of alternatives to economic sanctions. We have put together and hope shortly to release an illustrative matrix listing both positive and negative tools and levers, ranging from visa denials to selected political- military measures short of war. So there are a large number of alternatives available.
Sometimes these other tools may not be alternatives to economic sanctions, but rather complementary measures if we can achieve multilateral economic sanctions, that may be appropriate in certain cases.
Page 155 PREV PAGE TOP OF DOC
I would like to see a greatly improved procedure within the executive branch so that costs and benefits of economic sanctions are systematically considered. I would hope the Congress would do likewise. And I would like to see a G–7 working group, where these issues could be debated right from the outset, instead of after the fact.
Chairman CRANE. For you, Dr. Stern. Can you give us your views as to Dr. Frost's concept of a North Atlantic economic community, and do you agree with her that the NTA suffers from a combination of lack of overarching vision and a deadline?
Dr. STERN. I was going to address your export sanctions question, but I would like to do that afterward.
Chairman CRANE. Sure thing.
Dr. STERN. Let me first then go to the export sanctions, because the work that I did as a member of the President's Advisory Committee on Trade Policy Negotiations relates very much to your question.
Two years ago, I chaired a Subcommittee on unilateral export sanctions, released, a very, very useful repart. Its recommendations are echoed in the PEC study. The President's Export Council study comes up with many of the same points as the ACTPN and builds on the momentum, that recognizing that these export sanctions may have more costs than had been previously understood. The recommendations that Ellen put out were very much in line with those that we made, including performing a kind of an impact analysis in advance of issuing a set of sanctions.
Specifically, I think that there is work that the Transatlantic Business Dialogue can do that can make export sanctions when employed issue less fractious and hopefully make the export sanctions more effective when employed. That is why I have called on the State Department, which is responsible for the formulation of these export sanctions, to turn to private industry for impact and advice. In particular, U.S. and European firms within the Transatlantic Business Dialogue, could provide a special advisory committee of business leaders to advance more effective export sanctions.
Page 156 PREV PAGE TOP OF DOC
After all, the United States and Europe are among those that develop the most highly technically sophisticated products, which generally are on the sanctions list and because the United States and Europe represent so much of the world trade, if we are going to coordinate our export sanctions policies—and they have to be multilateral if they are going to be effective—there is no better place to start than the TABD.
As you know, CoCOM, the coordinating committee that existed during the cold war, no longer exists, and there is an effort to create this Wasendor group to replace CoCOM. But I believe that the business input at the design stage would make for probably fewer sanctions, but when Sanctions are imposed, they would be more effective, they would be multilateral, and they would be technologically enforceable.
That is my recommendation in that area, because I totally agree that we have got to adjust our sanctions policy to the global economy.
Now, as to your question about Dr. Frost's recommendations, I firmly believe that we're talking about semantics. I certainly believe that Acting Under Secretary Hauser's comments, probably speak more loudly than anyone else's, when he states in his long testimony that every market-opening move undertaken by the United States and the EU in the last couple of years has been suggested by the TABD. That is really testimony to the fact that this is not just a narrow, sector-specific set of recommendations that deal with standards, albeit that is very important and very pragmatic, but that it deals with tariff liberalizations and other matters.
I also believe that the Transatlantic Business Dialogue has been the core for globally consistent rulemaking. The Information Technology Agreement, the ITA agreement, was suggested first by the TABD, and with the endorsement of the United States and the European Union, these core companies and businesses became the core, and then APEC said, ''ah, ha, well, maybe we ought to get on board,'' and the APEC, of course, includes Canada and Japan, Taiwan, China, Korea, and so forth.
Page 157 PREV PAGE TOP OF DOC
Chairman CRANE. Charlene, as you know, had to work desperately hard, with sleepless nights, to get that ITA agreement.
Dr. STERN. Right, exactly. Having got—that critical core piece—and then it was built out from there. I dare say, if you had started with just an APEC agreement, it would have been a different story.
So I think again this is an example of, if you get the United States and the European Union agreeing, then they are the initiators of what I consider the high road set of rules that eventually are globally accepted.
By the same token, I think the TABD, recommendations that I have spelled out—which I do think are rather ambitious—are pragmatic. That's the critical point here. Ideas are very important. And ideas that can be put into reality are what makes the difference in terms of commercial viability and political sustainability.
So the ideas that I have put forward do anticipate global sets of rules; they are globally consistent in, that TABD is setting the pace. Not only on the ITA. The automotive agreement is another example. Other example are detailed in my testimony prepared.
Finally, in terms of comprehensiveness, the fact that the recommendations of the TABD have ranged from standard setting to tariff liberalization, to recommendations relating to Helms-Burton and sanctions policy, to recommendations on competition policy—the two controversial areas I didn't go over in my short statement but which are very much a part of the Transatlantic Business Dialogue—all suggest that the TABD is tackling tough questions, as well as picking low-hanging fruit.
I do believe that we have to recognize that in this democracy that we live in, we have to demonstrate, in a time table that the public can appreciate, that the trade negotiators are getting things done. Deadlines may help energize bureaucracies that may otherwise be asleep—and they do make for very good speeches—but at the end of the day, the breadth of what the TABD is undertaking is extremely comprehensive and I think there is a strategy here in my big, bigger, and biggest approach. The big, bigger, biggest, is not necessarily short-term, long-term. It also takes into accent politically achievablilty.
Page 158 PREV PAGE TOP OF DOC
The metric labeling, for example, is one of the biggest things TABD might try to go after this year. The changes required by the European Commission will be politically really, really tough. I dare say that including representatives from the three emerging nations that are becoming members of NATO in a TABD discussion, is also extraordinarily important. It will be difficult because if we haven't been focusing on the U.S.-European—defined Western European—relationship enough, we surely haven't been focusing enough on those emerging markets. For example, in Poland, the United States is the largest investor, and yet there are disadvantages such as, tariff differentials, that disadvantage U.S.-based companies. There are regulations in these nations that require a lot of work, and I think the TABD, in providing the focus, a time table without a deadline, and a long-term set of objectives, does meet the bill.
