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Full text of "The GATT Uruguay Round : implications for small business : hearing before the Committee on Small Business, House of Representatives, One Hundred Third Congress, second session, Washington, DC, April 26, 1994"

m 

\\^ THE GAH URUGUAY ROUND: IMPLICATIONS FOR 
\ SMA LL BUSINESS 

Y 4. SMI ; 103-76 

The Gatt Uruguay Round: Inplication. . . 

nEARING 

BEFORE THE 

COMMITTEE ON SMALL BUSINESS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



WASHINGTON DC APRIL 26, 1994 



Printed for the use of the Committee on Small Business 

Serial No. 103-76 







U.S. GOVERNMENT PRINTING OFFICE 
WASHINGTON : 1994 



For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington. DC 20402 
ISBN 0-16-046364-5 



THE GAH URUGUAY ROUND: IMPLICATIONS FOR 
SMALL BUSINESS 



4.SM 1:103-76 



e Gatt Uruguay Round: Inplication. . . 

mEARING 

BEFORE THE 

COMMITTEE ON SMALL BUSINESS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



WASHINGTON DC APRIL 26. 1994 



Printed for the use of the Committee on Small Business 



Serial No. 103-76 




^'"' 2 ' 1935 



U.S. GOVERNMENT PRINTING OFFICE 
WASHINGTON : 1994 



For sale by the U.S. Government Printing Office 
Superintendent of Documents. Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-046364-5 



COMMITTEE ON SMALL BUSINESS 
JOHN J. LaFALCE, New York, Chairman 



NEAL SMITH, Iowa 

IKE SKELTON, Missouri 

ROMANO L. MAZZOLI, Kentucky 

RON WYDEN, Oregon 

NORMAN SISISKY, Virginia 

JOHN CONYERS, JR., Michigan 

JAMES H. BILBRAY, Nevada 

KWEISI MFUME, Maryland 

FLOYD H. FLAKE, New York 

BILL SARPALIUS, Texas 

GLENN POSHARD, Illinois 

EVA M. CLAYTON, North Carolina 

MARTIN T. MEEHAN, Massachusetts 

PAT DANNER, Missouri 

TED STRICKLAND, Ohio 

NYDIA M. VELAZQUEZ, New York 

CLEO FIELDS, Louisiana 

MARJORIE MARGOLIES-MEZVINSKY, 

Pennsylvania 
WALTER R. TUCKER III, California 
RON KLINK, Pennsylvania 
LUCILLE ROYBAL-ALLARD, California 
EARL F. HILLIARD, Alabama 
H. MARTIN LANCASTER, North Carolina 
THOMAS H. ANDREWS, Maine 
MAXINE WATERS, California 
BENNIE G. THOMPSON, Mississippi 

Jeanne M. Roslanowick, Staff Director 
Jennifer Loon, Minority Staff Director 



JAN MEYERS, Kansas 

LARRY COM BEST, Texas 

RICHARD H. BAKER, Louisiana 

JOEL HEFLEY, Colorado 

RONALD K. MACHTLEY, Rhode Island 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

WILLIAM H. ZELIFF, JR., New Hampshire 

MICHAEL A. "MAC" COLLINS, Georgia 

SCOTT McINNIS, Colorado 

MICHAEL HUFFINGTON, California 

JAMES M. TALENT, Missouri 

JOE KNOLLENBERG, Michigan 

JAY DICKEY, Arkansas 

JAY KIM, California 

DONALD A. MANZULLO, Illinois 

PETER G. TORKILDSEN, Massachusetts 

ROB PORTMAN, Ohio 



(II) 



CONTENTS 



Page 

Hearing held on April 26, 1994 1 

WITNESSES 

Washington DC, April 26, 1994 

Esserman, Susan G., Assistant Secretary for Import Administration, U.S. 

Department of Commerce 9 

Morris, Robert J., senior vice president, U.S. Council for International Busi- 
ness 31 

Nader, Ralph, founder. Public Citizen 22 

Samuel, Howard D., executive director, Labor/Industry Coalition for Inter- 
national Trade, former deputy under secretary for International Labor Af- 
fairs 28 

Woodhead, Gregory, economist. Task Force on Trade, AFL-CIO 34 

Yerxa, Rufus, Deputy, U.S. Trade Representative 4 

APPENDIX 

Opening statements: 

Dickey, Hon. Jay 48 

LaFalce, Hon. John J 49 

Manzullo, Hon. Donald A 52 

Newsletter 54 

Poshard, Hon. Glenn 55 

Ramstad, Hon. Jim 56 

Zeliff, Hon. Bill 57 

Prepared statements: 

Esserman, Susan G 58 

Morris, Robert J 69 

Nader, Ralph 74 

Samuel, Howard D 105 

Woodhead, Gregory 110 

Charts 118 

Yerxa, Rufus 121 

Additional material: 

Letter to Chairman with attachments 131 

Memorandun from Joseph H. Price 151 

Congressional research letter 158 



(III) 



THE GATT URUGUAY ROUND: IMPLICATIONS 
FOR SMALL BUSINESS 



TUESDAY, APRIL 26, 1994. 

House of Representatives, 
Committee on Small Business, 

Washington, DC. 

