SPEAKERS CONTENTS INSERTS
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49–922 CC
1998
AFRICA IN THE WORLD ECONOMY
HEARING
BEFORE THE
SUBCOMMITTEE ON AFRICA
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
MAY 7, 1998
Printed for the use of the Committee on International Relations
COMMITTEE ON INTERNATIONAL RELATIONS
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BENJAMIN A. GILMAN, New York, Chairman
WILLIAM GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
HENRY J. HYDE, Illinois
DOUG BEREUTER, Nebraska
CHRISTOPHER SMITH, New Jersey
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
MATT SALMON, Arizona
AMO HOUGHTON, New York
TOM CAMPBELL, California
JON FOX, Pennsylvania
JOHN McHUGH, New York
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
KEVIN BRADY, Texas
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LEE HAMILTON, Indiana
SAM GEJDENSON, Connecticut
TOM LANTOS, California
HOWARD BERMAN, California
GARY ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
PAT DANNER, Missouri
EARL HILLIARD, Alabama
BRAD SHERMAN, California
ROBERT WEXLER, Florida
STEVE ROTHMAN, New Jersey
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
Subcommittee on Africa
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EDWARD R. ROYCE, California, Chairman
AMO HOUGHTON, New York
STEVEN J. CHABOT, Ohio
MARSHALL ''MARK'' SANFORD, South Carolina
TOM CAMPBELL, California
ROBERT MENENDEZ, New Jersey
DONALD M. PAYNE, New Jersey
ALCEE L. HASTINGS, Florida
JIM DAVIS, Florida
CYNTHIA A. McKINNEY, Georgia
TOM SHEEHY, Staff Director
GREG SIMPKINS, Professional Staff Member
JODI CHRISTIANSEN, Democratic Professional Staff Member
SHANNON GAWRONSKI, Staff Associate
C O N T E N T S
WITNESSES
Ms. Rosa Whitaker, Assistant U.S. Trade Representative, Office of the U.S. Trade Representative
Mr. Michael Samuels, President, Samuels International Associates, Inc.
Mr. David Miller, Jr., President of Corporate Council on Africa
APPENDIX
Prepared statements:
Ms. Rosa Whitaker
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Mr. Michael Samuels
Mr. David Miller, Jr.
Additional material submitted for the record:
Statement regarding South Africa's Position on the African Growth and Opportunity Act
AFRICA IN THE WORLD ECONOMY
THURSDAY, MAY 7, 1998
House of Representatives,
Subcommittee on Africa,
Committee on International Relations,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:10 p.m., in room 2255, Rayburn House Office Building, Honorable Edward Royce [chairman of the Subcommittee] presiding.
Mr. ROYCE. [presiding] This meeting of the Africa Subcommittee will now come to order.
One of the chief goals of our Africa policy is to promote the continent's economic growth, and a key means of doing that is by better integrating Africa into the world economy, by better linking its markets with markets throughout the world. And this would give Africa greater access to advanced technology and expertise through foreign investment, while increasing Africa's exports. This integration will fuel the African economic development we're all hoping for. And while there are many battles to fight against Africa's marginalization, today's hearing will focus on the trade policies of African countries and U.S. trade policy toward Africa.
There is no question that trade is a big problem for Africa. While there have been some encouraging developments lately among certain African countries—South Africa's growing exports to Asia, for instance, and higher export earnings per share in Botswana, and Namibia, and Uganda—the hard fact, though, for the continent, in general, Africa's share of world trade has declined continuously since the 1960's. Today trade is just a small share of African economies. While much of the trade done is in a few commodities, leaving African countries vulnerable to market fluctuations, while offering little in terms of value-added production, diversifying its export base is critical to Africa's long-term economic growth.
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Africa's small role in world trade has many explanations. Years of socialist economic policies, including policies that shut off imports needed for efficient manufacturing, is one of these that has helped depress economic activity throughout Africa. Political instability and civil war, in some cases, has ruled out foreign investment and trade. Poor and expensive transportation and telecommunications have hurt Africa, while traditional trade links have been diminished. And all these factors have worked against African nations meeting the big challenge of becoming competitive in world markets.
Another factor affecting Africa's trade is trade policy. Just as U.S. goods and services have been shut out of some African markets, some African goods have had a hard time getting around trade barriers put up by developed countries. While this has been improving, with developed countries' tariffs for African goods having fallen to relatively low levels, there are some important exceptions, including high barriers for processed wood, clothing, and footwear.
Another important issue facing Africa is that African nations will soon lose preferential trade treatment as a system of global non-discrimination is established through the World Trade Organization. This is just one of the increasing complex trade issues that will shape Africa's economic future.
Today the Subcommittee will hear about these important issues from the U.S. Trade Representative for Africa, Rosa Whitaker. In her newly created position, Ms. Whitaker has responsibility for bilateral and multilateral U.S. trade policy toward Africa. She has recently returned from the WTO in Geneva, where African trade ministers were discussing issues affecting their countries' integration into the world trading system. And in a little over a week, a WTO Ministerial will convene. This will impact Africa, and we look forward to hearing about what can be expected to come out of Geneva.
Also of interest to the several Members of the Subcommittee is the USTR's decision to place South Africa on its just-released annual Special 301 watch list because of concerns over South Africa's treatment of pharmaceutical patents owned by U.S. firms. Africa will not be able to enjoy the benefits of the world economy, including increased investment, if property goes unprotected.
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Before proceeding, I would like to say a few words about the African Growth and Opportunity Act, now pending in the Senate. The goal of this bill is to do what this hearing is focused on: bringing Africa into the world economy, which benefits Africa and the United States together. This legislation alone will not cure all of Africa's ills, but many of us believe it will make a substantial difference to Africa.
I know that Ms. Whitaker was recently in South Africa, and you've certainly been logging quite a few miles lately. You were there discussing this legislation. And at the time the president of the Clothing Federation of South Africa said that the elimination of duties and quotas for African textiles would create 100,000 new jobs in South Africa. Now this figure may be a bit off, but job creation of that magnitude is not insignificant. The African trade bill will help, and that is why it is crucial that the final version maintains its current textile provisions.
Before we proceed, I want to announce that the Ranking Member will be a little late. But, let me say it's a pleasure to introduce the first witness to testify today. Rosa Whitaker is the Assistant U.S. Representative for Africa. In her recently created position, she is the U.S. Government's chief negotiator for trade agreements with Africa, and works to promote new markets and exports for U.S. firms in Africa. Prior to coming to the trade representative's office, she was senior trade advisor to Congressman Charlie Rangel, the Ranking Democrat on the House Ways and Means Committee.
I had the pleasure of traveling with Ms. Whitaker on President Clinton's trip to Africa, and we're all wishing her the best in her important position. Ms. Whitaker.
STATEMENT OF ROSA WHITAKER, ASSISTANT UNITED STATES TRADE REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE
Ms. WHITAKER. Thank you, Mr. Chairman. First of all, I would like to say, good afternoon, Mr. Chairman, and thank you for the opportunity to appear before the Subcommittee and convey how pleased I am to talk about Africa and its place in the world economy. I also would like to take this opportunity to thank you and the entire Africa Subcommittee for your leadership on African issues, in general, and particularly on the African Growth and Opportunity Act.
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President Clinton's historic 11-day visit to six African nations is a benchmark in a new era of partnership between the peoples of Africa and the United States. I was privileged to accompany the President and the congressional delegation on the South African portion of this trip. I believe that the President's visit marked the beginning of a change in our perceptions of each other. This is critical because for many Americans the perception endures that the African continent offers little promise, and that Africa's civil, economic, and social problems are intractable.
This narrow view, however, misses the very significant progress that Africa has begun to achieve. Between 1995 and 1997, for example, real GDP growth in Sub-Saharan Africa averaged 4 percent per year, more than double its rate during 1990 through 1994. At the same time, inflation rates dropped, as did government spending as a percentage of GDP.
There are stark realities we cannot ignore, however. Sub-Saharan Africa faces critical challenges; poverty remains widespread, and there are a host of social, environmental, and health problems that hamper productivity and growth. As you indicated, the region accounts for less than 1 percent of world trade and only 4 percent of global GDP. It has failed to share significantly in the tremendous growth in international investment flows of recent decades.