Let me just recite, in conclusion, my last sentence from my long testimony. We must appreciate that when it comes to setting priorities in commercial policies and in trade policies, business does do have a very definite comparative advantage. Over both think tanks and government.
So while the business community, has to be patient in working with the government—because we are dealing with democracies and representatives with different agendas and different interest groups—the business community does have a comparative advantage in pointing out what really makes sense economically and commercially.
Ms. FROST. If I could add one word, Mr. Chairman. There's a very simple issue here.
My message is aimed mainly at the executive branch. I completely agree with Dr. Stern about the important role of business. This is a case where business is ahead of governments.
I was in Europe recently and I found some interest in a longer term, ambitious framework. Likewise, I believe that an ambitious would be supported in the TABD.
Page 159 PREV PAGE TOP OF DOC
Chairman CRANE. I want to congratulate you ladies for your expertise and your brilliance, and with no deadlines involved, the lines of communication going to us here. Thank you all for your testimony.
This concludes our hearing. The record will be open until August 6. The Subcommittee stands adjourned.
[Whereupon, at 4 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the Health Industry Manufacturers Association
Medical Device Industry Supports TABD, Applauds U.S.–EU Efforts in Concluding MRA Agreement
The Health Industry Manufacturers Association (HIMA) is pleased to provide this statement in support of efforts to enhance the U.S.-European commercial and economic relationship through the New Transatlantic Agenda (NTA). We believe that several initiatives under the NTA—in particular the recently concluded U.S.–EU mutual recognition agreement (MRA)—will help to boost economic and job growth in the two regions, as well as provide significant benefits to consumers and business alike.
HIMA is a Washington, D.C.-based trade association and the largest medical technology association in the world. HIMA represents more than 700 manufacturers of medical devices, diagnostic products, and medical information systems. HIMA's members manufacture nearly 90 percent of the $55 billion of health care technology products purchased annually in the United States, and more than 50 percent of the $130 billion purchased annually around the world.
The MRA for Medical Devices
Page 160 PREV PAGE TOP OF DOC
The successful conclusion of the MRA agreement represents a significant accomplishment and we commend the senior Administration officials that negotiated the agreement, as well as Members of Congress who provided their support for the pact. During the negotiations, HIMA representatives worked closely with U.S. and European officials on the MRA for medical devices. As part of this effort, the medical device industry participated actively in the Transatlantic Business Dialogue (TABD), which played a critical role in helping to generate and maintain the political leverage needed on both sides of the Atlantic to conclude the agreement.
The MRA for medical devices will help reduce regulatory redundancies and costs, as well as enhance access to the European market. Moreover, the agreement will reinforce key elements of the U.S. Food and Drug Administration's own domestic reform initiatives in the medical device area, including greater reliance on international standards and use of third-party organizations. As such, the agreement represents an important first step in the broader effort to modernize the way medical technology is regulated in this country and, more importantly, will help save and improve lives by getting new products to patients faster.
The benefits of the MRA will help to ensure that the medical technology industry remains one of America's most competitive industries. In 1996, the U.S. trade surplus in medical devices and diagnostics reached a record $6.5 billion. Total U.S. exports of medical technology reached $12.9 billion in 1996, with $5.1 billion of those exports going to Europe. The MRA will enable U.S. companies to build off this trade performance, as well as enhance the competitiveness of both U.S. and European companies vis-a-vis companies from other countries.
Implementation of the MRA and Continued Work in the TABD
HIMA plans to work closely with the Food and Drug Administration (FDA), Congress and others as the MRA is implemented over the next three years. Moreover, the medical device industry will continue to participate in the TABD process to pursue additional initiatives to open markets overseas and to improve the environment for medical technology here in the United States.
Page 161 PREV PAGE TOP OF DOC
—————
| International Trade Council |
| Alexandria, VA |
U.S. House of Representatives
Congressman Philip M. Crane, Chairman
The Committee on Ways and Means
Subcommittee on Trade
Mr. Chairman and Members of the Committee:
Thank you for the opportunity to submit testimony to the Subcommittee on Trade regarding aspects of the ''New Transatlantic Agenda'' (NTA). I am Dr. Peter Nelsen, chairman of the International Trade Council (ITC) and chairman of ITC's research and educational branch, the International Development Institute (IDI). Our Director of Research Mark Ganter has compiled the collateral research for this report.
As a nationally established trade association, the International Trade Council, now in its 22nd year, represents producers of products, commodities and services marketed globally. Its member countries, located in 49 of the 50 states, comprise a broad cross-section of industries and range from small and medium size producers to some of the largest companies in the United States.
The objective of the New Transatlantic Agenda launched in December 1995 as a joint U.S.–EU action was to address global economic, political and humanitarian challenges more effectively. We at ITC endorse this concept but herewith submit a more effective method to achieve the overall objective.
Page 162 PREV PAGE TOP OF DOC
IDI has researched the various impediments and barriers to international trade and commerce for more than 21 years. In 1979 we published the first significant paper on bilateral reduction of trade barriers as a way to accelerate the snails pace with which GATT was proceeding in its effort to create an open global marketing system. This led to the Free Trade Agreements with Israel in 1985, Canada in 1989 and Mexico in 1994.
