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50–549 CC






MAY 7, 1998

Printed for the use of the Committee on International Relations

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

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    Mr. Franklin J. Vargo, Acting Assistant Secretary for Market Access and Compliance, U.S. Department of Commerce
    Mr. Robert Litan, Director, Economic Studies Program, The Brookings Institution
     Mr. Robert Vastine, President, Coalition of Service Industries
    Mr. Mark Rotenberg, Executive Director, Electronic Privacy Information Center
    Mr. Mark Berg, President, American Soybean Association
    Dr. Michael Dykes. Director of Government Affairs, Monsanto Corporation
    Dr. James V. Chambers, Professor of Food Science, Purdue University
    Mr. Raymond S. Calamaro, Esq., Partner, Hogan & Hartson
Prepared statements:
Mr. Franklin J. Vargo
Mr. Robert Litan
Mr. Robert Vastine
Mr. Mark Rotenberg
Mr. Mark Berg
Dr. Michael Dykes
Dr. James V. Chambers
Mr. Raymond S. Calamaro, Esq.
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Additional material submitted for the record:
Brookings Institution policy brief regarding EU privacy laws

House of Representatives,
Committee on International Relations,
Washington, DC.
    The Committee met, pursuant to notice, at 10:06 a.m., in room 2172, Rayburn House Office Building, Hon. Benjamin A. Gilman (chairman of the Committee) presiding.
    Chairman GILMAN. [presiding] The Committee will come to order. Members please take their seats.
    Before we begin, we'll dispose of one piece of housekeeping by unanimous consent. Mr. Luther is recognized to ask for technical corrections in minority rosters of several of the subcommittees. Mr. Luther is recognized to make an unanimous consent request.
    Mr. LUTHER. Thank you, Mr. Chairman. When the Committee approved the Democrats' subcommittee membership on April 22 there was an inadvertent mistake in the seniority order of the Democrats' membership on the Africa Subcommittee and the International Economic Policy and Trade Subcommittee. Therefore, I ask unanimous consent today that the seniority of these two subcommittees be as displayed on the document which has been circulated to the Members and has been filed with the clerk.
    Chairman GILMAN. Thank you, Mr. Luther. Is there objection to the request?
    [No response.]
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    Without objection, it's so ordered.
    The Committee on International Relations meets today in open session to receive testimony on two significant trade treaties on the U.S. and European Union (EU) agenda. They are the EU's Data Protection Directive and the EU's barriers to U.S. origin of bio-engineered products and other products on safety or so-called consumer protection grounds.
    I'm an advocate of a strong relationship between our nation and Europe. It's clearly our most important trade investment political partner. Yet, I believe that these controversies have the potential to disrupt the relationship between our nation and the EU. For example, they stand to affect much more trade than will be affected by Iran-Libya sanctions or by the Helms-Burton act.
    I should note that both the Data Protection Directive and the general European rules on biotechnology long predate those acts. Speaking in Washington last week, a European cabinet minister said, and I quote, ''We see technology as something for others to invent. Our role is to devise rules for its non-use.''
    While he was referring sarcastically to his own nation, I think his words may be applicable to Europe as a whole. Perhaps this attitude explains something about the European economic situation.
    In any event, we need to be especially wary when European policies, which may have reasonable aims, may also be designed or enforced in such a way as to give them a leg up in competition with our nation. I will very briefly discuss my concerns about the data protection issue and the privacy issue.
    Americans, obviously, care deeply about privacy. We have numerous laws and other measures meant to protect our privacy. We have other values as well, such as the First Amendment and traditions of disclosure in securities transactions and in real estate records, for example, which run counter to the European notion of privacy. We've decided to balance the various factors on a sector-by-sector basis, grounded in our common-law heritage and our reliance on private sector solutions, including voluntary standards, wherever possible. These standards are in some cases backed up by the threat of lawsuits or enforcement by states or by the FTC.
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    The EU's privacy directive, which will come into effect in October of this year, takes off in another direction, one that is more bureaucratic and more regulatory, and if American practices are judged by the Europeans to be inadequate—in a process with few, if any, procedural safeguards or recourse through an independent judiciary—data flows can be blocked.
    In the view of respected experts, the directive is intended to encourage the United States to move forward toward the European model. But Americans should be making those decisions, with their enormous consequences, not the European Commission. We need to find a way to deal with the Europeans' legitimate interest while maintaining our own sovereignty in a system that's consonant with our economy and with our culture.
    With respect to biotechnology and food safety, we are faced with a situation in which our farmers and food processors will have to confront a slow, politically influenced, and nontransparent regulatory mechanism. With a large and increasing proportion of U.S. production in bio-engineered varieties, new non-science-based barriers to the export of our products, coming on top of other problems with the EU on agricultural issues, are very serious, indeed.
    Beyond that, European initiatives in response to public fear of mad cow disease, taken without a scientific basis, almost halted U.S. exports of lifesaving drugs, as well as industrial goods, food, and the like, made with tallow. Our hearing today will be perhaps the first opportunity that Congress has had to look at some of these matters in greater detail, and I appreciate our witnesses coming before us today to help illuminate this problem. We continue to look at these issues as they become, if anything, more pressing over the next few months. We'll be working with the Administration and the public to determine the kind of response that's required and whether insufficient progress is made.
    I want to be clear that the Administration must defend the full range of American interests, including the interests of small businesses and individuals, and we need to maintain our leverage and our sovereignty as these issues move toward resolution. If legislation is required toward this, we will certainly consider it.
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    With that, I'd like to call on Mr. Hamilton, our Ranking Minority Member, if he has any comments, and then we'd like to begin with our witnesses. Mr. Hamilton.
    Mr. HAMILTON. Thank you very much, Mr. Chairman. I really don't have an opening statement. Let me just say we're delighted to have Mr. Vargo and the other witnesses with us this morning and look forward to their testimony and I am very pleased, Mr. Chairman, that you saw fit to have the hearing.
    Chairman GILMAN. Thank you, Mr. Hamilton. I'd now like to invite Acting Assistant Secretary of Commerce for Market Access and Compliance, Franklin Vargo, to offer the Administration's views on these issues.
    Mr. Vargo is one of our nation's most highly decorated civil servants and has been deeply involved in U.S.-European relations for many years. You are an old friend, Mr. Vargo, of this Committee, and we welcome you. Your entire statement will be entered in the record and we would appreciate your summarizing it for us so that we may engage in a dialog with you. You may proceed.
    Mr. VARGO. Thank you, Mr. Chairman. It's always a pleasure to be here. As you have noted, Europe is by far our most important commercial partner, and our two-way commerce has been pretty well balanced over the years. Our trade balance has been close to being in balance over the years—surpluses in some years, deficits in others. In terms of investment, U.S. firms employ 3 million Europeans and European-owned firms in the United States employ 3 million Americans. In fact 1 out of every 12 American factory workers now works in a European-owned firm.
    Europe is also vital as a trade policy partner. We have to get transatlantic agreement before we can go globally. This is not always easy, but when we do, we get results. Both sides have wanted a closer relationship, and we constructed what's called a ''New Transatlantic Agenda'' back in 1995, the NTA. The New Transatlantic Agenda is our basic architecture for working out trade problems, and it works. By and large, the process has enabled us to solve an impressive number of problems and to enlarge our areas of agreement. We have recently been talking with the EU to look for ways to speed up and broaden further our ability to cooperate in trade. Let me say that the Transatlantic Business Dialog, the TABD, has also been one of the keys to success and has been absolutely vital.
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    Let me just briefly tick over some of our successes; we have solved problems. Our successes include the Mutual Recognition Agreement that will reduce testing and certification costs, affecting close to $60 billion of trade. And, Mr. Chairman, you noted that we should be particularly concerned about smaller companies; this MRA really helps small companies and cuts their costs of selling to Europe.
    We have also reached a Bilateral Customs Agreement and a Joint Science and Technology Agreement. We're working on harmonizing auto standards and on a Veterinary Equivalence Agreement, as well as an agreement to harmonize standards on outboard marine engines.
    And we have headed off some problems. One problem that you are not discussing today is the EU's Metric-Only Directive that, if it had gone into force, would have prevented dual labeling driving up the cost of selling in Europe, and putting many thousands of smaller U.S. companies out of Europe.
    Let me now comment on the specific problems you are focusing on today, Mr. Chairman. First, the EU's Data Protection Directive. The United States and the EU share a common desire to assure privacy for personal data transmitted electronically. Our approach is to rely principally on the private sector. The EU's has been to legislate national data authorities. The EU's approach, which is supposed to go into effect this October, requires other countries to have ''adequate'' systems of data protection before data on individuals can be transmitted from the EU. Otherwise, data flows could be cut off, which would have disastrous effects. We've been working with the EU to prevent this from occurring.