And without foreign investment, Africa has a small chance of breaking free of its cycle of poverty. We must not allow, however the difficult problems facing us, Mr. Chairman, to obscure the great promise and progress the Africans are making.
A new generation of African leaders has demonstrated the political will to enact sound economic policy. If they stay the course, they will achieve, I believe, long-term success. Mr. Chairman, I'd like to briefly touch on just a few things that the Administration is doing with regard to Africa.
We are actively implementing the President's Partnership for Economic Growth and Opportunity in Africa which begins with the premise that building strong trade partnerships with Africa's growing and reforming economy is the key to generating growth and opportunity in the rest of the continent. We are actively supporting passage of the Africa Growth and Opportunity Act. The United States has expanded market access for eligible least developed countries, including many African nations, by adding 1,743 tariff line items to our GSP program. And of course, the African Growth and Opportunity Act would authorize even greater duty-free treatment for certain progress for reforming African countries that are currently excluded from the GSP program, and would extend the program for reforming African countries for 10 years.
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In support of the regional integration effort in Africa, the Administration plans to modify the rule of origins provision of the GSP program that would allow accumulation through regional groupings of African countries that are making meaningful efforts to integrate their economies. This would allow the value of a product partially produced in several African countries to be added together to qualify for the 35 percent value-added criteria.
In the end, successful integration of Sub-Saharan Africa into the global economy and the trading system will require the participation and commitment, first and foremost, of Africans themselves, but for those willing to make that commitment the international community, and indeed the United States, in particular, can make crucial contributions in assisting them with taking the steps required. In this way African countries will expand exports, improve resource allocation, and increase competition, and most importantly attract more foreign and domestic investment, and achieve higher rates of economic growth.
The political benefits, Mr. Chairman, to the United States and the world of a more prosperous, more stable, more democratic Africa will be considerable. The United States also has a significant economic stake in Africa's future success. However, gaining market share in the region will require vigorous trade and development policy on our part if we are to overcome historical tides between Africa and Europe, as well as preferential programs by the Europeans and new initiatives, such as the proposed EU-South African Free Trade Agreement.
The challenges associated with this task are immense, but not insurmountable. Last month, I addressed the African trade ministers in Harare at the Organization of African Unity preparatory meeting for the upcoming WTO Ministerial in Geneva. I am pleased to report to you that many ministers announced their keen interest in, and support for, the African Growth and Opportunity Act. And as a result of that meeting, I am also pleased to report that, for the most part, Africans recognize the value of integrating their economies into a rules-based multilateral trading system. The majority of African countries have already embarked on this difficult task of reforming and transforming their economies, and have the political will to comply with their WTO obligations. But, while some countries have indeed made progress many are constrained because of a very real lack of institutional capacity. That is why technical assistance and cooperation are so important to helping these governments reach their goals.
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Some weeks ago, I represented the U.S. Government at the WTO Trade Policy Review of the members of the South Africa Customs Union, that is, South Africa, Botswana, Lesotho, Namibia, and Swaziland. The review noted the enormous progress these countries have made in liberalizing their trade regimes and advancing efforts to integrate with the rest of the world. I did, however, place on record our concerns about several areas in which there have been insufficient progress. These areas include TRIPS and Customs Valuation Agreements, and other areas in which SACU nations need to adhere more fully to WTO norms. I also noted the need to ensure that the proposed South Africa-EU Free Trade Agreement adheres to WTO rules so that U.S. exports are not put at a competitive disadvantage.
Mr. Chairman, I believe that under your leadership this Committee has done much to advance sustainable development in Africa, and again I applaud your leadership. Indeed, the African Growth and Opportunity Act represents both a symbolic and substantive step in the right direction in terms of U.S. policy. The act embodies a trade and investment-centered approach to development. This approach has worked in rebuilding Europe following World War II, it has worked in Asia and Latin America, and it's beginning to take root in Africa.
I would also like to underscore, Mr. Chairman, that the Organization of African Unity, the COMESA, the Economic Community of Africa, and virtually all of the African Governments have registered strong support of the African Growth and Opportunity Act and a proactive African economic reform agenda.
I am pleased to report to you also that yesterday South Africa conveyed to the U.S. Government its support for the African Growth and Opportunity Act, and I'd like to submit a copy of their statement for the record.
Mr. ROYCE. Thank you very much.
[The information referred to appears in the appendix.]
Ms. WHITAKER. Mr. Chairman, I'd like to thank you and other Members of this Committee for the opportunity to speak with you today. I look forward to working with you as we seize this historic moment to assist Africa in fulfilling the promise of her potential. Thank you.
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[The prepared statement of Ms. Whitaker appears in the appendix.]
Mr. ROYCE. Thank you, Ms. Whitaker. I also want to thank you for summarizing your testimony. I read your report last night and it was voluminous.
[Laughter.]
So, thank you for being succinct with that report, and thank you also for introducing the letter from South Africa in support of the Africa Growth and Opportunity Act here as part of your testimony.
As you stated in your testimony, you attended last month's African Trade Minister's meeting to establish a common position for the upcoming WTO Ministerial Meeting in Geneva. Can you elaborate on what was discussed there?
Ms. WHITAKER. First of all, the most important thing that I think that they discussed was that the African countries largely reiterated their commitment to participating more fully into the WTO. They also indicated a great need for technical assistance. What I came away with, my understanding was that there was no longer a lack of political will on the part of the African countries to participate in the WTO, but there is indeed a challenge with respect to capacity.
The African countries at that meeting agreed to increase their presence in Geneva. The Organization of African Unity would like to establish also a presence as a group in Geneva at the WTO. They also reiterated the importance of registering strong African support, more African support, for the global agreement on telecom, financial services, and the information and telecommunications agreement. They also registered strong reservations about the multilateral agreement on investments. The African ministers and experts devoted a large part of the meeting to discussing strategies to take advantage of the preferences already given under certain trading schemes.
I'd like to underscore that the President of the Organization of African Unity, President Robert Mugabe of Zimbabwe, attributed the problem of Africans not really taking advantage of preferences already given to inappropriate macroeconomic, and import substitution and industrialization policies that they've adopted in the past. And they've committed to go in a new direction. One other accomplishment, I think in this meeting, was that the Organization of African Unity activated a committee under the African Economic Community. And this is a committee, a technical committee on trade, customs, and immigration.
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And they also decided to establish a joint secretariat for the African Economic Community. And that secretariat will be composed of the African Development Bank, OAU, and there is another body that I can get to your staffers later.
Ms. WHITAKER. They also agreed to develop a road map, an African road map, for participating more fully in negotiations. And the overriding concern of the African countries was their inability to increase their share of world trade and the things that they would have to do in order to increase that.
Mr. ROYCE. You mentioned telecommunications. There are about 70 countries now as part of the WTO basic telecommunications services agreement. Ivory Coast, Ghana, Senegal, and South Africa have made varying commitments under the agreement to open their telecommunications market to competition. How significant is this agreement to the development of these countries' telecommunications industry, and do you foresee other African countries joining the agreement? You know, they have not previously been involved, I don't know why they haven't until now, but let me just ask you what you foresee there.
Ms. WHITAKER. The African countries have not registered any strong reservations about the agreement. Their overriding concern is again, the capacity to even draft the offers. I am pleased to report that we have been working very intensively with Uganda and Ghana since I assumed my duties in February. Uganda has recently submitted their offer to the WTO on the Global Telecommunications Agreement. The agreement has passed parliament and is waiting for approval by the cabinet. So there has been some progress there, and we are also as a part of our technical assistance going to work with African countries to explain more fully their commitment under the Global Telecommunications Agreement. They do recognize the benefits, but there is a serious issue about capacity. But, this agreement would clearly help to spur telecommunications investment. Telecommunications is also important for their industrial development and necessary in order for them to achieve the kind of economic growth that is so important for these countries to integrate more fully.
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Mr. ROYCE. Last December in Denver there was an agreement to devise a plan among the G–7 nations to more effectively move Africa into the world trading system. What has been the result of that agreement among the G–7 nations, if I could ask?