Now in 1997 the World Trade Organization is working towards trade liberalization again at a snails pace. As a result, blocks of countries around the world are creating their own free trade areas and customs unions. The WTO lists over 76 of these set up since 1948 with more than half having emerged this decade. The European Union will, for example, soon be expanding from 15 countries with 371 million consumers to 20 countries with 435 million. The next wave of enlargement will potentially increase this figure to 25–30 countries with over 500 million consumers. A possible free trade agreement with Turkey would bring the EU's potential consumer base to well over 580 million with greater disposable income than most of the remaining world.
In the mean time, the U.S. negotiators and business leaders are concerning themselves with MRA's and standards alignment on a sectoral basis while postponing the larger objective, which is opening foreign markets for U.S. producers around the world and for U.S. consumers at competitive prices. While we at ITC consider these necessary and inevitable objectives, we feel they should not delay the implementation of a revised MFN treaty.
Every time a new country enters into the EU or the EU enters into a free trade agreement with any one of the over 70 other trade blocks around the world, the U.S. producers of products, commodities and services are handicapped and discriminated against by having to pay the MFN tariffs while trade between member states crosses borders duty free—without tariffs.
Import tariffs are a tax upon the consumer: they impact upon low income families more than middle class and high income earners. It limits disposable income of the consumers by reducing the purchases that the family can make for their personal needs.
Page 163 PREV PAGE TOP OF DOC
Import tariffs reduce the competitiveness of U.S. producers who have to buy imported raw materials and components that they are needed to produce competitively for the global market.
ITC herewith proposes a comprehensive trade bill for the 105th Congress that will give America a rational foreign trade policy for the 21st century.
Most Favorite Nation Treaty II:
A universal Trade and Economic Development Treaty to replace the old MFN treaty that has lost its meaning due to numerous subsequent treaties that are more favorite than MFN and some that are less favorite, but more favorite than the preceding Tariff Act.
The MFN II would establish a nominal 1% tariff on all goods entering the United States from any country that qualifies for membership in the WTO and who reciprocates with a similar 1% tariff on U.S. goods entering that country.
Countries that are presently receiving GSP (General System of Preferences) privileges would be subject to the same 1percent tariff, provided that they give U.S. exporters the same 1% tariff rate—except for the least developed countries, who have no system of collecting corporate or individual taxes to run their governments, may still be given the same 1% tariff provided that U.S. exporters be charged a rate that is no higher than any other country exporting to that country.
The GSP law, extended to July 1998, will thus be replaced with the proposed MFN II. The increased trade resulting from MFN II will enable the LDC's to export to the other participating countries so that their need for foreign aid will be eliminated and the core objective of the WTO will be achieved; namely the creation of a free and open global market.
Each and every country within the 131 WTO countries can thus pass the necessary legislation to conform to the simple MFN II rules so that before year 2000 or after, the 105th congress will have passed and implemented the most significant trade legislation of this century in time for the 21st century.
Page 164 PREV PAGE TOP OF DOC
All the product standards, labor and environmental standards and other details that have been under negotiation for the last several years can continue to be negotiated and eventually agreed upon, but MFN II will establish the framework into which all these details will fit.
Presently the European Union is admitting 5 additional countries on top of the 15 that currently comprise the EU and will admit up to 10 more thereafter. With each new country entering the EU, U.S. producers are placed at a disadvantage for the U.S. producer will pay, and have to charge their customers in the EU, the import tariff that their competitors who export within the EU do not.
These same handicaps exist in five other regional trade zones and among the Francophone countries as well as the British Commonwealth countries.
Since the U.S. is the largest market for relatively high-income consumers, the U.S. can induce the other countries to accept the MFN II terms.
As trade develops U.S. open access to 131 and more WTO countries, our increased competitiveness with the lower tariff rate will increase our exports so that the tax revenue from increased production and increased employment will more than make up for the slight loss of tariff revenue (currently 1.5% of U.S. tax receipts) that the MFN II will initially incur.
The New Transatlantic Agenda will be absorbed into the MFN II as will the other regional treaties. i.e. Caribbean Basin Initiative, ASEAN, GSP etc. thus the net change to U.S. tax revenue will be neutral, and in the near term positive.
The reason for the 1% tariff is to pay for the cost of the U.S. Customs Service, which has the responsibility to check all outbound and inbound trade and to control traffic in contraband, narcotics and defense sensitive material.
The difference between U.S. tariffs and those of most other countries is U.S. exports can be expected to increase between 20 and 30% en toto if a substantial number of countries agree to the terms of MFN II. Furthermore, as the number of countries that agree increases, those remaining outside will be under increasing pressure to acquiesce and agree.
Page 165 PREV PAGE TOP OF DOC
The proposed bill offered in this simple form should not require fast-track authority since each trading partner has the choice of accepting and thereby reciprocating with the 1% tariff or maintaining their present MFN status. This would be in full compliance with current WTO rules requiring any trade concessions offered to one country to be offered to all countries.
For the last forty years trade agreement negotiations have been delayed and bogged down due to the influence of single commodity groups with extraordinary political influence both in the U.S. and in foreign countries. It seems unfair, unreasonable and a ''Restraint of Trade'' to hold up approximately 10,000 industries, as listed in the Standard Industrial Classification index, when only a few industries insist upon ''protection.'' ITC therefore proposes that particular domestic or foreign industries, which want to be left out, be left out of any or all bilateral agreements. It is however entirely unfair to hold up the majority of industries from trade for generation after generation because of the power politics of a few industries.
The MFN II will, over time as each country changes their MFN trade rules, eliminate direct trade barriers around the globe, since any country that refuses to participate will simply be passed over by the business community. The more difficult talk will be to eliminate the mountains of indirect trade barriers, but if MFN II is implemented the second task will be made much easier.