    Ambassador Aaron, our Under Secretary for International Trade, has been leading this effort, and I am very pleased to say that there has been real progress. These discussions have made it apparent that the EU would suffer as well if the data flows were cut off. The EU is serious about avoiding this cutoff, and we are serious about protecting privacy.
    While at first it appeared the EU was insisting we have a system similar to theirs, it is now clear they are not. They agree a private system can be adequate, and we believe this problem can be resolved without threat of data cutoff. There is still a lot to be done, but we believe it is manageable.
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    Now, with regard to the food safety issue, the problem stems from the sledgehammer approach of EU directives that would ban the import of so-called Specified Risk Materials, SRM, or products made from them, that could possibly carry BSE, the so-called ''mad cow'' disease. They also threaten to ban the import of tallow. These directives threaten the export of products such as cosmetics, toiletries, and pharmaceuticals—about $4 billion of American exports, in all.
    We have been working with the EU to avoid impairing these trade flows; and we have obtained a solution to the tallow problem, resolving almost all the issues relating to cosmetics and related products. We do not yet have a resolution to the larger problem of the SRM ban. The ban has been twice postponed, most recently to the end of this year, in order to allow time to find a solution. And there is a simple solution available. The United States is BSE free. We have no mad cows. We don't even have any angry cows.
    The obvious way to solve this problem is to make provision for BSE-free countries, and that's what we are pressing for.
    The other issue, biotechnology, is a difficult one. Europeans have never liked new things. And that's particularly true for Genetically Modified Organisms, GMOs. The problem is compounded by a general fear for food safety, but also by the fact that the EU system for approving GMOs is flawed. It is very cumbersome and very time-consuming.
    The approval process in the United States is thorough but takes place in reasonable time. Thus, GMOs are approved, planted, and ready for export long before they are approved in Europe. Since GMO products are co-mingled with non-GMO products in the United States, it becomes almost impossible to certify that export shipments contain no GMOs. This means a ban on GMO corn, for example, is in effect a ban on all U.S. corn exports to the EU.
    This is the situation we are in now. Three U.S. GMO corn varieties were approved by the EU in April after a very lengthy process. Unfortunately, they still cannot be sold in the EU because they have not received marketing approval. Since some proportion of U.S. corn is now comprised of these varieties, the result is that we can sell no corn to the EU at this time and about $200 million of U.S. corn exports are at risk. This is a very serious matter and is now the subject of intense discussions between the U.S. Government and the EU.
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    Mr. Chairman, these types of problems will keep occurring until we see an effective, timely, transparent, and science-based approval system in the EU, and that is what we are working toward.
    Thank you, Mr. Chairman.
    [The statement of Mr. Vargo appears in the appendix.]
    Chairman GILMAN. Thank you, Mr. Vargo. Mr. Vargo, what are the prospects for the growth of American exports with the introduction of a common European currency?
    Mr. VARGO. Mr. Chairman, I believe that the prospects will improve. The thing that we would like to see most is to have the European economy grow faster. When their economy grows faster, our exports do very well. We hope that the Euro and the Euro policies will be implemented well. We believe that this will help particularly smaller U.S. companies that will no longer have to worry about conversion into all the different currencies. We believe it will help smaller U.S. exporters to see Europe as one single market, and we have begun to work with them that way. So we are positive, Mr. Chairman.
    Chairman GILMAN. You note, Mr. Vargo, in your prepared statement, that the United States began working on the Data Protection Directive in earnest with bilateral discussions beginning at the subcabinet level only in March of this year. Does that mean that our nation did not engage in a substantive way with EU over the Data Protection Directive during its drafting and approval strategy in the early to mid-1990's?
    Mr. VARGO. No, sir, not at all, but these discussions were at the staff level. They were elevated up to the subcabinet level with Under Secretary Aaron this year, and we built on the staff discussions that we had been having with the EU. But I will say that moving them up to the Under Secretary level has moved things along much more rapidly.
    Chairman GILMAN. During those discussions, what changes were made at our suggestion during that process?
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    Mr. VARGO. The major progress was that the EU recognized a data cutoff would hurt the EU and would hurt EU companies, as well as hurting the United States. There was also progress in the statement by the EU that they are not looking for the United States to have the same or similar type of system that they have. What they are looking for is an ''adequate'' system and they are now cognizant that the sort of system that we have, which is largely private-based, can be adequate. We still have a long way to go though.
    Chairman GILMAN. Was that back in 1995 when the directive was written?
    Mr. VARGO. When the directive was written, we got into discussion shortly after that; but the discussions didn't really get serious until, I would say, last year.
    Chairman GILMAN. Mr. Vargo, what can we do to prevent the Europeans from singling out one or more companies or sectors as not meeting the adequacy test and not subject to the data transfer prohibition of the directive?
    Mr. VARGO. In our discussions with the EU, we will look for an agreement on our overall data protection regime in the United States. We will not want to leave some sectors hanging and possibly vulnerable.
    Chairman GILMAN. So is there any concern that some of the firms could be targeted by the European competitors, who seek to persuade the EU to use a directive as a commercial weapon against the competition?
    Mr. VARGO. That's always a concern. We have seen this happen in other areas, such as European firms using standards to keep American competitors out. So that certainly is a possibility and we are vigilant for it.
    Chairman GILMAN. Mr. Vargo, in light of the success of the TABD and other trans-Atlantic actors in implementing mutual recognition agreements, why has such little progress been made in improving the slow and unpredictable process in which the EU approves new U.S. agricultural products developed through advance biotechnology? And do you have any suggestions for improving that process?
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    Mr. VARGO. I think probably the answer lies in the emotion that surrounds the issue of food safety in Europe. It has become very politicized. We've seen Austria, for example, ignore the EU directives that now allow some GMOs into Europe. The Austrians have, in essence, told the European Commission that they will have to take Austria to court. It's a very emotional issue and this certainly has slowed things down. But the process that the EU uses just does not work. It's a very cumbersome one; it's going to do nothing but lead to more problems. So we've got to get it resolved
    The Agriculture Department and USTR have primary responsibility here. We work with them, of course. I know that they've come up with a lot of ideas. The Europeans have their own. But what we have to get over is the semi-paralysis in Europe that is coming about because of the food safety fear.
    Chairman GILMAN. Thank you, Mr. Vargo.
    Mr. Hamilton.
    Mr. HAMILTON. Thank you, Mr. Chairman.
    Mr. Vargo, I understand you're quite an expert on the Euro and, like the chairman, I'm interested in that. You probably know that the Congress really hasn't focused all that much on it.
    Let's assume the Euro is successfully launched. What's the impact on U.S.-EU trade?
    Mr. VARGO. Mr. Hamilton, I think the Treasury would be distressed to hear that I'm an expert on the Euro because they claim the expertise on the U.S. Government.
    At the Commerce Department, though, we have looked a lot at the Euro for the specific reason that we do believe that it can have an impact on U.S. trade. We believe it's going to be a positive one.
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    Mr. HAMILTON. You believe what?
    Mr. VARGO. That the effect will be a positive one. We look for the Euro to help lower costs within Europe, to bring about greater efficiencies, greater transparency. For the first time, people will be able to really see what a product is costing and they can see whether it costs more or less across the border in the neighboring country. So you will start to get more of a single market. U.S. companies perform best in large markets rather than in fragmented markets, so that's one——
    Mr. HAMILTON. So you would expect to see some positive benefit with regard to growth in the U.S. economy and growth in U.S. employment?
    Mr. VARGO. I do, yes I do.
    Mr. HAMILTON. Do you quantify that in any way? Have you made any projections on it?
    Mr. VARGO. No, sir, we have not because in truth that depends upon how well the Europeans are implemented in Europe.
    Mr. HAMILTON. I understand.
    Mr. VARGO. I would not say it would be dramatic, anything like a doubling in our exports, but I do think that it will add to our export growth rate for a number of reasons. We'll have more U.S. companies interested in exporting to Europe. Also, Mr. Hamilton, we will get more companies to look at countries other than the United Kingdom because most U.S. companies that export to Europe export only to the United Kingdom. The language is familiar; they don't have to deal with all the different currencies. So that's going to be a big plus.
    Mr. HAMILTON. Can you generalize at all about the impact on industries? Will some U.S. industries do better and some do worse, or have you done an industry-by-industry analysis of it?
    Mr. VARGO. No, sir, we have not and I'm not sure that would show much.