Ms. WHITAKER. Well, with the leadership of the United States there, the G–7 partners have an agreement signed to cooperate collectively in bringing Africa into the global trading system. They endorsed support for the passage of the Africa Growth and Opportunity Act. Multilaterally, with the United States at the lead, we secured a commitment from the World Bank and the IMF to strengthen financial and technical assistance to reforming African countries. The World Bank has agreed, as a result of this meeting, to expand access to enhance the structural adjustment facility and to provide higher than average financial support to certain projects. And the United States also led the initiative to increase new World Bank lending by more than a billion dollars. There was also an agreement on the World Trade Organization's efforts to increase their technical assistance and cooperation to African countries.
Mr. ROYCE. Also, in your testimony, you mentioned a concern that the proposed South Africa-European Union Free Trade Agreement adhered to WTO rules, so that U.S. exports are not put at a competitive disadvantage. Could you further describe your concerns about this situation, and where it stands?
Ms. WHITAKER. Well, as we understand it, they're still in the process of negotiating this agreement. But, we are very concerned that this agreement is WTO consistent. There is nothing inherently wrong with regional trade agreements, but they should respect the WTO norms. We are concerned that the agreement does not cover substantially all trade. And also, the 12-year transitional period is also not in accordance with the standard 10-year transition period as espoused in the WTO. And we are following the developments very closely just to make sure that there are no discriminatory margins for U.S. companies.
Mr. ROYCE. OK, thank you. It's been reported that the WTO head, Renato Rugerio, will table a proposal to lift all tariffs and other trade restrictions on the least developed countries at the upcoming WTO Ministerial meeting that is going to occur in May. I believe you will be at that meeting in May. What might the U.S. reaction be to that proposal?
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Ms. WHITAKER. Well, we feel that we are doing a lot in terms of market access for least developing countries. We have the most open market in the world. We are the largest market for least developing countries in the world. And it has been our impression that this proposal will not be debated at the Ministerial now.
We think that the most fundamental challenge is not necessarily market access as much as it is capacity building on the part of these African countries. So we'd like to focus our attention on capacity building, technical assistance, and cooperation. But it is our understanding that this proposal will not be discussed at the Ministerial.
Mr. ROYCE. OK, thank you. One other issue, the multifiber agreement is scheduled to be phased out by 2005. This means that African states have only a brief ''free window of opportunity'' in which to establish developed country markets for their textiles and apparels if they must compete for these markets with more developed countries on an even playing field. How great a concern is this looming loss of preferential treatment for African textiles and apparel? Have you heard discussion on this subject?
Ms. WHITAKER. I've heard discussions that it was a great concern to African countries, which is why we've received so much support for the textile and apparel provisions of their African Growth and Opportunity Act. The countries have indicated to me that they feel that in order to compete more effectively that they will need an early foothold, if you will, into our market so that they can compete with producers that have more industrial capacity, that have more of a tradition in textile and apparel manufacturing. And textile and apparel manufacturing, Mr. Chairman, has been an entry point into manufacturing all over the world. We know that the Japanese and other Asian countries did not start manufacturing cars and high-tech equipment, they started with textile and apparel manufacturing. So we think that it's very important for African countries to have this opportunity as well.
Mr. ROYCE. Trade Representative Whitaker, I'm going to ask one more question and then I'm going to turn to my colleague, Don Payne from New Jersey, who I believe will have an opening statement and then we'll go to questions. But, let me just ask the last question.
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Last week the United States put South Africa on the annually updated Special 301 watch list because of concerns that its medicines and related substances control act violates the pharmaceutical patent rights of American firms. What was the thinking behind this decision and what does this mean for South Africa?
Ms. WHITAKER. Well, we are very concerned about South Africa's violations of introduction property rights. South Africa's amendment to the medicines act, it appears would permit the health minister to abrogate patents to pharmaceutical companies and allow for the importation of parallel products as leverage to lower prices. We are very concerned about this; we think this bears watching. Our industry is concerned about it. It certainly will impact on South Africa's investment and impact on our pharmaceutical companies' ability to compete in the market.
So, that was the rationale behind South Africa on the list. We are working intensely with South Africa to address this issue. I initiated bilateral consultations with South African Government officials a few weeks ago when I was in South Africa. We are pleased that South Africa has unilaterally decided to delay action on implementing these amendments until the court challenge is resolved. And I'd like to add that they weren't legally obligated to do that, but they have decided to take that step. So, we think that's progress.
Also, Mr. Chairman, the Special Advisor to the Health Minister is here, and we've made contact with Members of this Committee, so he can brief and discuss how important this issue is also to the Members of this Committee.
We did not believe that it would be useful at this point to place South Africa on the priority watch list. That's one step to an investigation, but we will revisit this issue again if further progress is not made.
Mr. ROYCE. Thank you. I'd now like to turn to my colleague, Mr. Don Payne, for his opening statement and then his questions.
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Mr. PAYNE. Thank you very much. Well, perhaps I'll just ask you a question, and if you have to leave before the next panel, I'll make an opening statement.
I just have a question regarding—and I know that you're not here representing the IMF—but, recently the IMF actually requested that the Democrat Republic of Congo, the former Zaire, pay $5 million monthly in arrears to them which just seemed to be extraordinary, especially since they really don't even have a structure. They, of course, were unable to do that, but they said that they could possibly do $500,000 a month. I just wonder if, in your new capacity, whether this was something that you knew about? And how could the IMF request a country just coming out of the shambles of what it has been through for 31 years, and a government that is at best struggling to govern, be requested to pay a $5 million monthly arrears to them?
Ms. WHITAKER. Well, I am familiar with this problem; however, the U.S. Department of Treasury has the lead in terms of the U.S. position. I will say, I think that part of the problem is that the DeROC has tremendous debt like many other African countries; arrears to the IMF and the World Bank have been a growing concern. I think that part of the problem also in this negotiation is that the Finance Minister of the Congo made an offer of $3.5 million which was overturned by President Kabila, and the offer was made of $500,000 per month. I know that the Treasury Department is working on this and I can get back with you on what our particular position is. I have not participated in the discussions, but I will convey your concerns about where the Congo is at this juncture in their development and we will get back with you.
Mr. PAYNE. OK, thank you very much. Also, I think that at some point and time, of course debt is debt, and money borrowed by a country is money borrowed by a country, but I do think that there has to be a re-examination. There is no way whether the Kabila Government survives or another government comes in, as you know there is some instability at the present time, and we're just hoping that the government can get on the right track and live up to agreements it's made with the United Nations and all the other things. But, it just seems less than fair, put it that way, that a country would be required to pay the debt, I think it's $8 billion or $13 billion—it's a high debt that's been incurred over 31 years over the rule of a dictator like Mr. Mobutu. And the responsibility certainly is not Mr. Kabila's doing; perhaps it's the undoing of what's happened over the past 31 years. And so, it just seems that, I guess, they are bankers and they just look at the bottom line, but it seems that there ought to be another way, either donor debt from donor countries to—if the bank says we have to have the money back and this current government is not responsible for it there seems to be some other kind of mechanism.
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I would urge the IMF, the World Bank, and those who lend money and therefore hold countries accountable for it. I'm not saying that the new Congo should have no responsibility, but it just seems unfair to expect, especially if you have to pay it and you're from Zaire then I guess everybody has to pay it, and I don't know whether that's really just, or fair, and equitable.
Ms. WHITAKER. I will convey that to the Committee.
Mr. PAYNE. Thank you very much.
Mr. ROYCE. Thank you, Mr. Payne. Several of my colleagues have expressed an interest in hearing you, and we will keep the record open, should they wish to submit questions. Three of our Members are at a Ways and Means markup which is going on at this moment.
Mr. ROYCE. Again, Trade Representative Rosa Whitaker, we very much appreciate your testimony here today.
Mr. PAYNE. Mr. Chairman, may I also congratulate the Administration on the wisdom of its decision to create a position for a trade representative for Africa the first time in our government's history?
Ms. WHITAKER. Thank you, Congressman.
Mr. ROYCE. Very good. Now we will take a moment to give Mr. Payne an opportunity to make his opening statement as our witnesses on our next panel are taking their seats. Mr. Payne.
Mr. PAYNE. Thank you very much, Mr. Chairman. Let me commend you for calling this very important hearing.