—————
| JBC International |
| August 6, 1997 |
Page 166 PREV PAGE TOP OF DOC
The Honorable Philip M. Crane
Chairman, Subcommittee on Trade
of the Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20005
Dear Chairman Crane:
On behalf of JBC International, the Industry Functional Advisory Committee on Customs (IFAC–1), the Joint Industry Group (JIG), and the National Council on International Trade (NCITD), these comments lend support to the work of the Transatlantic Business Dialogue (NTDB) in harmonizing customs matters between the United States and the European Union. August 6, 1997 The Honorable Philip M. Crane Chairman, Subcommittee on Trade of the Committee on Ways and Means U.S. House of Representatives 1102 Longworth House Office Building Washington, DC 20005 Dear Chairman Crane: On behalf of JBC International, an international trade consulting firm, I respectfully submit these comments regarding the development of the New Transatlantic Agenda (NTA). I also serve as chairman of the Industry Functional Advisory Committee on Customs (IFAC–1) and secretariat of the Joint Industry Group (JIG) and National Council on International Trade Development (NCITD). Our involvement with these global trade organizations and JBC International has allowed us to work with various global trade facilitation initiatives.
We support the concept of the NTA and the efforts of the Transatlantic Business Dialogue (TABD) to improve the Customs process between the European Union and the United States. Although increased harmonization of the Customs process is continuing through the work of the TABD, the U.S. government, in cooperation with the European Union, must address several serious issues to continue this process. We recommend the following for immediate government action:
Page 167 PREV PAGE TOP OF DOC
• Establish a partnership between industry and Customs to further modernization efforts within Customs at the national and international level. Additionally, we support development of a model for an efficient and uniform Customs administration by the International Chamber of Commerce and the World Customs Organization.
• Harmonize data required by U.S. and EU Customs administrations into a single set of data elements and a single commercial document. Required data elements would be those considered essential for completing the international transaction.
• Allow for pre-arrival processing of goods in the form of a manifest, summary report, or other official document received in hard copy or electronically. This allows Customs to determine release status and to authorize a conditional release upon arrival of the cargo.
• Secure binding classification rulings and prohibit reclassifications of goods by individual Customs administrations.
• Convergence within Customs of customs matters and enforcement of all but the most technical and sophisticated regulations.
• Increase the EU deminimis value limit for cargo from the current 22 ECUs to 150 ECUs and establish duty waiver programs for expedited clearance and release.
• Integrate intra-company exports and imports so that multi-national companies can move their own goods internationally while submitting only one set of standardized control and declaration data to satisfy all official requirements for the entire transaction.
• Develop and implement a trade modernizing prototype to facilitate achievement of these recommendations and create a simple and uniform Customs administration between the U.S. and EU. Thank you again for this opportunity to express our views regarding the TABD and its efforts to harmonize trade between the European Union and the United States. We will be happy to elaborate on any of the above recommendations.
Page 168 PREV PAGE TOP OF DOC
Sincerely,
| James B. Clawson |
| President |
—————
Statement of National Electrical Manufacturers Association
U.S.–E.U. Mutual Recognition Agreement and the Electrical Safety Annex
The National Electrical Manufacturers Association (NEMA) appreciates the opportunity to comment to the Subcommittee on Trade of the Committee on Ways and Means on the New Transatlantic Agenda.
NEMA is the largest trade association in the United States representing the interests of electroindustry manufacturers. Founded in 1926 with headquarters in Rosslyn, Virginia, its 575 member companies manufacture products used in the generation, transmission and distribution, control, and end-use of electricity. Many of NEMA's member companies have major involvement and interests in international standards activities, conformity assessment and other trade-related issues affecting their international markets. NEMA member company sales total $100 Billion a year and annual exports total $13 Billion. 500,000 people are employed by NEMA member companies in the U.S.
NEMA has been a strong supporter of the Trans-Atlantic Business Dialogue (TABD) since its inception. CEOs from NEMA member companies have participated in the Seville and Chicago meetings, and even more will participate in the November meeting in Rome, Italy. The Association itself has been active in the advisory committee system developed to assist the annual meetings of CEOs. The U.S.–EU Mutual Recognition Agreement was initiated to address regulatory and conformity assessment requirements that impede the free flow of goods between the United States and the European Union. The MRA is made up of an ''umbrella'' text, which governs the administration of the MRA and six annexes covering the following industries: medical devices, electrical safety, recreational craft, telecom and terminal equipment, pharmaceuticals, and electromagnetic compatibility products.
Page 169 PREV PAGE TOP OF DOC
Our comments focus on the recently completed U.S.-European Mutual Recognition Agreement (MRA) and specifically on the Electrical Safety Annex of the Agreement. However, we wanted to briefly mention our support for the Medical Devices Annex which reflects the desire of the medical device members of NEMA for third party medical device product evaluations, greater use of international standards for medical device products, and an increase in the number of medical device products that third parties can evaluate. The Medical Device Annex, however, fell short because it did not stress the harmonization of FDA and EU regulatory schemes.
NEMA is not opposed to an MRA between the European Union and the United States for those industries where market impediments related to standards and certification exist. NEMA does not support, however, the inclusion of the Electrical Safety Annex in an U.S.–E.U. MRA. The annex does not improve market access for U.S. or EU electrical products. While the Telecom Annex will improve market access for telecom or information technology (IT) products, the Electrical Safety Annex will not improve market access for the electrical component of telecom or information technology products, let alone electrical products made by NEMA member companies. Our rationale for this position is stated below.
For U.S. Products Going to the European Union
Currently, electrical products (as well as low voltage telecom and IT products) are subject to the European Low Voltage Directive (LVD). The LVD allows for supplier's declaration to demonstrate compliance, meaning the manufacturer can rely on its own test data and does not need to use a third-party laboratory. Therefore, U.S. manufacturers have the choice to use supplier's declaration, a European Notified Body (ie: a European laboratory), a U.S. testing and certification organization. This freedom of options creates an open market in Europe. The MRA will in no way improve this situation.