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    Mr. VARGO. We have looked at it from two perspectives; one is the large U.S. multinationals that produce in Europe, and, by and large, they are ready for the Euro and the smaller U.S. exporters. And many of them are not ready.
    Mr. HAMILTON. Suppose the Euro gains as a reserve currency versus the dollar. What's the impact of that on the U.S. economy?
    Mr. VARGO. On that question, Mr. Hamilton, I think I would like to defer to the Treasury and take that as a question——
    Mr. HAMILTON. They'd probably defer it to Commerce.
    Mr. VARGO. No, sir, they would not.
    Mr. HAMILTON. Do you think the U.S. business community by and large is ready for this new currency?
    Mr. VARGO. The large companies, yes, sir. We believe they are. The smaller companies, many of them are not. We have started a program of seminars and getting information out to smaller companies that export to Europe to help them prepare.
    Mr. HAMILTON. Now you've got some countries in Europe not going into this common currency.
    Mr. VARGO. That's true, sir.
    Mr. HAMILTON. OK, what's the impact there, do you think, again, looking at it from the U.S. perspective, U.S. relations. You've got—what?—United Kingdom; you've got Greece.
    Mr. VARGO. Sweden, Greece, Denmark, the United Kingdom. Greece doesn't meet the criteria yet and is not in, and the other three have chosen not to be in.
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    Mr. HAMILTON. I'm interested in the impact of the Euro on U.S. economic relations with regard to these countries that will not be going in.
    Mr. VARGO. I truthfully don't see that much.
    Mr. HAMILTON. Don't see that much of an impact?
    Mr. VARGO. I believe that their economic policies would have to move fairly well in harmony with the other countries, so I would not expect there to be too much variance.
    Mr. HAMILTON. Mr. Chairman, if we've got time, I'll ask a question or two about the overall status of U.S.-EU trade relations.
    The USTR Annual Report, 1998 edition, has a very long section on Europe, as we would anticipate. And I guess the only chapter in that book which is longer than the European chapter is the Japanese chapter. We've got a lot of complaints listed here with regard to Europe. Why do we have so many complaints with Europe? Is that just the sheer volume of the business that brings that about? Why is that chapter so long?
    Mr. VARGO. The sheer volume is certainly one of the reasons. Another reason is that the one chapter encompasses, in effect, 15 countries, so it can be easily larger than the chapters for other single countries. By and large, our trade relationship with Europe has been, I would say, outside agricultural areas, a smooth one. And even in the agricultural area I think we have made progress in recent years.
    Mr. HAMILTON. And as a trading partner, how would you characterize it?
    Mr. VARGO. I assess, as a trading partner, the relationship is a very good one. Our interests, though, are not perfectly concentric. There are times when we do differ, but by and large I would say our interests are quite close.
    Mr. HAMILTON. What worries you the most?
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    Mr. VARGO. What worries me the most on Europe right now? The problems we are discussing——
    Mr. HAMILTON. The ones that we have on the agenda this morning?
    Mr. VARGO. The problems we have on the agenda this morning, certainly, also the implementation of the Mutual Recognition Agreements. They will go into effect shortly after the U.S.-EU Summit. But they have to be implemented. We have countries that—pardon me for going on, Mr. Hamilton—we have countries that will not necessarily implement them fully, so we'll have to watch that carefully. And a lot of European companies still view different standards and certification processes as a way of protecting their market. So that is a big worry of mine.
    Mr. HAMILTON. And if you look at the whole relationship from the large perspective, what are the major trends in it?
    Mr. VARGO. The major trends are the increases in investment in each others' economies. While we export about $140 billion to the EU now, American companies produce over a trillion dollars within Europe.
    Mr. HAMILTON. How does it compare with Japan overall?
    Mr. VARGO. Overall, we have a much more balanced relationship and we export a lot more to Europe than to Japan. And we also invest a lot more. Now these investments——
    Mr. HAMILTON. Total volume is a lot more? Is that correct?
    Mr. VARGO. Yes, sir, that is correct. EU is our second largest market right after Canada and Mexico comes in third. Japan comes in after that and it's quite a bit smaller.
    Mr. HAMILTON. Is it growing at the same rate as some of our other trading partners where we're increasing business quite a bit?
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    Mr. VARGO. It depends on the year. Right now we're doing better in Europe than in other parts of the world. Our exports so far this year to the EU are up about 10 percent because the European economy is beginning to pick up somewhat and our exports are very sensitive to the economic health in Europe.
    Mr. HAMILTON. The Europeans are complaining a lot about the Iran-Libya Sanctions Act and Helms-Burton. What kinds of impacts do those disputes have on this trade relationship?
    Mr. VARGO. Well, for one thing, they're turning Stu Eizenstat's hair gray.
    Mr. HAMILTON. He's coming up here. Maybe I just ought to hold the question for him.
    Mr. VARGO. The State Department is doing that. I have not seen a spillover effect into the things that we get engaged in, but there is certainly that potential and that threat.
    Mr. HAMILTON. OK, thank you very much, Mr. Chairman.
    Chairman GILMAN. Thank you, Mr. Hamilton. And thank you, Mr. Vargo, for being with us today. Mr. Sawyer.
    Mr. SAWYER. Mr. Chairman, first of all, thank you and Mr. Hamilton for calling these hearings. I don't have questions, but I will tell you, the biggest question that I have is why the rest of our country has not fully grasped the importance of what's going on in terms of Europe more broadly and European monetary union in particular. It is something that's going to have a profound effect. I'm not sure we can say for certain what that effect will be, but clearly it will touch all of our lives. Coming to grips with that is an important part of the policy work of our State Department, the Department of Commerce, and I'm just pleased that Mr. Vargo is here with us today. Thank you again.
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    Chairman GILMAN. Thank you, Mr. Sawyer. Mr. Manzullo.
    Mr. MANZULLO. Thank you. I appreciate the opportunity to be here. I, too, am quite perplexed why many more Members of Congress aren't taking a greater interest in this. The district I represent is one of the most exporting in the country. Last fall we had the honor of having Hugo Paemen, the EU Ambassador to the United States, come to the city of Rockford to talk about the Euro and things of that nature and continued trade with the EU. The common currency is an absolutely fascinating subject, particularly in light of when the European economy will become the second largest in the world, second only to the United States and outpacing Japan, placing in third. I can't think of a hearing that's more critical, and I want to thank you, Frank, for the leadership that you have shown throughout the years in this area, and I look forward to reviewing your testimony.
    Mr. VARGO. Thank you, sir.
    Chairman GILMAN. Thank you, Mr. Manzullo.
    Mr. Vargo, we thank you again for taking the time to be with us and thank you for your testimony.
    Mr. VARGO. Thank you, Mr. Chairman. It's always a pleasure.
    Chairman GILMAN. I'd like now to invite the private sector witnesses to the table. If our clerks will distribute the signs—our staff will set out your seats for us.
    Our private sector witnesses today include Robert Litan, Robert Vastine, Mark Rotenberg, Michael Dykes, Raymond Calamaro, Mark Berg, and James Chambers.
    My intention is to receive the testimony of all the witnesses and then allow our Members to question them as they wish on either main topics today. I'm asking our witnesses to try and limit their oral remarks to about 5 minutes, so that we can maximize our dialog time. Please begin winding up when the yellow light comes on. I'll introduce each of the witnesses in turn.
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    Our first private witness today is Dr. Robert Litan. Dr. Litan is director of the Economic Studies Program at the Brookings Institution. He is both an economist and an attorney. He has a distinguished record of public service, including a stint as Associate Director of OMB and Deputy Assistant Attorney General. He has a Ph.D. in Economics and a J.D. both from Yale, and a B.S. in Economics from the Wharton School. And that is not a bad institution, incidentally.     [Laughter.]
    He has been engaged in private practice of law and most importantly, for today's purposes, has written extensively on trade and on EU data privacy directive. Dr. Litan, please proceed.
    Mr. LITAN. Thank you very much, Mr. Chairman. I have to apologize at the outset. I think I informed your staff I have to leave at about 11:50, but hopefully we'll be mostly done by then.
    I'll briefly summarize my written testimony.
    Chairman GILMAN. Without objection, your full statement will be made part of the record.
    Mr. LITAN. Thank you. I think I was invited here today because I'm in the process of completing a book on the impact of the European Privacy Directive with Professor Peter Swire of Ohio State Law School.
    We show in the book how the directive is sweeping in nature. As you point out in your introduction, the EU and the EU alone is going to decide if our privacy protections are adequate. And if they are not, they are prepared to embargo all relevant personnel data coming out of Europe. That means potentially a prohibition by any means—by mail, by carrying a laptop computer out of Europe, by sending data over the Internet, and over corporate Internets.