As we know, the economic landscape of Africa has changed significantly in the past several years. A new dynamism has taken hold in Sub-Saharan Africa after decades of pessimism about the continent's future. Improved policies have continued to fuel Africa's economic recovery, strengthening the momentum of reform and the resolve of African countries and donors to work together. In 35 countries, from Senegal in the West to Mozambique in the East, political systems are opening up reforms to free up the energies of the private sector which is going on in public debate on the future of economic and social reform taking place, thus fostering a healthier business community climate on the continent. Cote D'Ivoire, Ghana, Uganda and South Africa are moving toward joining Thailand, Malaysia and the Philippines as important destinations for foreign investment.
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And in a world economy in which capital production and information are highly mobile, in which investors live by diversification and identifying untapped markets, Africa is increasingly referred to as the final frontier of global investment. Despite these positive results, poor income growth as well as environmental and population pressures, keep almost half of Africa's 600 million people in poverty, living on less than one dollar a day. African economies will need to grow between 8 and 9 percent annually if significant progress is to be made toward improving the welfare of the poor.
Sub-Saharan Africa's economic recovery both accelerated and spread to more countries in 1996. In sharp contrast to the early 1990's, the region's gross domestic product grew faster than the population for the second year in a row, and that's a very positive sign. In many African countries, exchange rates have been liberalized, many restrictions on imports and foreign investments have been removed, tariffs have been reduced, and price controls on agriculture and manufactured goods have been dismantled. Legal and regulatory frameworks are improving. Incentives to produce have been strengthened. Investments from Europe, the United States, and Asia now have opportunities to invest in oil, gas, and mining, as well as agriculture.
Changes in government policy have been central to the improved economic performance of many African countries. For example, Ghana, Kenya, and Uganda have improved export competitiveness without increasing significantly inflation by instituting sound exchange rates policies. As a result, some of these countries have been able to achieve economic growth rivaling any country in the world. Lesotho and Togo joins Uganda with an average of 10 percent growth over the past 2 years. Botswana 7.3 percent average annual growth measured from 1970 to 1995 is second only to the Republic of Korea.
African countries are beginning to forage economic links within the continent that could have dramatic positive affects on growth. For example, Mozambique and South Africa are now working together to restore the Maputo corridor, a road connecting Gatang in South Africa's industrial heartland with the port of Maputo in Mozambique. Further regional cooperation among Southern African Development Committees, SADC, countries is already showing signs of improving economic growth in Lesotho, Mozambique, South Africa, and Tanzania. And I might say that each of the SADC countries have had an increase in the GDP in the last year, 1997.
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As I mentioned before, that debt has been a primary stumbling block for many African nations which have had to spend more on servicing their debt than on providing basic social services. I think we will be looking at the heavily indebted poor countries and other incentives, in upcoming months, to see how relief can be given.
Presently, the Congress is trying to constructively deal with IMF reform. I believe these financial institutions must take into consideration when formulating their policies, and whether to extend structural adjustment loans such as World Bank does that they must understand the political environment in which they find themselves. For example, the $5 million per month, as I mentioned, repayment to the IMF from the Democrat Republic of Congo is a prime example of, in my opinion, mismanagement, but an assessment that really is, in my opinion, out of the reach of a new struggling nation.
So, with that, Mr. Chairman, I appreciate the opportunity to give that lengthy opening statement.
[Laugher.]
Mr. ROYCE. Well, thank you, Mr. Payne.
And in our next panel we will hear from two former U.S. ambassadors with long experience in African affairs, and long experience in international commerce as well. I will mention that we have read your statements, and your full statement will be submitted for the record, but I would encourage you to summarize, and hold to 5 minutes, the points that you wish to make from those statements.
Ambassador Michael Samuels is founder and president of Samuels International Associates, an international business consulting firm specializing in international trade and public affairs. In addition to serving as U.S. Ambassador to Sierra Leone, Dr. Samuels has served as Deputy U.S. Trade Representative and U.S. Ambassador to the GATT in Geneva. He is the author of numerous books and articles on African issues and on world trade. And we appreciate having him with us today.
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Ambassador David Miller is president of the Corporate Council on Africa and chief executive officer of ParEx, Inc. which is an international business consulting firm. Ambassador Miller served as U.S. Ambassador to Tanzania and later to Zimbabwe, and subsequently held the post of special assistant to the President for National Security Affairs. He has written and lectured extensively on foreign policy management issues.
It is good to have you with us today. And I'm going to ask Ambassador Samuels if he will open with his testimony.
STATEMENT OF MICHAEL SAMUELS, PRESIDENT, SAMUELS INTERNATIONAL ASSOCIATES, INC.
Mr. SAMUELS. Mr. Chairman, Mr. Payne, thank you very much for inviting me to testify this afternoon.
Your hearing is timely. There is new hope that more African countries can become players in the world economy. Still there are mistaken understandings, and misleading policy recommendations. I shall share my own perceptions of the situation, especially with the view of challenges faced by Africa in complying with world trade standards, especially WTO commitments.
I do wish to congratulate you, Mr. Chairman, and many of your House colleagues, especially on the Ways and Means Committee, for your efforts on Africa trade policy. People have been slow in giving trade the importance it deserves through Africa. Expansion of trade is directly related to higher levels of employment and income. Africa has long been viewed as a one-way street on trade policy. There is a long pattern of offering African countries special access with few demands for reciprocal access commitments.
As a result, until recently, most African countries have maintained high tariffs and other barriers. This has slowed Africa's ability to develop competitively. Perhaps the best example of this failed approach has been the success of Lomé agreements. After more than two decades in operation, Africa's penetration of the European market is actually less than when the Lomé process began.
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Given the many problems faced by Africa, should trade and trade policy be low on the priority list? No. Trade and trade policy are key, particularly at this moment of increasing globalization, for both economic growth and political development.
There are many signs of new growth and change, but there are other realities too. African trade growth has lagged compared to most of the rest of the world. Global trade has grown at an average of 9 percent per year over the last 30 years, while African trade has grown at less than 5 percent.
According to the WTO, in 1997, total African exports and imports were each only approximately 2.3 percent of the world total. In both absolute and relative terms, this tiny proportion causes most analysis and discussion of the world trading system to ignore Africa, and Africa-related issues.
Most African countries have existed outside the growing global economy that rewards reform, innovation, and efficiency. Only South Africa is on the list of the 30 largest exporters, and the 30 largest importers. Furthermore, much of Africa's current exports are either agricultural commodities or minerals, especially oil, all of which are affected seriously by price fluctuations.
Foreign investment has both brought and resulted from trade in Asia, much less so in Africa. Thus, investment policies are relevant to Africa's trade policies and needs. Few African countries have attracted foreign investment and modern technology. In some countries there is skepticism, at times even hostility, toward private enterprise freed from constant government and political interference. As a result, some of the most dynamic and entrepreneurial Africans have left their countries.
By now, Mr. Chairman, most African countries are members of the WTO. Many were contracting parties of its predecessor, the GATT. That membership, for many, came as an almost automatic extension of post-colonial independence. Many African countries did not need to fulfill the normal obligations of the GATT. Over 20 African countries did participate in the Uruguay Round, but with little impact. For example, in the negotiating process the United States made almost no requests for liberalization from African countries.
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Furthermore, African Governments pay little attention to their WTO delegations and provide few relevant instructions to allow them to be part of the ongoing process. African trade ministers have rarely even been present or active when world trade ministers have held important meetings. In the last few years, several African countries have adopted export-oriented policies in place of import-substitution ones.
Regional agreements have developed. Regional integration efforts should be encouraged as long as they are WTO consistent. For its part, the Organization of African Unity has long focused on politics, not economics, on aid and not trade, and it favored non-market approaches to economic strategies. The OAU seems to be changing. To the extent the OAU advocates market-oriented trade expanding economic policies, we should help. Often African countries fail to participate in international trade agreements or to comply with obligations under the WTO. More often than not, such failures—and here I'm reflecting similar views to those of Ms. Whitaker—reflect not lack of policy, but lack of bureaucratic and technical competence. Hopefully, the important efforts of the World Bank at capacity building in Africa will encompass trade ministries and related agencies. They should also bring to political and governmental leaders, and even to economists, a greater understanding of market-oriented liberal trade and economic policies.