Page 170 PREV PAGE TOP OF DOC
For European Products Going to the United States
Currently, most electrical products (which includes some telecom and IT products) sold in the United States for use in the workplace, must be certified by a Nationally Recognized Testing Laboratory (NRTL) under the requirements of the Occupational Safety and Health Administration (OSHA). U.S. and European products are subject to this same requirement.
An OSHA authorized NRTL is a private laboratory that has been accredited by OSHA. Any testing laboratory, regardless of geographic location, may apply to OSHA to become an OSHA NRTL. The Canadian Standards Association (CSA) is an OSHA NRTL as well as European, Japanese and other non-U.S. branches of some domestic OSHA–NRTLs. Prior to the MRA there was nothing in the OSHA regulations that prevented a European laboratory from applying for OSHA NRTL status. The MRA will in no way change this situation.
Without the Electrical Safety Annex, U.S. and EU manufacturers would still be able to move product into each others territory with out impediment. There is no market access gained from the Electrical Safety Annex of the MRA.
Conclusion
Given the above rational, NEMA has consistently opposed the inclusion of the Electrical Safety Annex in the U.S.–EU MRA. It is disappointing that the Clinton Administration determined that the Electrical Safety Annex was required to be part of the packaged MRA because the European Commission was demanding it be included. NEMA continually voiced its disagreement with this justification.
The negotiated MRA requires OSHA to spend time and resources on meeting the implementation obligations of the Electrical Safety Annex, even though these obligations will in no way benefit U.S. manufacturers, European manufacturers and most importantly for OSHA, U.S. workers. NEMA believes this situation to be unacceptable and unjustifiable. We continue evaluating the options available regarding the U.S.–EU MRA and we are working with the United States Trade Representatives Office and OSHA to ensure that this situation is not repeated in future MRA negotiations under the Asia-Pacific Economic Cooperation (APEC) process or the Free Trade Agreement of the Americas (FTAA) process.
Page 171 PREV PAGE TOP OF DOC
—————
Statement of Philips Electronics North America Corp., Thomas B. Patton, Vice President
Introduction
Philips Electronics North America Corporation (''Philips'') is pleased to submit this statement for the record of hearings conducted on the New Transatlantic Agenda. As the wholly-owned U.S. subsidiary of Philips Electronics, N.V. of the Netherlands, Philips is an active participant in and enthusiastic supporter of recent developments that have resulted in improved conditions for transatlantic commerce.
Philips Electronics North America Corporation with headquarters in New York, employs 32,000 people and is comprised of more than 20 operations whose collective 1996 sales were over $8 billion, making Philips among the 20 largest U.S. subsidiaries of all multinational corporations, and one of the largest manufacturers in the NAFTA region. Philips is a leader in the U.S. segments of global industries such as lighting, consumer electronics, medical imaging, semiconductors, business and professional electronics, and multimedia and entertainment. Its familiar brand names and products include Philips lamps, Philips/Magnavox televisions and audio/video products and Norelco electric razors and domestic care products.
Globally, Philips Electronics of the Netherlands is one of the world's largest electronics companies, with sales of $41 billion in 1996, placing it #51 on Fortune's Global 500 list. Its 262,500 employees in more than 60 countries are active in the area of lighting, semiconductors and components, consumer products, professional products and systems, and software and services. Quoted on the NYSE, London, Frankfurt, Amsterdam and other stock exchanges, it is a world leader in lighting, color television sets, electric shavers, and recorded music (Polygram).
Page 172 PREV PAGE TOP OF DOC
Transatlantic Relations
For many years the trade relationship between the United States and Europe appeared to be governed more by the laws of physics than the principles of free trade. Namely, that every action resulted in an opposite and equal reaction. These ''actions'' represented the extent of the ''dialogue'' between us. But with time and an increasing recognition of the value and the sheer magnitude of the trade and investment relationship, a real dialogue has emerged. Improved avenues for discussion during the late 1980s and early 1990s led quite naturally to discussions of a common U.S.–EU agenda and to a call from key government officials in 1994 for the establishment of the Transatlantic Business Dialogue (TABD). Commerce Secretary, Ron Brown, European Commission Commissioner Martin Bangemann and President Jacques Santer made an offer that the business community accepted wholeheartedly and has taken very seriously ever since.
While our transatlantic agenda is much broader and includes several important issues other than those on the TABD platter, it is the purpose of this statement to focus specifically on the role of and potential for the Transatlantic Business Dialogue to continue to foster a better climate for transatlantic trade and investment. We believe our governments were thoughtful and correct in recognizing that by allowing business leaders a seat at the table to discuss problems and solutions, the public/private partnership could be redefined. We hope to keep it that way.
TABD: An Effective Process
The Transatlantic Business Dialogue is not an organization. Rather, it is a process that has succeeded in attracting the support and personal involvement of CEOs from the private sector and senior government officials from the U.S. and Europe. As a process it has been embraced for its practicality: finding common solutions to common problems. The TABD's objectives are clear and achievable and aim to boost opportunities for transatlantic trade and investment. If goods, services and capital can flow more freely across the Atlantic, then trade and investment will increase, economic growth will accelerate, jobs will be created and global competitiveness will improve. Again, practical means can be employed to achieve TABD goals: eliminate inefficiencies, reduce unnecessary regulation and avoid duplication of effort.
Page 173 PREV PAGE TOP OF DOC
Philips Electronics' Role in the Evolution of the TABD
From the call to order issued in 1994 by Messrs. Brown, Bangemann and Santer, Philips has sought to be involved and to contribute to the development of an improved business dialogue. In true transatlantic fashion, Philips in the U.S. and Europe has worked closely together as a participant in the evolving process. In many ways Philips' experience in Europe was preparing it for an active role in the TABD, well before its inception in Seville in November, 1995. Specifically, Philips' role in the process to bring about a Single Market in Europe with reduced internal trade barriers prepared it for a key role in TABD's efforts to dismantle obstacles to efficient trading conditions between the United States and Europe.