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    Now, fortunately, the good news is that there are some exceptions in the directive. For example, if the firm has a contract with a privacy office of a European country, it can get out of this embargo if the data subject consents to allowing his or her data to be used in the way the data controller wants. If the data are necessary to complete a transaction, for example, a credit card transaction, that wouldn't be covered by the embargo—or if the data were public. But nonetheless, it is still not clear at this point how broadly the EU will construe these exceptions.
    There is another bit of good news. Peter and I have been discussing this with EU officials over the past year and we firmly believe that the EU will not—and I emphasize ''not''—decide that the U.S. privacy law as a whole is inadequate.
    The bad news, however, is that we do think that there still is a risk, notwithstanding what we heard Mr. Vargo say today, that the EU will decide that one or more activities in the United States will be deemed to lack adequate privacy protection and therefore trigger the embargo. And we run through our book and I've summarized in my testimony a variety of possible sectors. They include airline reservations, which would cover seating preferences; your food preferences; potentially your frequent flyer mileage; the field of medical research; insurance; data processing; securities; and accounting.
    Perhaps the most troublesome areas where the Europeans could do themselves and us the most damage, would be if they find that the whole field of electronic commerce lacks adequate privacy protection or if they decide that human resource policies lack protection. The Europeans are very sensitive about their personnel data, about their medical data, and so forth. And in a worst case, if they decide that human resource policies lack protection, that would have an across-the-board impact across all industries or all firms doing business in Europe and that could disrupt data going across the Atlantic.
    What can we do to head off this collision? In the testimony I offered two suggestions for the Europeans. No. 1, they ought to take a lot more seriously than their officials have so far stated, our self-regulatory efforts; in particular, any codes that firms actually develop and adhere to. If a firm says that it's abiding by a policy but does not abide by it, it opens itself up to FTC enforcement and also to private class action enforcement. Both types of enforcement may be far more effective than a bureaucratic approach that the Europeans have talked about. So our government ought to urge on the Europeans that self-regulation can be effective where it is adopted.
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    The second thing I think we should urge on the Europeans is to liberally construe the contracts exception. Remember, I said that they have an exception that says, notwithstanding the embargo, if you're a firm in Europe and you have a contract with the privacy office at each of those member countries, you get out of the embargo. There have been a number of speeches by European officials casting doubt on whether this contract exception will be interpreted liberally, but it ought to be. In other words, if the U.S. firm has a contract to abide by European law with respect to privacy, there should be no punishment, in our view, with respect to any data going out of Europe to the United States. In short, compliance with their law ought to be enough; there ought to be no extra territorial effect applied by the Europeans.
    Now what can we do in the United States? I'll tick off several things. One, we ought to press the points I just made with the Europeans. Two, the United States should set up a permanent privacy office within the Department of Commerce, not regulatory, but primarily as a focal point for discussions with the Europeans. Three, we're for legislation to protect medical records privacy because there we think there is a strong case that ought to be done, and Congress is considering legislation in that area.
    But finally, we urge caution with respect to legislation dealing with any privacy issues relating to electronic commerce and the Net, primarily because technology is so fast moving; regulation dealing with the Net is difficult to enforce. So we urge caution. We have a potentially very dynamic electronic commerce sector. It would be a mistake, in our view, to run the risk of having regulation-stalling inovation in this arena.
    [The statement of Mr. Litan appears in the appendix.]
    Chairman GILMAN. Thank you very much, Mr. Litan.
    Our next witness is Mr. Robert Vastine, president of the Coalition of Service Industries since January 1996. Mr. Vastine worked for many years in a variety of key positions on the Hill, was a Deputy Assistant Secretary of the Treasury in the Ford Administration and vice president of the Oversight Board of the Resolution Trust Corporation.
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    Mr. Vastine, please proceed. You may summarize and we'll put your full statement in the record, without objection.
    Mr. VASTINE. Thank you very much, Mr. Chairman. I appreciate this opportunity to present our views.
    The Coalition of Service Industries represents U.S. companies that export services such as insurance, travel, and information technologies services globally. The U.S. service sector exported $250 billion of goods or services last year with a surplus of $85 billion. That's an increase from about $300 million in 1985.
    These exports are really exports of information. They absolutely require unfettered transfers of data. Restraints on these flows in the name of data privacy threaten U.S. trade. Data privacy is considered by the Administration an electronic commerce issue. It is an electronic commerce issue in part. Fundamentally, it is an international trade and economic policy issue that could seriously affect U.S. trade and competitiveness.
    The European Data Protection Directive creates a global problem, not just a bilateral one. Literally, it requires that all the political and economic entities with which the EU trades maintain systems for handling personal data about Europeans that Europe deems adequate. This is a virtually insurmountable administrative problem and it raises the question: How will the EU enforce in an even-handed, transparent way, a regime with which most countries cannot possibly comply?
    The Administration's policy has been to call for industry self-regulation to guarantee consumers data privacy and to ask for substantial compliance by July. Industry has responded with exceptional vigor, not uniformly, but by sector, as they each are best able to respond.
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    But the effort to improve data protection is an ongoing, dynamic process. It will not be completed by July 1 or by October 25, when the directive finally comes into effect. Global companies with tens of thousands of employees rely on complex information systems. Modifying these to ensure data privacy is difficult and time consuming.
    It is our hope and expectation that the vigorous industry response to the Administration's challenge will give it ample ground to conclude that U.S. industry is responding in a way that provides sufficiently for consumer data privacy and that it will so represent to the EU. Whatever the Administration's decision, however, it should be based on our own standards for determining the effectiveness of U.S. data privacy protection quite apart from those of the EU.
    Regardless of what the Administration determines about the effectiveness of the U.S. response, or what the EU concludes about the U.S. adequacy, the crucial question is this: What should the U.S. Government do in the face of a European Union that is determined to enforce the directive to the detriment of data flows and our own commerce? We believe that the data stoppages would be commercially harmful. Moreover, the precedent of an EU stoppage could be used by countries that do not share our tradition of freedom of expression to justify interruptions for reasons other than data privacy.
    Therefore, we propose that the EU and the United States enter into an agreement providing for a standstill which would commit both not to interfere with the transborder data flows of the other. The standstill should establish a consultation process in the event that one of the parties discovers a breach of these laws that require action that might result in a stoppage. This would be an early warning system in essence, that would provide an opportunity to correct the problem without stopping data flows.
    The agreement itself would provide an important measure of certainty to the business community which now faces considerable uncertainty about the manner in which the EU data protection regime will be applied. Should such a process not be established or if the process is not effective and the EU were to stop data flows, the United States should seek redress through the World Trade Organization.
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    Finally, it is essential that we find the right balance between the needs of an information-based global economy and the legitimate claims of consumers for data protection. The private sector should keep the initiative. Government regulations should be the last resort. But most important, whatever we do in the United States to protect data privacy should be done in the interest of the United States, not in response to the demands of an information culture and legal system profoundly different from our own.
    Mr. Chairman, we appreciate the interest of the Committee in this problem and we would welcome your Committee's assistance in developing support for the standstill agreement and consultative process we propose.
    [The statement of Mr. Vastine appears in the appendix.]
    Chairman GILMAN. Thank you, Mr. Vastine. We appreciate your being brief.
    Our next witness is Mark Rotenberg. Mr. Rotenberg is the executive director of the Electronic Privacy Information Center, a non-participant public interest research organization in Washington. He is also a senior lecturer at the Washington College of Law and adjunct professor at Georgetown Law School and a recognized expert on privacy law. He is a graduate of Harvard and Stanford.
    Welcome, Mr. Rotenberg. Please proceed. Your full statement will be made part of the record without objection.
    Mr. ROTENBERG. Thank you very much, Mr. Chairman. I appreciate the opportunity to be here this morning. I should say at the beginning that I'm not here to defend the data directive. Like all legislation, it has some strengths and weaknesses. It grew out of specific circumstances related to the integration of the European economies and the need to harmonize national privacy laws. But I'm also not here to attack the directive. While it has become common practice for some businesses to try to find every flaw that can be described about the European effort to protect privacy, in my opinion, it is a very different problem here. I believe that it is the absence of effective privacy protection in the United States, and not the efforts that are underway in Europe, that have given rise to the problems that we face today.
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    I'm going to make several points this morning about this debate that I hope will give you, perhaps, a fuller picture of what may be going on between the United States and Europe about privacy protection. The first point is that privacy as a legal right is very much in the American tradition. In fact, more than a century ago, when the famous article on the right to privacy was published in the Harvard Law Review and American courts first gave recognition to a legal claim of privacy, it was described as the American tort. Since that time, on numerous occasions our government has passed legislation to protect the privacy rights of our citizens, often in response to the development of new technologies. In fact, in just the past couple of decades we've had privacy legislation to protect electronic mail, the records of video rentals, your cable channels, junk faxes, and auto dialers for many years.