Already various international organizations are significantly expanding trade-related technical assistance. But the U.S. Government should carefully monitor the activity of these agencies to make sure the messages they portray are ones of liberalization and openness, and to make sure that this diversity of organizations is not confusing Africa.
Few African countries have participated in the post-Uruguay Round WTO liberalization exercise in telecommunications, information technology, and financial services. The failure was both a combination of lack of capacity, policy differences, and a lack of understanding. This large-scale African absence has been unfortunate, as it will worsen the gap between Africa and the rest of the world. Technical assistance can also be helpful here.
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Mr. Chairman, developing countries are important beneficiaries of the WTO. The WTO adds predictability to the trading system. Without the WTO, large industrialized countries, such as ours, would often act with little consideration of smaller countries. The protection from such politics is an important benefit for Africa from the WTO. The IMF has been helpful from a trade-related perspective. It has helped many African countries by integrating trade policy into macroeconomic adjustment policy, increasingly in close collaboration with the WTO. As it began to focus on trade, the IMF discovered that African countries were far more restrictive in their trade policy and behavior than most countries. This has led to a conscious effort by the IMF to remove non-tariff barriers, to lower tariffs, to devise a predictable tariff structure that is more easily understood by both traders and customs officials, which itself has contributed to increased transparency and improved governance to remove tax exemptions, often politically motivated, from the system and, all in all, to eliminate discretionary behavior.
An IMF report of December 1997 is worth looking at because it shows how its programs significantly improve the situation in those countries that accepted them. Some of the same critics of the IMF programs are wrongly critical of the trade aspects of the African Growth and Opportunity Act. Some say the United States should not pick and choose the African countries with which special trade relations are developed based on policy performance, with a bias toward commitments both to free markets and for reducing barriers. They are, in my view, 100 percent wrong.
The United States should encourage good growth-oriented trade policies by offering carrots, not sticks. One carrot is textiles. The textile and apparel industry is one of the few that provides early steps toward world competitive industrialization. Products from that industry are vital parts of potential African export expansion. And this potential is not a threat to U.S. interests. African production is unlikely to amount to more than a small fraction of U.S. consumption. This should instead be viewed as an opportunity, as you implied in your question, Mr. Chairman, for African countries to get a step ahead prior to the removal by 2005 of country and product quota restrictions mandated by the Uruguay Round.
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Many African nations still need special opportunities in advance so that they will be able to compete by 2005. They force the normal protectionist zeal that drives many opponents to special textile and clothing provisions for Africa. They also force an unwillingness to accept the continuing relevance and merits of the principle of comparative advantage. However, there are accurate concerns about circumvention and trans-shipment, rerouting, false declarations of origin, etc. But these problems should be addressed on their merits, not used as an excuse against a more open policy toward Africa in this industry. Furthermore, African countries ought to be willing perhaps as a quid pro quo, to offer improved access to their own textile and clothing markets for U.S. products.
One complication for these industries and for footwear is the ease by which the growing militancy of Western labor unions and some NGO's on social and environmental issues of production are getting public attention, at times without full appreciation of the complexities of conditions of least developed countries.
The GSP program which expires this June is another way in which African countries can expand their trade. GSP should not only be renewed, Mr. Chairman, but expanded for Africa. An effort should be undertaken to encourage all African countries to take advantage of this GSP program.
Another carrot, where I believe the United States has a unique capability to be helpful to both Africa's growth and its trade capacity, is agribusiness. Many African countries could benefit from significant agricultural improvement, and U.S. agribusiness interests should be encouraged to help. I advocate a major U.S. agribusiness initiative. A special commission should be appointed to see how our capabilities including government programs through USAID, OPIC, the Export-Import Bank, and the Department of Agriculture, can allow Africa to benefit from U.S. agribusiness expertise and vice versa. This is more a private sector initiative with government help than vice versa.
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Finally, Mr. Chairman there continues to be pernicious zero-sum thinking. Some say that a new U.S. trade policy is crafted primarily to help U.S. companies. This is wrong. U.S. companies and Africa can both benefit. Some say that a focus on market economies and trade will exclude a focus on other needs of Africa and other positive programs. No one is suggesting that. Many opponents are tossing out red herrings on this subject. And I applaud you on holding these hearings so you and all of us can separate the gems from the red herrings.
[Applause.]
[The prepared statement of Mr. Samuels appears in the appendix.]
Mr. ROYCE. I'm going to interrupt the testimony of our witnesses for 1 minute, because I would like to welcome the new Member of this Committee, Congresswoman Cynthia McKinney from the State of Georgia. At this time I would like to give her the opportunity to make an opening statement, if she would like to.
Ms. MCKINNEY. I don't have an opening statement, Mr. Chairman, and that should be a relief to you to not have to endure. I would like to say that I am pleased to join you on this Committee and, of course, my leader, Congressman Payne, who has long been interested in Africa.
Mr. ROYCE. We're delighted to have you here, and we'll reconvene with the testimony of Ambassador Miller at this time.
STATEMENT OF DAVID MILLER, JR., PRESIDENT OF CORPORATE COUNCIL OF AMERICA
Mr. MILLER. Mr. Chairman, thank you very much. It is wonderful to see you here. If this is your first hearing, I'm pleased to be testifying. Mr. Payne, good to see you.
Thank you very much for having the hearings. I'll try to be very brief. As many of you know, the Corporate Council on Africa represents approximately 190 U.S. companies that trade or invest in Africa. And that gives us a very real, sincere, and daily interest in the Africa Growth and Opportunity Act, other African legislation, and, in general, what's going on in the continent.
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I would like to offer some comments as to how we might improve the situation on the continent. There is good news as we have heard. There is a great deal of good news. We have 21 countries with growth rates over 5 percent. We have the continent as a whole moving at approximately 4.5 percent. We see democratic governments, and accountable governments emerging, and we see attendant social indices moving positively with that, all of which is terrific.
This has caught the attention of the American private sector. And I think it's terribly critical to emphasize that the Corporate Council on Africa exists because African Government and the African private sector have performed very well over the last 5 years. There has been a great turnaround on the continent. And because of that, you see our companies out there pursuing trade the way they do everywhere else in the world. And it is our contention that, eventually, that's the future of the continent. That's technology transfer; that's capital; that's know-how; that's links to global markets. These things happen every day as our business people pursue opportunities on the continent.
All of that said, and as Ambassador Samuels and other witnesses have said, the percentage that Africa represents in the global trading system is just too small. Very, very small. Last year we attracted about $3 billion dollars to the continent, and I think, looking at some other numbers today Brazil itself attracted 16. So, we need to figure out how to get more capital moving. And as I was looking at my comments I thought I might concentrate on that.
First of all, the countries have got to improve the environmental climate in which we try to invest. It is still a difficult continent to work in, that's why the cost of capital is so high, that's why many companies don't go. We still have to work on corruption, we have to work on legal systems, we have to work on infrastructure. That's something that we do every day at the Council. Our trade missions pursue this, and we increasingly do it in conjunction with the U.S. embassies on the ground. And that's proved to be an effective day-to-day operation. If you want an investment, if you want technology transfer, here are the criteria. And so we have sort of an instant, but small carrot to offer people.
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Second, the continent simply has to create larger markets. SADC has been a great success. We need to see more SADC's around the continent. Many manufacturing facilities are simply too large to fit into many African countries. We have been working very hard with Benin, for example, to try to get more investment out to Benin. Benin is a great little country trying to do it right. It has about 5 million people. Many modern plants simply overwhelm a market of 5 million people if they run at full speed for the year. So, we need to integrate Benin, and Togo, and Ghana, and that's right down to the details of how do you get the goods out of the port? How do we get better roads? When you walk out of the port of Cotenoa you're back to a poor road. It's just those details that slow investment.
Third, I'd really like to join my colleague, Ambassador Samuels, in noting that African Governments have still left a number of trade barriers in place. They do so because it produces revenue which they desperately need, and they do so because it protects local industry. But, it does block investment from abroad. And that's something that we really need to work on with them so they can make that transition, find new revenue sources, protect industry, but still encourage more foreign investment.