At the TABD's inaugural conference in Seville, Spain, Philips' then CEO, Mr. Jan Timmer, was invited to chair one of the four Roundtable discussion groups composed of CEOs from the U.S. and the EU. Under Mr. Timmer's chairmanship, the Roundtable formulated the landmark Seville Recommendations on Standards, Certification and Regulatory Policy, including the recommendations on concluding a U.S.–EU Mutual Recognition Agreement, on improving Conformity Assessment, on greater use of international standards, calling for the establishment within the TABD of an industry-led Transatlantic Advisory Committee on Standards (TACS).
Leading the TACS
The mission of the TACS in 1996 was to elaborate on the Seville Recommendations on Standards by establishing working groups to represent a wide range of sectors. Mr. Timmer was invited to continue his work by chairing the TACS in 1997 with Mr. Dana Mead, CEO of Tenneco. Together, they formulated the principle of ''Approved once, accepted everywhere in the transatlantic marketplace'' to guide the TACS in its work to eliminate duplicative testing and certification. This guiding principle addresses the urgent issue of tackling the cumulative burden of excessive regulation in the EU and the U.S. Many regulatory requirements are simply no longer sustainable, as they compromise competitiveness and wealth creation without adding value to the level of protection of the environment or the consumer. The current systems developed when markets were national, but are no longer suited to the reality of the global marketplace. Such practices are redundant and wasteful, and add no value to our two great economies.
Page 174 PREV PAGE TOP OF DOC
The Mutual Recognition Agreement between the U.S. and the EU is an important step, and is, to date, the crowning achievement of the TACS. This historic agreement will benefit companies and consumers and save many millions of dollars, through reduced testing and certification costs, faster type approvals and reduced time to market which is especially important for high-tech products with short life-cycles. It is a major step forward towards the TABD goal of ''Approved once, accepted everywhere in the new transatlantic marketplace.''
Philips is proud to have played a key role in the lead up to the conclusion of negotiations. The MRA rose to prominence within the TABD during 1996 when Philips chaired the TACS and in June 1996, when we began preparing for the Chicago Conference it was decided to make the MRA the subject of a special session of talks. The breakthrough achieved at Chicago was possible because of (1) very good preparation by all involved, particularly those driving input from the Pharmaceutical, Medical Devices and Telecommunications sectors and (2) seizing the opportunity in Chicago to discuss and reach agreement at such high level. This is a prime example of the effectiveness of the TABD. The unique combination of CEOs and senior government representatives provides an unprecedented opportunity to achieve breakthroughs for common benefit on challenging issues.
Guiding the Future of Standards for High-Technology Sector
Philips was pleased to work with others, including AMP, IBM, and the Information Technology Industry Council (ITI) to co-produce a document for TABD on standards as trade barriers to the high-technology sectors. It is a blueprint for the future direction of standardization and certification for the Electrical, Electronics, Telecommunications and Information Technology sectors in a global marketplace. Implementing its joint recommendations will bring many benefits in terms of reduced costs and improved competitiveness. Consumers will benefit from lower product costs and earlier access to innovative products. Implementation will also stimulate the Global Information Infrastructure which has high priority in the U.S. and EU and which will stimulate consumer demand for information technology products.
Page 175 PREV PAGE TOP OF DOC
Philips and Tenneco lead TABD in 1997
The Transatlantic Business Dialogue is chaired this year in Europe by Philips Electronics, represented by Mr. Jan Timmer, and in the United States by Mr. Dana Mead from Tenneco. At the beginning of the year, we put in place a system of management for the process which is based on clusters each lead by a CEO from the EU and the U.S. This has consolidated the strong representative nature of the process and reinforced its legitimacy. Integrating more CEOs directly into the process throughout the year has brought greater cohesion and effectiveness.
Grouping issues has created opportunities for symbiosis, facilitates good management of progress, has given better visibility and reinforced transparency by showing clearly the full scope of the work within TABD. It also facilitates the integration of new issues and strengths and the ability to react quickly where necessary.
Clear Objectives for TABD in 1997
The co-chairs set clear objectives for TABD in 1997, and much progress toward those objectives has been achieved:
• To consolidate the achievements of the Chicago Conference: The breakthrough at the Chicago CEO Conference on Mutual Recognition Agreements has been successfully concluded.
• To achieve measurable progress in implementing TABD recommendations: Implementation of TABD Recommendations has witnessed the Customs Cooperation and Mutual Assistance Agreement, the Information Technology Agreement, the Mutual Recognition Agreement, and the OECD Accord on Corruption and Bribery amongst others.
Page 176 PREV PAGE TOP OF DOC
• To raise the visibility of the process and demonstrate its value: Visibility has been aided by reports in the press, publications and public hearings both in the European Parliament and the U.S. Congress. Representatives of the European Parliament's delegation on U.S.–EU Relations will visit Washington later this year to discuss among other things, TABD. More and more CEOs are becoming involved in the TABD as they see it as an important contribution to U.S.–EU relations, and our economic future.
• To focus action on priorities: In the first half of 1997, the TABD has defined its top priorities for action in a document known as the ''Priorities Paper'' presented in May to President Clinton, President of EU, Mr. Santer, and the President of the Council of Ministers, Prime Minister Kok of the Netherlands.
• To organize a follow up CEO conference in Autumn, 1997. The next conference has been scheduled for November 6/7 in Rome.
Conclusion
The TABD process has proven to be a dynamic and successful model for the United States and Europe to address a common agenda. Steady progress has been achieved from Seville in 1995, to Chicago in 1996 and will continue as plans are made for the next major TABD Conference in Rome in November, 1997. A clear momentum for affecting change will be applied to new initiatives in financial services, accounting standards and electronic commerce. Tackling these kinds of issues will pave the way for successful and productive relations for the new millennium.