    Other countries looked at the United States as a leader in the privacy field for direction and understanding to protect this vital public interest. But our lead slipped. Because in the last few years we've had difficulty coordinating a privacy policy within the Administration and difficulty in moving forward in legislation, the Europeans are now out in front. And this is important to understand because this debate is not just between the United States and Europe, but, of course, affects other countries around the world.
    And my view is that other countries are following the lead of Europe. From Ottawa to Tokyo, national governments are developing new legislation to protect the privacy interests of their citizens. And in this debate there is not very much that we can offer today because we have not put forward a proactive privacy policy.
    The second point I wish to make is that American consumers favor privacy protection. The most recent Harris poll, in fact, found that a majority of Americans believe that government should pass laws now for how personal information can be collected and used on the Internet. I think it's also important to understand that the Europeans are quite serious about enforcing the date directive. John Mogg who is the director general of DG XV, recently said here in Washington that the high standards of data protection which our directive seeks to achieve inside the Union will be quickly and fatally undermined if we do not pay attention to what happens to personal data once it leaves our borders. The Europeans face a dilemma in protecting privacy that is not unlike the dilemma that we face in protecting copyright. If we do not take action against software piracy in other countries, out efforts to protect the copyright interests of people in the United States will be fatally undermined.
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    I think if you were to ask American consumers the question that Europeans are asking today, ''Is privacy protection in the United States adequate?'' you will get the same answer on both sides of the Atlantic. And so it is for this reason that I think the EU directive is not so much a problem as it is a reminder that our privacy laws need to be updated and that there is much work to be done in this country. Further action against the directive will not make the privacy concerns go away.
    But in the end, I agree with both of the other witnesses, which is to say that we need stronger privacy safeguards in this country; not to satisfy European Governments, but to assure the protection of our own citizens. And I remain hopeful that this Committee will not lose sight of our country's proud traditions in this area as you consider this matter further.
    [The statement of Mr. Rotenberg appears in the appendix.]
    Chairman GILMAN. Thank you very much, Mr. Rotenberg.
    We'll now receive the testimony of biotech and food safety issues before us. Our first witness is a farmer and a leader of the American agriculture, Mr. Mark Berg of Trip, South Dakota. He is president of the American Soybean Association. The American soybean crop is valued at over $14 billion annually and we grow nearly 50 percent of all soybeans grown worldwide.
    Thank you for coming to Washington, Mr. Berg, to be with us in this testimony. Please proceed with your statement. We'll enter your full statement in the record if you will be kind enough to summarize.
    Mr. BERG. Thank you, Mr. Chairman. You mention that we grow 50 percent. We also, out of that 50 percent, we export 50 percent so these issues are critical to us.
    I am appearing before you today in behalf of the American Soybean Association. ASA represents 32,500 producer members on national policy and issues important to all U.S. soybean farmers. We appreciate the opportunity to present the Committee with our views and trade issues with the EU concerning agriculture products derived from biotechnology.
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    After many years of seeing the technology advance and now commercialization developing rapidly, American farmers are very eager to take advantage of the benefits plant biotechnology offers. The first commercially available varieties of genetically modified soybeans, corn, and cotton, were planted and harvested in 1996—in total, less than 4 million acres. Two years later we expect to see about 30 percent of the U.S. soybean acreage, 25 percent of the corn acreage, and 40 percent of cotton acreage—a total of 44 million acres, planted to genetically modify varieties in 1998.
    This rapid expansion is possible not only because of developments in technology, but also because the regulatory system in the United States efficiently evaluates the safety of genetically modified crops using science-based risk management assessments.
    Three agencies share responsibility for improving the use of new genetically modified crops in the United States: the Department of Agriculture, the Environmental Protection Agency, and the Food and Drug Administration. The regulatory process is transparent and is based on scientific risk assessments. This contrasts sharply with the situation in the EU.
    In 1996, the EU approved the marketing of one soybean variety and one corn variety that were being grown in the United States. In 1997, six new genetically modified corn varieties were approved for planting in the United States. In 1998, two new soybean varieties and eight additional corn varieties were approved for planting here.
    In contrast, the EU has not approved any new varieties for import since 1996. The 2-year delay since the initial EU approvals reflects what has become a highly contentious debate among European environmentalists, consumer groups, food industry representatives, and politicians, of the benefits and risks of crops and products derived from biotechnology.
    Some activist groups such as Greenpeace have been successful in raising concerns among consumers about whether their food contains biotech ingredients and have a right to choose products that do not contain biotech ingredients. This, in turn, has led to efforts by the European food industry and EU Governments to determine whether and how foods should be labeled regarding their biotech content. As that process is dragged out, the EU has continued to postpone decisions and new approvals and to make revisions to its approval framework.
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    I would like to briefly mention five areas where we believe action is needed to alleviate current discrepancy between the United States and EU regulatory and approval processes for biotechnology and to prevent escalating disruption of U.S. exports of soybeans and other crops.
    First, we need for the EU to adopt a much more transparent and efficient process for approving new biotech varieties. Once the appropriate U.S. Government agencies have given their approvals, biotech companies are within their rights to initiate commercial production in this country. However, if the same varieties have not received approval by authorities in the EU, all exports of the commodity are in jeopardy. This is due to the fact that U.S. farmers and commodity merchandisers routinely commingle varieties with the same basic characteristics.
    The problem of commercialization, biotech varieties not approved for import by the EU, was brought home after the 1997 U.S. corn harvest. Of the new varieties introduced last year, three were expected to be approved by the end of the year. At the last minute, after all of the necessary scientific reviews were done, the EU changed its approval process. As a result, exporting companies have been unwilling to deliver U.S. corn to destinations in the EU for fear shipments would be tested for the presence of unapproved varieties and rejected.
    This delay has cost U.S. corn growers a 2 million metric ton market worth an estimated $200 million this year. As similar restriction on U.S. soybean exports to the EU would cost farmers about $2.7 billion per year. The second action requires biotech and seed companies to seek clearances for new varieties in major U.S. export markets on a timely basis and preferably before they are commercialized in the U.S. ASA has approached each company currently in the biotech business with this request, and at least for 1998, has assurances that unapproved varieties will not enter export channels.
    Third, the EU and other countries must accept that there is no scientific basis requiring segregation or labeling biotech varieties that have been determined to be substantially equivalent to conventional varieties in terms of safety, nutrition, and composition. Moreover, segregation is not economically feasible in our large-scale crop merchandising system.
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    Fourth, the Administration needs to engage the EU in an effort to reach agreement to recognize each others' procedures for approving and commercializing biotech crops and products.
    We hope the Administration plans to include negotiation of mutual recognition agreements on biotech products as a priority in the U.S.-EU bilateral talks currently being considered.
    And finally, in the longer term we need to include rules governing biotech trade in the next round of WTO negotiations. The language in the Sanitary and Phytosanitary Agreement and the Uruguay Round Agreement must be clarified to apply to biotech crops and products and to supersede the rules of any other international treaty or agreement. These include provisions of the biosafety protocol being drafted under the U.N. Convention on biological diversity.
    Mr. Chairman, our organization and others in agriculture are actively working to achieve these various objectives, both through private sector efforts and in coordination with Administration. We are at your disposal to provide any additional information you may require and would welcome the opportunity to work with you and your colleagues in the Committee.
    Thank you again for the invitation to appear before you here today.
    [The statement of Mr. Berg appears in the appendix.]
    Mr. MANZULLO. [presiding] Mr. Berg, I want to thank you for your testimony. Coming from Illinois, you realize that Illinois is the No. 1 exporting state of soybeans. Within the past, I think, 2 or 3 years, it has become the No. 1 exporter of soy meal to China, which until recently was a net exporter of soy meal and now it's a net importer of soy meal. So let's hear it for the state of Illinois.
    Mr. BERG. For sure.
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    Mr. MANZULLO. In fact, about one-third of agricultural products in our country is exported. In Illinois it's somewhere around 45 percent. So our state is heavily dependent on these exports.     Thank you for your testimony.
    Mr. BERG. Thank you.
    Mr. MANZULLO. Our next witness is Dr. Michael Dykes of Monsanto. Monsanto is a leader in the development of bio-engineered products. Dr. Dykes is a veterinarian by profession. He has experienced the development of bio-engineered products, and arranging for their approval. He worked in Europe managing the approval process for Monsanto's genetically modified soybeans and insect-protected corn.