I would very much like to join Congressman Payne and his comments about debt. We are currently working on a Liberian taskforce trying to find ways to attract the private sector back to that country, that so desperately needs investment and technical know-how. Their debt, sir, is $2 billion; their debt servicing is $44 million a year; their annual Federal budget is $42 million a year. Now, somewhere it's not going to work. If we want our country back there, and we want to go, and they want us there, we must do something. I'm in the same quandary you are, I don't know exactly what, but you can't leave them saddled with that much debt and expect them to be able to run a government that will attract investment.
The other thing I'd like to say is that regarding OPIC, Eximbank, TDA, we need more institutions in the U.S. Government to support the private sector in terms of political risk assurance, financing, money for studies. The support of the government has been excellent in terms of helping us reach out.
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As a final thought, it is also important to recognize that these positive comments cover approximately half the continent. We have some very severe problems on the continent at the same time. If we don't solve some of the challenges facing the continent's larger countries, their failures can swamp the success.
So, while those of us in the private sector think that things are fairly bright, things are looking pretty good for many of our countries—and we're excited about it—you can't forget about DeROC, and Nigeria, and Angola, and the Sudan, and countries that are going to need more engagement than just the U.S. private sector.
So, thank you very much for the time, sir. We really appreciate it. Thank you to all the Members for coming.
[The prepared statement of Mr. Miller appears in the appendix.]
Mr. ROYCE. Maybe we could just start by getting both of your observations on a few issues. One that I would like to ask is about the commercial expertise at our embassies, just to get your off-the-cuff response, Ambassador Miller.
Mr. MILLER. I think the most honest answer, sir, is that it varies very widely. I'd like to put in an institutional plug, and that is that the Foreign Commercial Service has three or four officers on the continent. This is a continent where we see our activities expanding rapidly. I think we in the private sector would love to see more FCS officers.
After that, it depends upon the personality of the Ambassador. Michael and I have both been in this system. We've both seen the cables sent out to the field. All of us are supposed to support private trade. Some people have the ability and the will to do that; some people don't.
Mr. SAMUELS. I would have said the same thing.
Mr. MILLER. We've been doing this a long time.
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[Laughter.]
Mr. ROYCE. I just wanted to take a moment to introduce Steve Chabot of Ohio, a Member that serves with us on the Committee. Mr. Chabot, would you like to——
Mr. SAMUELS. As a native Ohioan, I'm happy to see an Ohioan on the Subcommittee.
Mr. MILLER. Actually, both of us are native Ohioans. So, this must be a conspiracy.
[Laughter.]
Mr. ROYCE. Did you want to make a comment or statement at this time?
Mr. CHABOT. Just very briefly. I had an opportunity to visit Africa last August with a number of other Members of Congress. It was bipartisan. There were three Democrats, one independent and four Republicans. Interesting group. And we visited South Africa, Zimbabwe, Cote D'Ivoire, and Uganda, and Zimbabwe. And learned a lot and saw a lot, and I think there are an awful lot of trade opportunities that are there just waiting to help those countries and develop jobs in those countries. So, I'm all for increasing those opportunities. I will review the testimony here. I apologize for being just a little bit late. I will review all of your statements and everything.
Mr. ROYCE. Ambassador Samuels.
Mr. SAMUELS. Mr. Chairman, as a kind of symbol of changes that we are seeing today from the Africa of yesterday—the reference that Rosa Whitaker made to the comments by President Mugabe, that seemed to favor more market-oriented trade opening, trade expansion, barrier reducing Africa, shows that there is a significant change coming from him and that country compared to the days when Ambassador Miller was ambassador there.
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[Laughter.]
So, the more you beat the drum, and the more you hold out the carrots, the more often there will develop good policies.
Mr. ROYCE. Right, but you mentioned in your testimony that African delegations at the WTO enjoy very little support from their home governments. I tell you, this is sort of a mixed message because now from President Mugabe we get this assertion. Is the condition improving, in your opinion? And what can be done to improve this important relationship between those delegations and the home government?
Mr. SAMUELS. The situation in 1998 is better than it was 2 or 3 years ago. But the more one pushes at the political leadership to assume the responsibilities that they have accepted by their membership in the WTO, and to show them that there is a direct relationship between pursuing good trade policies and economic growth, will I believe, lead them to put pressure within their own governments in developing systems where they listen to people who are experts—which they have not done up until now.
Mr. ROYCE. What's coming up, Ambassador Mike Samuels, are the talks on agriculture that were renewed this year. How might African countries be affected by these upcoming talks? And do you have some observations on private sector agricultural initiatives? What do you see here in the desert?
Mr. SAMUELS. Well, it's interesting that you might focus your question on agriculture, because that answer lends itself to a problem that Rosa Whitaker pointed out in the negotiations between the European Union and South Africa where she very importantly put the EU and South Africa on notice that the United States is unwilling to accept a special trade agreement that doesn't cover all trade.
The real message there is that the European Union is trying to minimize the access for South African products of agricultural items into the European Union. When one talks at the WTO about the continuing agriculture negotiations that are part of the ongoing process, post-Uruguay Round, and that will begin in the year 2000, one really is referring to agriculture and services. And agriculture negotiations provide an important opportunity for many African countries to gain access, particularly to the European Union, but also to other countries. So, the more one could get lower barriers in agriculture, the more, I believe, that African countries with the right agriculture policies will be able to take advantage of that and expand their trade.
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If one looks, for example, at the growth of trade in several of the countries of East Central Africa in recent years, it has been in products that are new to market for them. And these are often agricultural, and cut flowers, and largely to the European Union. It is interesting to take a look, for example, on many of the airplanes that fly the routes from eastern Africa to Europe and see that in some cases they have actually expanded the cargo space in order to put agricultural products for export by air. This is something that 5 years ago wasn't really happening.
Mr. ROYCE. More automatic delivery of flowers, and fresh fish from Uganda—that's become a problem of late, Ambassador Miller, correct?
Mr. MILLER. Yes, I'd like to add on the agriculture issue. I think Ambassador Samuels' concept of doing something special to get our agribusiness out to Africa is a great idea. It has been very frustrating to the Council to get more agribusiness firms involved. But, there are some reasons for this that perhaps the government can solve.
Very frequently, our agribusiness firms produce products that do not generate foreign currency. Some of the skill that these governments need most of all will produce products that will be sold in the local market. So a foreign investor says, ''How am I going to get paid?'' The other thing is, agriculture investments are very hard to move. You frequently end up owning or leasing land, and investing over the long run, which is almost inherent in that business.
If we could look at some particular set of guarantees for responsible agribusiness projects, you might get some wonderful American companies that right now sort of say, ''Well, it's a 10-year investment. I have to get 50,000 hectares of land. It's not going to earn hard currency. By the time it's making money the government will have changed.'' If there are ways that we could offer some special inducements to agribusiness, I think it would be terrific.
Mr. SAMUELS. If you look at the annual report that the Congress has forced the President to produce on Africa trade growth investment—whatever it's called—you will see that one of the biggest shortcomings is how it deals with agriculture and agribusiness. In my view, based on over 10 years of service in the U.S. Government, the major reason for that is that the responsibility is given to the Department of Agriculture. Which frankly, does not care about this subject in Africa.
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Mr. MILLER. Are you saying that to a person?
[Laughter.]
Mr. SAMUELS. Well, the advantage of being out of government is that you can be candid.
Ms. MCKINNEY. Some of us try to be honest in government.
Mr. SAMUELS. You're absolutely right. I stand corrected. Well said.
[Laughter.]
Mr. ROYCE. We did want to get that for the record.
Mr. SAMUELS. No, but we really should put pressure on the Administration to come up with a good agribusiness policy for Africa.
Mr. ROYCE. I'm going to let Dave Miller respond, then I want to ask about the IMF's performance in terms of increasing the export capabilities of African countries. Go ahead.
Mr. MILLER. The IMF does one critical function and that is somebody has to be the scorekeeper and the enforcer of some discipline, and some rules. There are times that they are way too aggressive. The primary difficulty that the IMF has is that it believes that it's trying to work with General Motors on a debt program rather than with a developing country. And they'll come up with prescriptions, that if you were flying an advanced aircraft it would work fine. But, if you were flying a rickety old aircraft the stress would tear the airplane apart. With that said, both exports and imports are going to work a lot better, in general, if IMF standards are met and governments are being run rationally. It's the fingertip sense that occasionally the Fund loses, which really damages everybody.