—————
Page 177 PREV PAGE TOP OF DOC
Statement of Wolf Brueckmann, U.S. Chamber of Commerce
Introduction
The U.S. Chamber commends the Committee for providing this opportunity to take stock of progress in building the New Transatlantic Marketplace (NTM). The importance of the transatlantic marketplace is enormous, although often not fully appreciated by the U.S. public. The EU–U.S. trading relationship remains the largest in the world with 1996 two-way trade in goods and services reaching $366 billion. The foreign direct investment relationship is equally impressive: On each side of the Atlantic, more than three million jobs depend on these investments. The NTM initiative seeks to invigorate this already thriving commercial relationship through the progressive removal of traditional transatlantic trade and investment barriers and a convergence of national laws and regulations.
A long-term effort should be made by the United States to strengthen further what remains the most important bilateral commercial relationship in the world. Far from being eclipsed by the U.S. pursuit of Asian markets, U.S.–EU trade and economic relations remain a cornerstone of the global trading order and contribute to the prosperity of the economies on both sides of the Atlantic. Without sustained efforts to promote the EU–U.S. commercial relationship, short-term trade disputes—whether in aerospace, agriculture or other sectors—can easily overshadow the vital U.S. economic interest in Europe.
Recognizing the need to set a long-term agenda for EU–U.S. trade extending into the 21st century, the U.S. Chamber welcomed the announcement of the New Transatlantic Agenda in 1995 and actively supported the launching of the Transatlantic Business Dialogue (TABD) in Seville, Spain, that year. The TABD can make a major contribution to building the NTM by providing a business-driven dialogue between business and senior government leaders, including heads of state, and recommending government action whenever a transatlantic business consensus can be reached on reducing barriers to trade and investment. The U.S Chamber is fully engaged in the TABD through the participation of CEOs from the Chamber Board, members of our policy committee and Chamber staff. This statement to the Committee would like to make the following points, which will be expanded upon later:
Page 178 PREV PAGE TOP OF DOC
1. U.S. and European business have made great progress in identifying areas where they jointly call upon their governments to take action. These are articulated in several detailed TABD issue papers released before several EU–U.S. Summits as well as after CEO level meetings in the TABD.
2. The U.S. Chamber believes several important steps towards building the NTM have been taken since 1995, thanks to concerted pressure from the TABD and intensified cooperation between EU and U.S. negotiators.
3. Much unfinished business remains before the potential of the NTM can be fully realized. Most immediately, numerous recommendations from European and U.S business need to be acted upon by governments. There are also emerging new issues in EU–U.S. commercial relations that need to be anticipated and added to the NTM agenda.
Progress in Building the New Transatlantic Marketplace
Prior to the inaugural meeting of the TABD in 1995, the U.S. Chamber of Commerce released a report entitled ''The Future of Transatlantic Trade Relations.'' The report identified priorities for U.S.-European commerce into the 21st century, based upon the views of 70 companies with diverse interests represented on our Europe Task Force. Many of those priorities were subsequently incorporated into the Seville TABD recommendations. Since that time, members of the U.S. Chamber have pressed for government action on those recommendations in order to achieve concrete commercial dividends. What progress has there been to date on the priority areas U.S. Chamber companies identified in 1995, and what remains to be done?
Mutual Recognition Agreements (MRAs)
Page 179 PREV PAGE TOP OF DOC
After years of disappointment, a major success was achieved last month with the conclusion of agreements aimed at eliminating duplicative test and certification costs impeding $50 billion in two-way trade. The TABD played a decisive role in forcing the pace of government negotiations. Once the agreements have been implemented, U.S. businesses and consumers will at long last reap the benefits of expanded trade in a number of sectors, including medical devices, pharmaceuticals, telecommunication, recreational boats and electrical equipment. The U.S. Chamber urges the speediest possible implementation of these complex agreements. In addition, the momentum should be sustained by negotiating MRAs in other sectors which business on both sides of the Atlantic would like to see addressed.
Information Technology Agreement
EU–U.S. leadership was essential to the successful negotiation of a commitment for global elimination of tariffs in this sector. The support and assistance of European and American business was also indispensable to success. Other sectoral agreements to eliminate industrial tariffs in transatlantic trade and beyond—should be pursued where there is business support, such as paper, aluminum and chemicals.
WTO Agreement on Basic Telecommunications Services
EU –U.S. cooperation made it possible to achieve the critical mass necessary to bring the WTO negotiations to a successful conclusion. Every effort should be made to exercise EU–U.S. leadership during the GATS Financial Services Agreement negotiations now underway in Geneva. Together, the two governments should seek significantly improved MFN-based offers by WTO members and meet the agreed deadline in December 1997.
Page 180 PREV PAGE TOP OF DOC
International Business Practices
European and U.S. business welcome the commitments made by the OECD countries at the May Ministerial to take action domestically and multilaterally to combat bribery and corruption in international commerce. OECD members agreed to a timetable calling for a draft treaty by year-end and entry into force of the convention by the end of 1998. Governments further committed to enact national legislation criminalizing foreign bribes by December 1998. The OECD ministers acknowledged the contributions of the TABD, whose recommendations they closely followed.
Investment
Despite many areas of agreement between the EU and U.S. on provisions of a Multilateral Agreement on Investment (MAI), major differences remain, including over the treatment of foreign policy controls and unilateral restrictions. The two governments should intensify their efforts to successfully conclude OED negotiation on a MAI by May 1998.
