TRADE POLICY U.S. Y 4. F 76/1 :T 67/16 U.S. Trade Policj, 103-2 Hearinj. HEARING BEFORE THE COMMITTEE ON FOREIGN AFFAIRS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION MARCH 2, 1994 Printed for the use of the Committee on Foreign Affairs AUG g #94 U.S. GOVERNMENT PRINTING OFFICE 79-869CC WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments.CongressionalSalesOffice.Washington,DC 20402 ISBN 0-16-044490-X U.S. TRADE POLICY Y 4. F 76/1 :T 67/16 U.S. Trails Policj, 103-2 Hearing... HEARING BEFORE THE COMMITTEE ON FOREIGN AFFAIRS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION MARCH 2, 1994 Printed for the use of the Committee on Foreign Affairs i^Hi'lWacNIjjriJMv,, U.S. GOVERNMENT PRINTING OFFICE 79-869CC WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-044490-X COMMITTEE ON FOREIGN AFFAIRS LEE H HAMILTON, Indiana, Chairman SAM GEJDENSON, Connecticut BENJAMIN A. GILMAN, New York TOM LANTOS, California WILLIAM F. GOODLING, Pennsylvania ROBERT G. TORRICELLI, New Jersey JAMES A. LEACH, Iowa HOWARD L. BERMAN, California TOBY ROTH, Wisconsin GARY L. ACKERMAN, New York OLYMPIA J. SNOWE, Maine HARRY JOHNSTON, Florida HENRYJ. HYDE, Illinois ELIOT L. ENGEL, New York DOUG BEREUTER, Nebraska EN1 F.H. FALEOMAVAEGA, American CHRISTOPHER H. SMITH, New Jersey Samoa DAN BURTON, Indiana JAMES L. OBERSTAR, Minnesota JAN MEYERS, Kansas CHARLES E. SCHUMER, New York ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California ILEANA ROS-LEHTINEN, Florida ROBERT A. BORSKI, Pennsylvania CASS BALLENGER, North Carolina DONALD M. PAYNE, New Jersey DANA ROHRABACHER, California ROBERT E. ANDREWS, New Jersey DAVID A. LEVY, New York ROBERT MENENDEZ, New Jersey DONALD A. MANZULLO, Illinois SHERROD BROWN, Ohio LINCOLN DIAZ-BALART, Florida CYNTHIA A. McKINNEY, Georgia EDWARD R. ROYCE, California MARIA CANTWELL, Washington ALCEE L. HASTINGS, Florida ERIC FINGERHUT, Ohio PETER DEUTSCH, Florida ALBERT RUSSELL WYNN, Maryland DON EDWARDS, California FRANK McCLOSKEY, Indiana THOMAS C. SAWYER, Ohio LUIS V. GUTIERREZ, Illinois Michael H. Van Dusen, ChiefofStaff Richard J. Garon, Minority ChiefofStaff (ID CONTENTS Page WITNESSES Hon. Michael Kantor, U.S. Trade Representative 2 PREPARED STATEMENTS Hon. Michael Kantor 57 Hon. Gary L. Ackerman, a Representative in Congress from the State of New York 71 (III) TRADE POLICY U.S. WEDNESDAY, MARCH 2, 1994 House of Representatives, Committee on Foreign Affairs, Washington, DC. The committee met, pursuant to call, at 10:04 a.m. in room 2172, Rayburn House Office Building, Hon. Lee H. Hamilton (chairman) presiding. Chairman HAMILTON. The committee will come to order. It is with a great deal of pleasure that we we—lcome to—the Com- mittee on Foreign Affairs the Honorable Mickey Michael Kantor, the U.S. Trade Representative. The past year has been an extraordinary year of achievement for U.S. trade policy. Three major d—evelopments have bolstered our international economic interests the approval of NAFTA, the APEC summit, and the conclusion of the Uruguay round. Each of these developments was the product of efforts by several U.S. ad- ministrations. None would have met with success without the Clin- ton administration's vital contributions, and Ambassador Kantor deserves a large share ofany credit that is due. A decade ago, the appearance ofAmerica's chief trade negotiator before this committee would have been highly unusual, but times have changed. Trade and other international economic concerns are now central to American foreign policy. An activist trade policy and innovative export promotion efforts are critical parts ofU.S. foreign policy. Today, almost every one of our key bilateral relationships has a major trade componen—t. We are grappling with tough trade issues in every relationship with Mexico, Canada, Europe, and Japan. Trade policy is no longer the cousin offoreign policy, nor is it mere- ly an adjunct of foreign policy. Trade policy and foreign policy are now often inseparable. That has risks as well as advantages. Our relationships with Japan and other countries have importance well beyond trade. So while we now raise trade issues to the highest level in our dealings with other countries, we need to take care not to damage other aspects of the relationships upon which we depend. We must always seek a proper balance between our trade concerns and our security and human rights concerns. Ambassador Kantor, we thank you for meeting with us today. We look forward to your testimony. I notice that Ambassador Rufus Yerxa, your deputy, is with you. We are delighted to have him here as well. (l) You have an