Mr. SAMUELS. Many African leaders benefit from external standards to keep them from falling into political problems that are difficult for them to deal with. And the IMF is a very helpful process, in spite of the fact that it's probably not very widely liked in Africa as in many other places. But left on their own many African leaders would pursue wrong, backward economic policies. What is new to what is happening in Africa is that finally the IMF is incorporating some trade aspects into their programs. And to the extent that it has done that, for the most part, it has been very helpful.
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Mr. ROYCE. I had some other questions, but maybe we'll come back for a second round. I want to turn to Mr. Payne now.
Mr. PAYNE. Thank you very much. You two look like you're from Ohio. You sound like you're from Ohio.
Mr. MILLER. Woody Hayes raised us.
Mr. PAYNE. Is that good or bad?
[Laughter.]
Mr. MILLER. We need some help.
Mr. PAYNE. No, the jury is still out. No, it's good.
And I certainly appreciate your remarks. There are some questions of governance and debt, of course. As you indicated, Uganda certainly benefited from IMF standards, although they make it clear IMF standards are difficult on them, but they tightened the belt and now the growth is 7 or 8 percent. But, I think that it doesn't make sense to give an assessment that's going to create such a problem. I mean, it might be even in insurance you know I used to work in a home office insurance company—they used to have a modified three, the first 3 years because you're younger you would pay less, then after in the fourth year you would balloon up and you would pay a higher premium. Because they assume that if you're a new, young, married person and you need insurance, you're certainly going to be unable to afford it.
IMF might look into some kind of modified, gradual beginning. And I think that countries need to get on a schedule and having that responsibility met. But having an amount that makes no sense.
Another little point I wanted to mention is that there is another problem that many countries have that could probably assist them in governance and in the debt. Many countries, as you know, which have had civil strife have a problem with the military, and demilitarizing—not that they want out, but there is no way—they don't have the capital. For example, Eritria went into a heavy debt because Isaias knew he wasn't going to have all those troops angry, waiting for pay needing something. And so the air program was probably the most effective in Eritria to give the soldiers the demilitarization program a high priority.
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Ethiopia had a large military; Uganda, Liberia, they just had some problems 2 days ago because the military wanted out and we're not providing anything for Mozambique. The whole problem there. The quest in South Africa, Namibia. And so we have to contend with that.
And also, the question of corruption I want to mention. You know, in Germany, for example, money paid by a company for a payoff for a contract is deductible under their Federal law.
Mr. MILLER. You bet.
Mr. PAYNE. Now it's bad enough to act like you don't know that corruption is going on, but when it becomes a tax-deductible item——
Mr. MILLER. It does stick out.
[Laughter.]
Mr. PAYNE. And we talk about African leaders being corrupt. You know, if there were no strong incentives for this corruption, the shoe is on the wrong foot. I asked the European parliament at their last meeting if they would raise the question in the European parliament and maybe could then get back to their individual countries about the question of corruption. We have, as you know, a corrupt policy act where we have actually imprisoned some executives because of corruption. But if it's going to be a practice in Europe that corruption is a part of doing business, then I don't see how we are going to expect—even though we should expect it, but how are we going to eliminate corruption when it's a policy of European countries, in general?
Mr. MILLER. Do you want to do military or corruption?
Mr. SAMUELS. I'll take whatever you don't do.
Mr. MILLER. OK, I'll take corruption; you take the military.
Mr. SAMUELS. All right.
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Mr. MILLER. I was a young individual pursuing international business overseas when the Foreign Corrupt Practices Act was passed. And it was stunning. We were out there competing with everybody in the world. And everybody was being paid off and we suddenly said, ''We can't compete.'' It was a dislocating experience.
At this point, I think American industry is just extremely proud of that act. Most of my colleagues are proud of being governed by it. They explain that to host country governments. Some of the leaders that you and I are concerned about in Africa, I've had the opportunity to sit down with and say, ''Let me explain to you that it's a 5-year felony.'' And your corporation cannot pay the legal expense and our corporations are not going to come out here and break the law. And if you think you have a problem, you call our Embassy and they'll act as the investigating arm for you. African leaders are just stunned that that's true.
Now, with regard to countries that don't follow the same legal structures, you all need to work very hard to try to get them to play by the same standard. It's just mandatory because we lose. What happens is you can win contracts if you have a unique product; but if you bid on a fungible good, then corruption is a problem. But to the great credit of new African leaders, many of them are trying to stamp out corruption regardless of what we or the Europeans do or don't do.
And the fact that our country has a Foreign Corrupt Practices Act is something greatly appreciated by Benin, for example, where there are young governments saying that, ''We don't want those old European ways. We don't want those people here. If you all can come to our country and behave ethically, we want American companies.'' It has become a positive marketing tool—while it took a few years off my life, at this stage it's really very good.
Mr. SAMUELS. Mr. Payne, I think you've pointed to several very important aspects of the problem that we are trying to contend with, but on corruption let me add one point. And that is that, much to its credit, the Clinton Administration has successfully negotiated an agreement in the OECD that will remove the ability of German firms to make such deductions, and will criminalize such behavior in Germany, and France, and other countries in the OECD. This is a very important initiative that after much hard work the Clinton Administration did succeed in, and it will make a big difference. It might be worth your Committee's taking a look at the impact of this OECD agreement on U.S. interests in Africa.
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In terms of the military, only recently was the World Bank willing to devise policies at helping the process of demilitarization. They have begun such policies in Angola to try to reduce the size of the military. This involves figuring out ways to implant marketable skills, provide education, because many of the soldiers are illiterate. They start off as being really young kids. Very few bilateral aid programs are going to do very much. Very few governments in Africa have the budget to do very much. The World Bank is one organization that could do a lot in solving what is becoming a continuing problem. Unless you demilitarize you have another group of military people around to help perpetuate a problem that many African countries have faced.
And on the subject of debt, if I might say, I was pleased to hear that your Committee intends to review this. I think it's a very important initiative, because solving the debt problem is very important. In fact, these countries have to accept obligations for the debt, but at the same time they can't pay them back, and it isn't just to the IMF; it's also to the Export-Import Bank, in some cases.
Mr. ROYCE. Right. If I could, I'm going to run for this vote, and turn it over to Mr. Chabot. We're going to go to Ms. McKinney next for her questions and I'll be back in 2 minutes.
Mr. MILLER. Mr. Chairman, might I follow up on the military comment of Michael? One of the things that I would like to see is the Job Corps Training Program coupled with the demobilization of troops in Africa. We in the United States have a very interesting asset and that is all the Job Corps Training courses that are the property of the Labor Department. What happens in Africa with some of the kids is that they get into the military with very few skills, and over the course of 6 or 7 years of working with more modern military hardware they pick up a lot of practical knowledge. When they leave the military, most programs then treat them as if they've learned nothing and it's time to go back and plant maize.
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In point of fact, we have in the United States in the Job Corps a very successful program that has practical tests for skill levels that children have achieved doing various things. There were kids in Angola that did really well driving tanks around. You have to have some skills to do that. You ought not just take those skills and not do anything with them. I've been intrigued with the Job Corps concept because we own the courses, we know how to use them, we know how to screen kids, and if we're trying to demobilize it's a great tool to use. That's just a little speech in for the Job Corps that I'd like to share.
Mr. CHABOT. [presiding] OK. We'll recognize Ms. McKinney at this time. Thanks. I'm going to go and cast my vote.
Ms. MCKINNEY. I'd just like to say that I know that one of the things that I'm going to become involved in as I serve on this Subcommittee will be the flow of arms into the area which increases the instability and inhibits the ability of our African states to do what they need to do for the people and that is the economic development.
But, right now, I would like to just ask your ideas or ruminations on a press release I read a couple of days ago about the United States increasing the Turkish textile quota. And I couldn't help but think that this was opportunity lost because we have not yet put into place our own Africa trade policy as it relates to the African Growth and Opportunity Act. I know that there is some compromise that is possible with Senator Helms, and I was just wondering what the private sector is doing in terms of lobbying on behalf of that legislation to make sure that we can get it raised in the Senate?