    Mr. Dykes, I thank you for being with us today. You may proceed.
    Dr. DYKES. Thank you, Mr. Chairman. I'll summarize my comments.
    Mr. MANZULLO. You need to put the mike in front of you and go ahead.
    Dr. DYKES. I'll summarize my comments. I'm director of Government Affairs for Monsanto Company. Monsanto is a global firm with sales approximately of $7.5 billion annually. The company is headquartered in St. Louis, Missouri, and our business sectors are agriculture, which includes seeds developed through biotechnology and crop protection chemicals; pharmaceutical businesses, including products for arthritis, cardiovascular problems, insomnia, and women's health; nutrition and consumer products, including food ingredients.
    We applaud your interest in trade issues and compliment the leadership of the Committee on holding this particular hearing that is focused on the issues in the U.S.-European trade.
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    Biotechnology offers the potential to gain tremendous agricultural productivity and enhance nutrition with environmentally sustainable farming practices. Already we are offering farmers new tools. We are gratified that farmers have adopted Monsanto technology. It's a testament to two things: One, that the technology really works and two, that farmers understand that technology is what will keep them competitive in the global marketplace. We are committed to making this technology broadly available to all farmers in the varieties they want, from the seed companies they trust.
    Turning to the specific trade problems we are faced in the EU, there are three general areas of concern that I would like to discuss. They are: One, the operation of the EU approval process for products of agricultural biotechnology; two, the labeling of products produced through this technology; and three, the public acceptance of biotechnology, which might ultimately be the most difficult trade issue of all.
    I will begin first with the EU approval process. Without question, the operation of the relevant EU regulatory systems dealing the agricultural biotechnology is causing significant problems. The numbers tell the story.
    The regulatory system in Europe has approved just five agricultural biotechnology products. The European regulatory process has not produced a single product in well over a year. On March 18, the EU process inched closer to approving three corn products and one oilseed rape product. However, the approvals are not yet complete, and it appears that the French Government may in fact delay the final administrative approval of three of these products. Pending corn product approvals in Europe are a good example of the problems for the companies such as Monsanto face in Europe.
    Particularly troublesome is the fact that the approval process continues to change. For example, late last year the European Commission sent the corn product dossiers through yet another technical evaluation, causing a 3-month delay. Both EU and U.S. industry leaders have urged the European commission to make the biotechnology product approval process more predictable, transparent, as we currently experience with the USDA, FDA, EPA approval process in the United States.
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    Through the transatlantic business dialog, a 30-year-old U.S.-EU Government industry effort to reduce trade barriers, industry has made a number of detailed recommendations: One, the clarity and consistency be incorporated into the regulatory programs; two, that a common road map for regulatory approvals be adopted; three, that data requirements used for review and approval products be harmonized; four, that common time lines for decisionmaking be used to the maximum extent possible. The goal of all of these recommendations is to reduce trade barriers by having compatible, predictable, and transparent regulatory approval programs on both sides of the Atlantic.
    The second trade issue is product labeling which is a matter of ongoing debate in Europe and one which has significant potential to impact trade. In the United States food labels are used to inform consumers of nutritional and safety differences in the foods they eat. Foods produced through biotechnology are not singled out as a specific category for labeling. The policy debate in Europe is based on the use of the food to inform consumers of the presence of a product of biotechnology, regardless of whether the food is different from a safety or nutritional standpoint.
    Monsanto fully supports the science-based approach to food labeling which is used by the USFDA. While we recognize that local labeling programs can be used to provide information to consumers, as is the case in Europe, such information and process labeling must not be allowed to create non science-based segregation requirements in commodity crop markets that will lead to trade disruption and significant cost increases for consumers. A true free trade market would create the opportunity for product offerings which meet specific consumer needs without dictating those conditions and cost unfairly to all consumers. It's very important that labeling programs be science based, nondiscriminatory, and not impose trans-boundary trade barriers.
    The third and final point is public awareness and confidence in biotechnology. Broad acceptance of biotechnology requires that consumers be given relevant and accurate information about the foods they eat. Public confidence in the regulatory system is also important in gaining acceptance of biotechnology. In the end broader public acceptance naturally means less chances of trade issues. We are committed to providing consumers with information about our products and about our technologies.
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    In conclusion, Mr. Chairman and Members of this Committee, Monsanto appreciates your interest in reducing trade barriers around the globe. As you meet with your European colleagues, I urge you to raise the issues I've outlined in my testimony. It is important to engage in a useful dialog to seek meaningful change in the EU regulatory system to make it operate successfully and to seek ways to build public awareness and confidence in agricultural biotechnology.
    In terms of the upcoming WTO Rounds, focusing on agriculture, we ask the United States to address the issue of biotechnology to achieve a greater degree of transparency, harmonization, in every nations regulatory regimes.
    Thank you, Mr. Chairman and Members of the Committee, for the opportunity to present our views on this issue. I've submitted written testimony for the record and I've attached a document on our views regarding the implementation and enforcement of the Uruguay Round Trade Agreements as they relate to trade and agriculture products.
    I'd be happy to answer any questions you and any Members of the Committee may have. Thank you, sir.
    [The statement of Dr. Dykes appears in the appendix.]
    Mr. MANZULLO. Thank you, Doctor. Dr. James Chambers is professor of food science at Purdue University. He will be our next witness. We were delighted to have Representative Hamilton's recommendation that you be called as a witness today, professor. Mr. Hamilton, unfortunately, had to go to another meeting. Our witness recently spent a sabbatical in Britain and visited a variety of European scientific institutions to review their procedures. He's an expert on the scientific questions underlying food safety and related issues and we're happy to have him here today.
    Please proceed, sir.
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    Mr. CHAMBERS. It's certainly a pleasure and a privilege to be able to speak to such an important Committee.
    If I may, I'm going to divert a little bit from my prepared statements to frame where I'm coming from as a professor of food science. I've spent over 35 years dealing with food safety before it became in vogue. During this time I've been involved with food quality assurance and food safety activities.
    When I joined the academic community, I was very much concerned that we were not pro-active enough in how we addressed the food safety issues and the concerns of the consumer. So since joining academia, I have been providing training programs and technical assistance to the food industry in this country and, for the past 10 years, in foreign countries. With my recent sabbatical experience, I have been sensitized to some of the issues of the EU and particularly with the very important trade talks coming up this month.
    My comments offered today are based on observations while doing this 6-month sabbatical. But, I also want to bring into focus, with a consumer emphasis, the current science base that supports the biotechnology and food safety issues in the contemporary global marketplace.
    What drives the marketplace? The consumer. The consumer is the ultimate receiver of whatever we trade. But, too often we think in terms of commodities, and we seldom think in terms of the final consumer's attitude and the mindset, as has been mentioned by a previous witness. One example is the genetically-modified soybean which has become a target for environmental political groups. I want to emphasize that this is probably one of the reasons why we are seeing the kinds of policies coming from the EU in its reluctance to accept this technology. From a competitive perspective, there is no question that U.S. biotechnologies are ahead of the EU's. With its increased production efficiencies, the EU could experience havoc under the current economical-social structures due to potential surplus soybean and corn surplus.
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    Another example of a consumer-related issue is the beef hormone question. This subject has been addressed by the World Trade Organization and found to be a perfectly acceptable practice. But yet there is a reluctance to allow beef to come into the EU because the ruling bodies want to reassess health risks. The truth is that U.S. corn-fed beef entering the EU marketplace would disrupt the EU beef industry's ability to compete. In addition, the mad cow disease already has had a significant impact on lowering the EU beef consumption. As a result, Irish beef is beginning to be imported into the EU.
    These are the kinds of current mind sets of the EU. With these health-related issues, the EU member states' populations have been swayed by the media's attention to the food safety concerns. Greenpeace has been an active driving force as well as the green political parties that exist in the EU. All of these organizations have had significant impact in making biotechnology a political issue.
    Now relevant to the U.S.-EU Union trade discussions, the EU is most certainly going to say: ''We will require labeling for all grain shipments associated with genetically modified materials.'' This has already started. Once the U.S. biotech materials gain access to the marketplace, labeling, I suspect, will become a major part of doing business.
    But, I want to come from a different perspective. Rather than agitating the U.S.-EU trading partnership, it would seem prudent to respond to the EU's political environment and cooperate in the labeling requirement. However, I would like to see some pro-active initiatives taken, such as educational programs that would familiarize the EU populace with the subject of biotechnology. It is my opinion that education and working with our EU trading partners would be effective ways to gain acceptance for biotechnology. With understanding and time, the labeling issue will become passé. As experience is gained with biotech-based grains and food products, the EU consumer will eventually accept biotechnology.