extended statement which, ofcourse, will be entered into the record in full, which is a polite way of saying we hope you don't read all of it to us. Just summarize it briefly, if you would, and we will proceed to questions. STATEMENT OF HON. MICHAEL KANTOR, U.S. TRADE REPRESENTATIVE Ambassador Kantor. Thank you very much, Mr. Chairman. I ap- preciate your kind remarks and am fully supportive of what you said. I am grateful to the committee that you would allow Ambassador Yerxa to sit with me. He was our Ambassador in Geneva, as you know. In the last 4 years preceding this administration Mr. GEJDENSON. Mr. Ambassador, ifyou will pull the silver mike a little closer to you, that will be great. Chairman Hamilton. Yes. Good. Ambassador Kantor. You caught me at my trick. I was trying to make sure you didn't hear me, Mr. Gejdenson, but I couldn't get away with that. Ambassador Yerxa has spent countless hours in such an effective way in making sure that the largest trade agreement in history, the Uruguay round, came to fruition, and I thought it only appro- priate that ne be here at the table, one, because of that incredible contribution that he has made; two, because he is now the deputy USTR; and three, because I think the committee might want to hear from him on a number of subjects as well as from me, and so I appreciate your allowing him to do that. TRADE AND ECONOMIC SECURITY — One thing you said, Mr. Chairman and I will summarize my re- marks, and I appreciate your putting the whol—e statement in the record, and I will not read the whole statement I hope I don't dis- appoint Mr. Lantos. He was expecting my hour and a half oration on agricultural subsidies, but I won't do that this morning. Our economic security truly has become synonymous with our national security, Mr. Chairman, and that is what you have indi- cated. This administration not only believes it but has acted upon that. It is a pleasure to be here today to discuss several aspects of trade which, of course, are products of the recognition of that central fact. The Uruguay round agreement, the implementation of NAFTA, or the North American Free Trade Agreement, the J—apanese frame- work discussions, and our relations with China obviously, we would be willing to discuss any other subject that you or the mem- bers of this committee would like to raise, including our relations with the European Union, Latin America policy, our policy, our current concerns with the French over the importation of fish, which has become a concern ofours, and a deep one. This administration views the efforts to open foreign markets and expand trade as one of its highest priorities and essential to the economic health of the country. Trade policy is an important part of the President's strategy for strengthening not only our for- eign economic security but our domestic economic security. It is es- sential that we work to ensure that we create jobs, reverse the de- cline in real wages, and maintain and build our competitive posi- tion regarding not only the Europeans and the Japanese but of course all the other emerging economic powers in the world. TRADE AGREEMENTS CONCLUDED The President has spent an extraordinary amount of time in 1993 to great effect and deserves all the credit for the completion of the Uruguay round after IV2. long, frustrating, and tiring years; the North American Free Trade Agreement with the side agree- ments on labor and the environment, which is historic and created the largest single market in the world; the establishment of the Japanese framework which, is of course, a subject of some discus- sion now; the Asia Pacific Economic Cooperation Forum which for the first time is a trade and investment framework which the President led in his meetings where the heads of state of all but one ofthe Asian Pacific nations were members ofthat organization; and of course we have enforced our trade laws and trade agree- ments, and I can't emphasize that enough, Mr. Chairman. Halfour job is to enforce existing agreements and our laws to ensure that we truly keep markets open and make trade what it has not been for so long, a two-way street; it is not a one-way street where the American markets remain open and others do not have comparable access to their markets. URUGUAY ROUND AGREEMENT For other nations to enjoy the great opportunities here in the U.S. market, they must accept the responsibility for opening their markets. The Uruguay round trade agreement is the longest, most comprehensive trade agreement in history. The existing GATT sys- tem is incomplete, is not completely reliaole