Mr. MILLER. Well, we're not supposed to lobby. But as the Corporate Council in Africa, we would hope to be very active in the educational area in the Senate; to see what we can do to help explain to Members how important the Growth and Opportunity Act is. There is not much you can do other than work every office. You will find our Members working away.
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I'm perhaps a little more flexible than Ambassador Samuels on trying to keep everything in the bill or not everything in the bill. My own position is that, fundamentally, this is such a tremendous paradigm shift. It is so exciting to hear people talking about Africa and venture capital—publicly, out loud. I mean, this is great.
We ought to try to get as much through as we can, and then if you can't get everything, that's what the legislative process is all about. We have 180 Members, every one of them sees a little piece of that bill a little differently. I'm sure they'll all be up advancing their own positions but we as an organization will surely be up trying to explain how important it is.
Mr. SAMUELS. If I may give an answer that doesn't come from much involvement from the legislative situation from this bill, but rather a long history of involvement with a variety of legislative situations that are both African and other internationally oriented, I find it interesting to note that it's much easier to lobby against, than it is to lobby for.
And I would note from information that I have for other reasons, that some of the largest North Carolina, South Carolina, in particular, textile companies have gone to their suppliers to try to get their suppliers—who might otherwise be for the legislation—to lobby against the textile portion of this legislation. Frankly, the numbers don't justify their alarm. Nevertheless, they're afraid that if they open up with some opportunity for breaking through the long-held quota system that they have for a small group of countries that don't produce very much, they will create a precedent that will be hard for them to stop—foolish really because the whole thing comes to an end in the year 2004, unless—and here is my bigger fear—they plan somehow to figure out some retro-grade action to remove the U.S. commitment, and therefore, have the United States violate its commitment at the WTO and not bring those quotas to an end in the year 2004. That's an even bigger problem.
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Ms. MCKINNEY. That's my question and my concern at this point. I just see that the clock is ticking and I don't see much action. I think it's a terrible statement on what the United States is willing to actually do, especially after the precedent of President Clinton's trip to find us having produced nothing, but a lot of hot air.
Mr. MILLER. The thing that I've always found enjoyable about the Corporate Council in Africa is that for many years the Africans had no group of big American elephant corporations working for them. Ambassador Samuels was in on the founding of the council with me. Many of our corporations can walk in and see almost anybody on the Hill. And if Africa is important to them then they're going to come up and say that. And that's a wonderful change. Five years ago we didn't have that.
Mr. CHABOT. Unfortunately, we're going to have to vote on the floor. I'll just make a statement real quickly here. Mr. Royce will be either coming back in a moment or we'll recess. I'm going to have to shoot over there and vote.
But I mentioned that I was over in Africa in August, and I was particularly surprised at how well things were going in Uganda. First, I was very impressed with President Museveni and what he has been able to accomplish in his tenure thus far. And I'd be interested to see what your feelings are about that.
Second, and I'll probably have to talk to the staff and hear what the results were as far as the answers go, but I also was interested when we were in Cote D'Ivoire and we met with some American businessmen over there and talked about the disadvantage that American businessmen had with respect to France, for example, because Cote D'Ivoire was a colony of France. It's sometimes tougher for our business people to get up and going because of the long-term relationships which are there. Is there anything that we can do about that?
So those are my two questions, but I think what I'm going to have to do is recess since I don't see Mr. Royce and I've got about 3 minutes to get over there and vote. So, I'll talk to the staff about what the responses were. We'll recess at this time and we'll get started as soon as Mr. Royce gets back.
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We're in recess for a few moments.
[Recess.]
Mr. ROYCE. [presiding] We're going to reconvene the hearing at this time. I think we were in the middle of a question by Mr. Chabot from Ohio. So if we could hear that question?
Mr. MILLER. Let me do a little of the Uganda question at the start. It is not surprising that Uganda is working well, because it is inherently a rich country with very high economic potential. I think the interesting thing that I take away from the Uganda experience is that there are many forms of accountable government in Africa. They are wrestling with a situation in which if you looked at our blueprint for what we define as an accountable or democratic government, they would fall a bit short.
That said, they seem to have produced a system that is stable, accountable, cares about its citizens, is promoting economic growth and which our President, I think, finds acceptable.
And I would just hope that as we would look at models for responsible governments in Africa we don't try to come up with only one, but that we look across the continent and see a range of different models that have worked. And I think that the President up there is running one that works OK.
Mr. SAMUELS. As a follow-on to that, it's also important that although Uganda is a country rich in resources and, in fact, people, still that alone is not enough to make an economic success. It is true that, under Museveni, they have followed good macroeconomic and other economic policies. And it is important to have good economic policy. Resources alone, even human resources alone, are insufficient to explain success, but, wrongly chosen, they assure a sign of future failure.
Mr. ROYCE. Let me ask you a question on Uganda. The cholera outbreak that the European Union used as an argument for preventing fresh fish from being delivered to the capitals of Europe from Uganda recently—was that, in your opinion, a legitimate action for Europe to take? Should they have blocked the flights from the booming fish export market in Uganda to Europe? And do you think that Uganda will be able to re-establish this very important export market in fish from Lake Victoria to Europe soon?
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Mr. MILLER. I just don't have that technical expertise to really——
Mr. SAMUELS. I don't either, but if there were no scientific basis for the EU's action, Uganda has the right to, and in fact ought to go to the WTO. Because there are rights that it has as a WTO member, and the EU, frankly, has in the past taken such decisions on agriculture-related things. The problem that we have had as a country on beef hormones, the problem that we've had with bananas, shows how sensitive they are—and fish is one area of sensitivity—so it's possible that the EU did something that was wrong. But if they did then Uganda ought to pursue its interest very well.
If, on the other hand, the EU acted correctly, which is also possible, then there is no reason why Uganda can't take actions that could satisfy the EU's concern about health matters.
Mr. ROYCE. I was not here for Mr. Chabot's question about French influence, but let me just ask a follow-up question on the devaluation on the CFA franc. Now some observers say that as Europe goes to the Euro, it's inevitable, after the introduction of the Euro, that you'll have a devaluation of the CFA franc. Is that a valid concern—whether the CFA link with France will be maintained, and whether there will be a devaluation? What is your observation on that?
Mr. SAMUELS. I'm not convinced that the CFA linkage has been in the interest of the countries of West Africa. It is a long-standing remnant of French colonialism, and it is an excuse for the countries of the CFA area to avoid developing their own macroeconomic policies that are world-class. So I think, frankly, a de-linkage is in the—if not short-term—at least medium-term interests of those countries.
Mr. ROYCE. With the development of the Euro, do you think that's more likely?
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Mr. SAMUELS. I think it's more likely, yes.
Mr. MILLER. It is imperative if we're going to do a regional trading area—and West Africa needs a regional trading fund bloc—the only way they are going to get there is to begin to stop thinking of themselves as former British, former French, former whatever, and start thinking of themselves as being West Africans.
Mr. SAMUELS. And it's not going to help them to have just a French bloc, or just a French speaking bloc, or an English speaking bloc. These countries are neighbors to one another. The boundaries we all know were not drawn for any rational reasons. But these countries have to live with them, and they have to live with one another.
Mr. ROYCE. I'd like to mention one more thing on the issue of agriculture. I had the opportunity to visit a Cargil facility recently in my district, and Cargil is certainly interested in Africa, and, in fact, its President was on President Clinton's trip with Congressman Don Payne and myself to Africa. They already have a presence there, but they're looking harder at an increased involvement in Africa, especially in anticipation of the Africa Growth and Opportunity Act.
Mr. MILLER. Good.
Mr. SAMUELS. That's exactly what we hoped for.
Mr. ROYCE. Would you like to make any closing statement, Ambassador Miller or Ambassador Samuels?
Mr. SAMUELS. I just would like to encourage you and your Committee to keep up this interest. It's very important. This light thrown on this situation is very helpful. Thank you very much.
Mr. MILLER. Mr. Chairman, I'd certainly would like to second that. We hope that we are looking at a wonderful 10- or 15-year period for the continent, but it will take sustained attention from you and your Members. So, thank you.
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Mr. ROYCE. Thank you for your involvement here and your testimony today. This hearing is adjourned.
[Whereupon, at 2:50 p.m., the Subcommittee adjourned subject to the call of the Chair.]
A P P E N D I X
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