    Now I'd like to turn my focus on food safety issues that will impact future trading between the United States and the EU. And as I make these statements, I would like to remind ourselves that we are consumers in the United States.
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    First of all, we will continue to have compliance issues dealing with importing countries' food quality standards and regulations and proper label information. The phytosanitary standards relative to grain shipments continue to be a contentious issue. Providing disease-free and residual-free food stuffs supported by adequate documentation continues to be a concern of the importing country. Finally, there is the issue of having ''track-back'' capabilities for all foodstuffs exported and imported. Of importance is the ability to trace a public health problem back to the causative factors responsible for that problem. This Committee will probably be hearing more about the ''track-back'' concept in other discussions.
    Compliance issues for importing countries relative to food quality standards and regulations need to be dealt with on sound scientific principles. And while the United States has trading partners with their own scientific groups, both sets of trading partners have political agendas. So it might be a good idea to have a third party who is disinterested in the political agenda, but who can bring the scientific base to a problematic issue for a ''balanced'' resolution. One such party could be the Codex Alimentarius Commission, organized under the auspices of the World Health Organization and the U.N. Food and Agriculture Organization. This commission has over 28 working committees. Many of my colleagues have served on these committees addressing quality and food safety issues. Additional third parties that might be considered are: the International Dairy Federation, the Institute of Food Technologists, which has over 28,000 members worldwide; and the International Union of Food Science and Technology. All of these organizations have a common interest for cooperation and a collaborative spirit to address food quality and safety issues on a sound science, apolitical basis. Scientists from all nations actively participate within these organizations.
    Briefly on labeling, and I see I'm running out of time.
    Mr. MANZULLO. I think you might be there, Doctor. If you want to finish in 1 minute, we'd appreciate it.
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    Mr. CHAMBERS. OK. Labeling. Of course, the consumers like to know what they're receiving; This is evident with the ingredient and nutritional labeling required in the United States. Nutritional labeling eventually will be required in the EU.
    The disease-free and residual-free subjects, I've already touched upon with the beef growth hormone example. However, one must keep in mind that pesticides and antibiotics are other concerns of the consuming public.
    In conclusion, many food safety issues will develop between the United States and our EU trading partners. But, with the respective agricultural and food regulatory agencies working in cooperation with the International Food Science and public health community, these issues should be settled to the satisfaction of the trading partnerships and to the benefit of the consuming public, withstanding the politics.
    [The prepared statement of Mr. Chambers appears in the appendix.]
    Mr. MANZULLO. Thank you, Doctor.
    Our final witness is Mr. Raymond S. Calamaro. I almost said ''Calamari,'' but you know these kinds of names like mine, you sometimes turn them into a food item. ''Calamaro,'' is that correct?
    Mr. CALAMARO. That's right.
    Mr. MANZULLO. Mr. Calamaro is a partner in the law firm of Hogan & Hartson in Washington, DC. He's represented firms before the European regulators involved in a number of cutting edge biotech advances and is familiar with the problem we're addressing today. He has also served as a Deputy Assistant Attorney General and on Capitol Hill. He's familiar with the GMO issue but in addition, has specialized expertise in the question of specified risk materials and the controversy which almost blocked, according to what the Administration told my staff, the export of American tires and a floor polish to Europe, apparently, on the grounds that you could somehow catch mad cow disease from them, although just how was never made clear.
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    Mr. Calamaro.
    Mr. CALAMARO. Thank you, Mr. Chairman. I'd like also just to add my voice of thanks to the Chairman and the Ranking Minority Member for holding this hearing on subjects of tremendous interest. I'd like also to express my appreciation for the very hard work done by the majority and minority staffs to organize a bunch of different subjects into what is quite a coherent whole of many different important issues.
    Mr. MANZULLO. Mr. Calamaro, if I could interrupt you for just a second—I have a huge Kelly Springfield-Goodyear tire center in my district and, Mr. Sawyer, you have a center in your district.
    Mr. SAWYER. I'm from Akron, Ohio.
    Mr. MANZULLO. I just wanted to have you bring that tire issue up during the course of your testimony.
    Mr. CALAMARO. Sure, I'd be glad to do that.
    I'm actually here today on behalf on three, small- to-medium-size, high-tech, biotech companies that export medical devices and/or pharmaceuticals to Europe, and each of these companies is threatened with a devastating potential loss of its business by the BSE directive that you referenced earlier, Mr. Chairman. Even though that particular section, not directive, but a decision 97–534, even though that's been stopped in its tracks and put on hold, and the fact that there could be such a risk to three American companies like that is important even though the proposed legislation has been put on hold and actually some people predict that it won't ever pass.
    To talk a little bit about the subject and come to the one you addressed, I'd like to put my own remarks in context and say that I come here, as I think we all do, as a friend of Europe. Myself, my wife is a European; she negotiated the membership into the EU of one of the European countries. My son, an American citizen, also has an EU passport. I've lived in Brussels for 5 years. I've worked very closely with European officials, and I think that many of these issues are ones that largely come from, to address a question that was raised by the Chairman and the Ranking Minority Member earlier—the fact that the EU institutions are still young and developing. It's a new system. They don't have a 200-year-old system, as we do, a federation of 50 states, but they're trying hard to put it together, and I think in many cases there is good faith but a lot of very difficult cultural issues.
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    Having said that, I want to add my own voice to those that have been articulated here, that these issues deserve the very intense attention of Congress and the Administration, and we need Congress and the Administration to our advocates.
    On the particular question you asked about tires, that's one of the colossal misunderstandings of all time. Europe is very concerned about mad cow disease. Now one might ask, why are they so concerned, there have only been a couple of dozen deaths—and I don't mean to say ''only''; every death is a tragedy—and others that are ill. But it doesn't compare with some of the other public heath crises that people have seen.
    But we can't really evaluate the politics of another region or another country. It's become a very serious concern and they are trying in good faith to deal with this concern. I don't agree with what they have done, but one of the things they did was to write a new law on July 30 of last year called Commission Decision 97–534, and that was the so-called Specified Risk Material decision. It was based on the principle that the way to stop mad cow disease, or BSE, was to keep certain parts of animals from going into commerce. And they were really trying to keep those animal parts—and by the way, the list of animal parts keeps changing. But they are trying to keep that list of animal parts out of food, pharmaceuticals, medical devices, soaps and cosmetics, and animal feed.
    Unfortunately, the legislation was written just incorrectly, and as someone who has worked on Capitol Hill and made mistakes myself, I can sympathize with that. They went too far and their legislation, taken literally, would have kept specified risk materials out of everything, including automobile tires. In subsequent drafts of that legislation, they've certainly tried to address that. I really don't think that our tire industry faces any risk here.
    But having said that, one of the problems with an immature system—and I say immature in the sense that the EU isn't fully developed—is that mistakes happen and problems occur, and for that reason I think that the kind of vigilance that you all and our Administration has exhibited is necessary. I think that these three companies do face a serious risk of possibly going out of business if this legislation comes back.
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    We had one big victory with tallow, but that doesn't mean the others will come so easily. So we thank you for your attention and your help on this.
    [The prepared statement of Mr. Calamaro appears in the appendix.]
    Mr. MANZULLO. OK, sir?
    Mr. SAWYER. Thank you, Mr. Chairman. Let me just—I should have done it while the Chairman was here. I'm not a Member of this Committee, obviously, but I've been involved as——
    Mr. MANZULLO. You are really an ex officio Member. You were with us in Brussels last year.
    Mr. SAWYER. Well, I've been working with the congressional delegation to the EU for the last 11 years and served for three terms on this Committee and I appreciate the opportunity to visit and return.
    Let me just quickly, move among a couple of topics. It seems to me that, particularly when we deal with data protection, the real dilemma—aside from the political ones and the human ones of health information and that sort of thing—that what is at risk as much as anything is intellectual property. And that the ability to protect proprietary information on the one hand in ways that have the potential to be secure, and on the other, to recognize that tradition boundaries just don't exist in terms of data privacy.
    I pick up my paper this morning and find that my five stars and my three stars are now the same car.
     It's a remarkable set of developments that are going on across the Atlantic. The kind of harmonization efforts in which the automobile industry led the way, in some ways provide direction; mutual recognition agreements based on functional equivalency work fine when you're dealing with hard measurements of the environment or safety and other things. But when you're trying to deal with questions that, no matter how scientifically quantifiable, are fundamentally political in their basis, it becomes vastly more difficult to resolve these.
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    I guess the thing that I'm trying to say, not well, but with as much concern, I hope that you bring to your testimony this morning, is that these are all the issues that I have heard European colleagues talk about for the last 11 years. We have struggled back and forth. Today they are no longer theoretical as they were even a decade ago. They are the reality of our strength or potential weakness in global commerce.