and is not serving our interests as well as it should. The new agreements ensure Amer- ican workers are trading, as I said, on a two-way street. They bene- fit from this new globalized economy where 26 percent of our gross domestic product is tied up in trade, $1.6 trillion, and they can sell their products and services abroad, and they can compete on a level playing field. It will cut foreign tariffs on manufactured goods by over one- third, about 37 percent. It is the largest reduction in history. It will improve the protection for intellectual property for U.S. entre- preneurs in industries such as pharmaceuticals, computer software, audiovisual, and other areas. It will ensure open foreign markets for U.S. exporters of services such as accounting, advertising, com- puter services, tourism, engineering, and construction, and greatly expand export opportunities for us in agricultural products by re- ducing export subsidies and internal subsidies, and also then re- ducing the various nontariff barriers that were keeping our prod- ucts from being competitive in other markets. It will assure that developing countries live by the same trade rules as developed countries. There will be no free riders under this agreement. It creates an effective set ofrules for prompt settlement of disputes. It opens a dialogue on trade and the environment for the first time in any multilateral discipline, which I think is criti- cal. This agreement will not impair the effective enforcement of our laws. It will not limit the ability ofthe United States to set its own environmental and health standards, which is something we fought for until literally the final hours and were able to obtain in Gene- va, and will not erode the sovereignty of the United States to pass its own laws, and I think that is a critical element. The original rules under the so-called draft final act or Dunkel text would have been of grave concern at least to this administra- tion and I believe to most members of this committee, because it would have had some ill effect on the potential sovereignty of this country, and those were changed. The Uruguay round agreement will create a new organization. The World Trade Organization will support a fair global trading system into the next century. We have improved existing trade rules, extended the rules to cover new areas of trade, and strengthened the procedures to en- force the rules, including strengthening section 301 to ensure that multilateral rules are enforced and preserve section 301 in those areas where either it is not a World Trade Organization covered sector or country, and so we will be able to continue to use 301, which is an effective tool ofU.S. trade policies. We have not weakened our antidumping or countervailing duty laws, and they will continue to be the most important and most ef- fective response to dumping in subsidies that injure our industries. WORLD TRADE ORGANIZATIONS The World Trade Organization plays on the strengths of our economy. For example, in market access, industrial tariffs will be lowered with Europe, for instance, at 50 percent and with Japan the bound rates are lowered by almost 80 percent, 50 percent from the applied rate. So it is major reductions in tariffbarriers. In agriculture, I mentioned the barriers will come down, and we will be much more competitive as a result. In services, the World Trade Organization will extend fair trade rules to a sector that en- compasses 60 percent of our economy and 70 percent of our jobs. We lead the world in this sector with nearly $180 billion in exports annually which will be ensured by these new rules. While in certain areas such as communications and financial services, the United States did not obtain the kind ofmarket access commitments we were seeking, we kept our leverage by refusing to MFN grant treatment to our trading partners. It protects intellec- tual property, as I mentioned before. The NAFTA, as all ofyou know, comes into effect on January 1. Mexico now accords about 50 percent ofour exports duty-free treat- ment. Remaining Mexican tariffs on our goods will be reduced over the next 10 years. We have also implemented the Commission on the Environment and Labor, and they will have meetings in March and April, their initial meetings. TRADE RELATIONS WITH JAPAN Mr. Chairman, I will bring you up to date on Japan. I know there probably will be a number of questions, so I won't go on at length about our situation with Japan right now. Let me just make a couple of introductory comments and leave it at that, and we can come back to the framework discussions.