Looking at the record of accomplishments, it is clear that the TABD has made a major contribution toward getting action in several areas where governmental inertia or resistance appeared insurmountable. Expeditious action to conclude the long-stalled MRA negotiations was made possible by steady pressure from U.S. and European business leaders in the TABD, combined with support of the U.S. Chamber and other major business associations. The readiness of the EU and U.S. to play a leadership role in achieving agreements on Information Technology, Basic Telecommunications and International Business Practices was greatly enhanced by European-American business consensus articulated at the most senior levels through the TABD process. The challenge will be to sustain the TABD as a business-driven dialogue between business and senior government leaders, including heads of state, and to direct attention to the many transatlantic trade and investment issues on which action by governments is still lacking.
Page 181 PREV PAGE TOP OF DOC
Where Further Progress is Needed
European and American business have jointly identified numerous areas in which concrete action is needed in the TABD Priorities Report of May 1997, which was communicated to the EU–U.S. Summit in Amsterdam last month. The common message throughout the report is that business on both sides is fully agreed that government action to implement these recommendations would pay major dividends for transatlantic commerce. The U.S. Chamber will continue to support vigorously the full implementation of the recommendations contained in the TABD Priorities Report. In addition, we would like to underscore a few key points of importance to U.S. Chamber members:
Market Access
Every effort should be made to build on the momentum of the basic telecommunications service and Information Technology agreements by exploring opportunities for tariff liberalization and harmonization in other sectors.
Cooperation on Regulatory Issues
Intensified cooperation should be sought on regulatory issues such as automobiles in the framework of the UNECE, biotechnology, and additional mutual recognition agreements.
Export Controls/Foreign Policy Measures
Page 182 PREV PAGE TOP OF DOC
The U.S. Chamber has a long-standing policy against unilateral imposition of economic sanctions. The current EU–U.S. understanding is a temporary measure that only underscores the urgency of achieving a long-term resolution of problems raised by secondary boycotts and measures with extraterritorial effect.
Government Procurement
Creating a competitive environment for all public-purchasing transactions in the NTM remains a high priority for U.S. Chamber members. Progress thus far has been disappointing. Major opportunities for U.S. businesses have been lost as a result of fragmentation and ineffective enforcement of EU public procurement legislation at the national level. The lack of progress stems in part from fundamental philosophical differences between the EU and U.S. procurement regimes. Nevertheless, renewed efforts should be made by government and business to bridge differences.
EU Enlargement
Ensuring that an open pan-European market emerges from the enlargement process is a priority concern of U.S. Chamber members. While it is not currently on the TABD agenda, the terms of EU enlargement will raise major policy issues for the NTM, including the impact of tariff changes, prevention of new non-tariff barriers, and effective disciplines on the use of antidumping and other trade remedies.
Small and Medium Sized Business
Page 183 PREV PAGE TOP OF DOC
Efforts to encourage partnering and information exchange among small and medium sized enterprises should be continued through the Transatlantic Small Business Initiative and other forms of cooperation.
Emerging Issues for the New Transatlantic Marketplace
The rapid growth of electronic commerce, defined as the buying and selling of goods and/or services via an electronic network, offers dramatic new business opportunities. However, it also poses policy challenges for the EU and U.S. that should be addressed. Preliminary priority areas already identified by the TABD are data protection, encryption and digital signature, intellectual property protection and public procurement. The U.S. Chamber supports the TABD recommendation that governments work closely with industry to develop a globally harmonized legal framework, and to identify policies that require change or elimination. Government-industry cooperation should be based on the fundamental premise that industry should lead in the development of the global information infrastructure necessary to support electronic commerce.
Another major emerging issue for the NTM is the potential for trade discrimination in environmental standards, including the environmental management and eco-labeling programs, and in national legislation relating to packaging, eco-taxes and incentives, and waste recycling requirement. Intensified EU–U.S. dialogue will be essential to averting trade disputes.
Conclusion: Recommendations for Future
The U.S. Chamber believes that significant progress has been made in building the New Transatlantic Marketplace since this initiative was launched in December 1995. We should build on these successes to tackle many remaining obstacles to further trade liberalization between the EU and United States. The U.S. Chamber recommends vigorous action on three fronts in continuing to intensify European-U.S. cooperation:
Page 184 PREV PAGE TOP OF DOC
1. EU and U.S. officials should take immediate action to implement recommendations where European and U.S. business are already agreed. The TABD Priorities Report of May 1997 lays out in detail the areas of agreement.
2. The TABD dialogue should be expanded to anticipate and address emerging problem areas where cooperation is needed, such as electronic commerce and trade discriminatory implications of environmental standards and programs.
3. EU–U.S. joint leadership in the WTO should be strengthened on such key agenda items as financial services liberalization, transparency in government procurement, and the effective implementation of key WTO agreements such as intellectual property protection (TRIPS) and the Agreement on Basic Telecommunications Services. The EU and U.S. should cooperate closely to ensure that China and Russia enter the WTO only on commercially viable terms. A vibrant and growing NTM is closely linked to global liberalization efforts in the WTO. Agreement between the EU and U.S. is no guarantee of a successful outcome in the WTO, but past experience suggests that reaching an agreement is the precondition for a global trade initiative to succeed. The U.S. Chamber believes that encouraging coordinated EU–U.S. support for global trade liberalization initiatives in the WTO should become an increasingly important element of the TABD agenda.
(Footnote 1 return)
Gary Clyde Hufbauer, Kimberly Ann Elliott, Tess Cyrus, and Elizabeth Winston, ''U.S. Economic Sanctions: Their Impact on Trade, Jobs, and Wages,'' Washington DC: Institute for International Economics, April 1997.
(Footnote 2 return)
Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered, Washington DC: Institute for International Economics, 1990.
(Footnote 3 return)
President's Export Council, ''Unilateral Economic Sanctions: A Review of Existing Sanctions and Their Impacts on U.S. Economic Interests,'' June 1997.