    Let me just start with intellectual property. It is perhaps rapidly becoming our most important—it's what we make that's most important. We make progress. How do we assure the kind of commerce that's going to take place and the protections that are needed when you've got the kinds of connections that exist with companies that we used to think of as intercontinental arrivals and now are intracorporate partners? Doctor.
    Mr. LITAN. Yes, I'll start out briefly. I hold myself out as an intellectual property expert, so what I will say, is with respect to the privacy directive. I guess my instinct is that the main focus of the Europeans is not on that subject. It has to do with more plain, old-fashioned personal data about European citizens, their personnel records, customers, and so forth. And what the Europeans are worried about is if somehow the data gets over here to the United States, that it could be misused, sold to somebody else; and could be the subject of direct marketers, et cetera, and I think there is a view, at least in some quarters in the EU, that we're the land of cowboys.
    That once the data gets over here, it's sort of out of control and it has very little to do with intellectual property. Now there may be issues related to that that I'm unaware of—maybe Bob or Mark can add their views—but that is not what's driving the privacy directive.
    Mr. SAWYER. OK, let me ask management if information worked much like local banks do, each sized to meet the needs of the communities they served; each compatible with institutions larger and smaller and in very diverse settings across the country. We found a much greater marker ultimately for that kind of approach. Does that approach hold true for the kind of dilemma that we're talking about here?
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    Mr. VASTINE. Maybe I could comment, Congressman?
    This is a good example of the U.S. approach to data privacy. We have actually legislated in a number of areas very narrowly, and after a lot of debate, like fair credit reporting. And health records is one of those areas that is now, and has been for at least 2 years over in the Senate, certainly. And the Administration has actually sent up a bill to deal with health records, and I think there is a likelihood that in the next year or two there will be Federal legislation in that area. And there is rather a wide consensus that there needs to be some Federal action there.
    So to say that the United States is a bunch of cowboys is to overlook the fact that we have got legislation in a couple of key areas and that for other areas we rely on self-regulation.
    Mr. ROTENBERG. Congressman, if I could speak to this point, it may have been during my testimony that I suggested a relationship between privacy protection and concerns about software piracy. The point I was trying to make is that we have made a commitment to protect intellectual property. By law we recognize its important commercial interests. The Europeans have joined with us and through LIPO there is an effort to ensure intellectual property protection and all these new forms of electronic commerce.
    My concern is that we have not made a similar commitment to protect privacy by law. And that's where I see the problem we have today. I think it is the view of most other countries that we will need to protect privacy by law and that's why we have the dilemma.
    Mr. SAWYER. Mr. Chairman, thank you for your latitude and flexibility.
    Mr. MANZULLO. Mr. Horn.
    Mr. HORN. Thank you very much, Mr. Chairman. I appreciate Chairman Gilman's generosity in asking me to join this panel. I'm sorry I am late, but I also serve on the Subcommittee on Water Resources and Environment, and we're across the hall and we had to spend about an hour there.
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    The reason I'm here is in my role as chairman of the House Subcommittee on Government Management, Information, and Technology, where we have jurisdiction on the privacy document you're talking about and we will be holding hearings again on that within the next 2 months. And I'm also on this with Tom Sawyer, on the EU delegation of the U.S. Parliamentarians with the European community. And in our recent trip there we did talk to the President of France, the President of Poland, the Premieres of both countries, the Defense Secretaries of both countries, and the Foreign Affairs Secretaries of both countries, and we discussed this issue with them.
    My suggestion to the two Presidents was they ought to get the corporate CEO's of European subsidiaries in America and U.S. subsidiaries in Europe and get them around the tables so that they would fully know what, if any, are the implications of this privacy directive. And I regret that I haven't had a chance to hear your testimony, but maybe we can just sum it up for me as to your feelings, particularly you, Dr. Litan, Mr. Vastine.
    The feelings you have that this will be used as a sort of trade nuisance on the part of the Europeans, and the feelings you might have about what we need to do about it in terms of assuring the data moves freely between these two great trade areas. And I think that's what worries us the most. Maybe it isn't a worry, and I got it from one part of your testimony, you weren't quite that worried about it. So if I could get into a dialog with you, I'd appreciate it.
    Mr. LITAN. OK. First, I just want to correct something for the record before, just so that Bob won't be angry with me. When I gave the reference to cowboys, I was referring to the fact that some EU people perhaps thought we were cowboys. I certainly don't.
    But with respect to your question, I'm optimistic, based on my conversations and conversations with EU officials, that they are not going to slam us across the board. That's the good news. The potential bad news is that I fear that they could make an example out of one or two sectors thus far unspecified. We're not clear which ones. Just to show they're serious. And I think they are serious, and they want to demonstrate that. So the question then becomes, if they do that, does that trigger a wider trade war or is there a way to sort of calm things down?
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    In my testimony, I suggested, first, we ought to be emphasizing to them, before they do any of this, that self-regulatory initiatives are more effective than they think they are; and second, that if they do make one or two findings, that they be prepared to accept contracts by American and European firms with the privacy offices in Europe that will adhere to European law. And they ought to apply European law. As long as U.S. companies are saying, look, we're going to abide by European law, the Europeans should not punish us. And we ought to get that message across.
    This is important, because I have heard EU privacy officials in the past year—they've expressed skepticism as to how useful this contract exception is going to be. They shouldn't be skeptical. There should be an open door. Our companies over there are responsible. They are perfectly capable of arranging these deals.
    There are efforts now in the private sector to draft the model contracts. They are time-consuming; they're a pain in the neck, but we ought to get across to the Europeans they ought to be expeditious about acccepting contracts. And hopefully, we can ease the concern in the process. At worst, as Bob Vastine talked about, we're going to have to go to the WTO over this and elevate it to another level. But I'm hoping it's not going to come to that.
    Mr. HORN. Would you like to add anything to that, Mr. Vastine?
    Mr. VASTINE. Yes, I think before we get to that, before we get to the WTO, I think it's important—I agree with Bob. The Europeans are dead serious about this. It's their law, they're going to implement it. They're struggling with themselves about key definitions and how to implement it. But it comes, Congressman, from a deep commitment going back decades to the standing of privacy as a human right. So they're operating from a deep philosophical and legal framework. They are serious and we understand that. But we argue that before we get to the WTO, in the case of a conflict, before there is a stoppage, there should be a consultative process. We ought to negotiate a standstill agreement ab initio. That would commit the EU and the United States to enter into an agreement providing for both not to interfere with the trans-border data flows of the other. And then have a consultative process in which an objectionable practice by the United States or by the Europeans is resolved by consultation. If that fails, then I think we need to look to our rights in the WTO.
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    Mr. HORN. Has our government made that offer?
    Mr. VASTINE. I would say not.
    Mr. ROTENBERG. Congressman, if I could just say a word, please?
    Mr. MANZULLO. Do it in 1 minute because we have to go vote and then I'm going to adjourn the meeting.
    Mr. ROTENBERG. I'll be very brief. I don't think there is any disagreement that the prospect of some type of data embargo would be bad on both sides of the Atlantic and the Europeans are well aware of this. At the same time, I have to say that I don't think that the suggestions that Bob Litan has put forward are going to work for Europe. There are specific reasons about the way the directive was put together and how it will be applied that self-regulatory means and contracts will not satisfy that approach, and I think that we have to be aware of that.
    The second point I'd like to make is that I don't think that the WTO is going to offer a recourse here for the United States. The privacy issue was anticipated in the drafting of the GATT. There's a very explicit carve out on this topic and I think we're going to have to take more seriously the problem of developing enforceable rights here in the United States.
    Mr. VASTINE. I'd like to just note on that, Congressman, that there is a carve out in article 14 for data protection by member states of the WTO. On the other hand, there are provisions for free flows of information in other pieces of the GATS, and we believe that a case can be made to permit us to defend our rights in the WTO.
    Mr. HORN. I thank you very much and we'll probably continue this dialog in my subcommittee in the next month or so.
    Mr. VASTINE. We look forward to that.
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    Mr. HORN. When we have the time, we just like to sit down and get us more broadly educated.
    So thank you all for coming, we're sorry we've got a little floor action.
    Chairman GILMAN. [presiding] I regret that I was called to another meeting, but I do want to thank our panelists for taking the time, we'll read your comments very thoroughly and we appreciate the expertise of having all of our panelists with us.
    The Committee stands adjourned.
    [Whereupon, at 11:38 p.m., the Committee adjourned subject to the call of the Chair.]


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