The committee met, pursuant to notice, at 10:10 a.m., in Room 
2359-A, Rayburn House Office Building, Hon. John J. LaFalce 
(chairman of the committee) presiding. 

Chairman LaFalce. The Small Business Committee will come to 
order. 

This morning our committee convenes to review the primary fea- 
tures of the Uruguay Round Agreement and its implications for 
U.S. companies and their workers. 

We meet barely 1 week after the agreement's historic signing in 
Marrakesh, Morocco which brought 125 GATT member countries 
together to agree to increased international discipline on global 
commerce. The question we in Congress and the American people 
must now consider is whether this agreement is, on balance, good 
for the United States. 

The Uruguay Round is in many ways a victory for the United 
States. It was United States leadership that launched the Round 
in Punte del Este, Uruguay, in September 1986, insisting that not 
only traditional trade in goods be liberalized, but that new sectors 
and issues also come under the GATT umbrella. 

As is typical in such Rounds, we had the usual "bread and but- 
ter" issues of market access — tariff and nontariff barriers to pursue 
with over 100 contracting parties of the GATT. But as a result of 
the United States' insistence, GATT members also considered new 
trade rules for agriculture, intellectual property, services, and 
trade-related investment measures. 

We faced resistance across the board as well as specific assaults 
on U.S. trade law. As a result, these negotiations dragged on for 
7 years, 3 years past the first deadline and several deadlines there- 
after. The fact that we have finally concluded such a monumental 
international trade agreement is a tribute to the consistent effort 
of your dedicated team of negotiators over the years. 

The signing of the Uruguay Round Agreement occurs at a critical 
time for international economy. This month, the most recent U.S. 
Trade figures were released showing a substantial increase in our 
trade deficit. February figures were the worst monthly posting in 
6 years, rising sharply to $9.7 billion from January's $6.4 biUion. 

The increase in the merchandise deficit was 20 percent, while the 
traditional services surplus dropped 11 percent. This disappointing 

(1) 



performance is attributed primarily to the slowdown in U.S. ex- 
ports due to the surge of U.S. imports resulting from vigorous 
growth of the U.S. economy. 

Under these conditions, further opening of international markets 
is critical for sustaining United States economic recovery and creat- 
ing new employment opportunities. 

For this reason, our committee begins to explore this morning 
not only the main features of the Uruguay Round, but also its pos- 
sible drawbacks. 

The following issues are of particular concern: 

Although labor rights are not specifically addressed in the Uru- 
guay Round Agreement, there is an understanding that this impor- 
tant issue can be placed on the agenda of the World Trade Organi- 
zation. In an increasingly integrated global economy, the rights of 
workers overseas, their wages, their working conditions, their free- 
dom to associate and organize — will affect the wages and jobs of 
U.S. workers. 

Studies have shown that trade liberalization often increases the 
income gap between rich and poor within countries as well as be- 
tween countries. This is a pitfall we ought to do all within our 
power to avoid. So unless we insist on basic uniform labor stand- 
ards for the workers of our trading partners, the U.S. workers will 
inevitably have their wages and living standards decline because of 
unfair labor competition, and ultimately could lose their jobs. 

Another issue — while tariffs are being reduced generally by 30 
percent, we must determine exactly how United States-reduced tar- 
iffs compare with the tariffs of others, whether our tariffs still re- 
main substantially lower or whether the tariff gap truly will be 
narrowed and eliminated. 

The new subsidies provisions create several concerns. We must 
assess whether permitted, or green lighted, subsidies for R&D will 
mean that, in practice, our trading partners will take greater ad- 
vantage of Government supports and possibly force the United 
States into more R&D subsidies than we otherwise might pursue. 

Of specific concern, too, is whether the existing Small Business 
Innovation Research Program will be adversely affected by sub- 
sidies restrictions or will fall into the permissible category. 

We must examine whether subsidies for regional development 
will simply provide a back-door means for supporting specific in- 
dustries such as steel. 

We must also be concerned about preserving the effectiveness of 
U.S. trade law and having adequate recourse to trade remedies 
that will protect U.S. industry from unfair trade practices. A dis- 
pute settlement understanding that infringes on the United States' 
ability to invoke Section 301, for example, will cause considerable 
consternation in the Congress, and I can underscore considerable 
consternation. 

Another point is this Uruguay Round Agreement creates a new 
institution, the World Trade Organization, that will replace GATT 
and will have greater enforcement and rulemaking powers. We 
need to know exactly how the World Trade Organization will oper- 
ate and what its advantages and disadvantages will be for the 
United States. 



It is critical that we fully understand how United States trade 
obligations might increase under the WTO and how they will com- 
pare with those of other WTO signatories, particularly developing 
countries. 

A central question is whether special and differential treatment 
for developing countries with respect to obligations remains a fea- 
ture of the WTO. 

The committee must also examine the practical effects of phase- 
in agreements, and whether certain provisions put U.S. companies 
at a decided disadvantage. The long phase-in for intellectual prop- 
erty protection is of particular interest since intellectual property 
protections are of special importance for small business, especially 
in the high-technology field. 

We might review how the services agreement will operate and 
what the benefits will be to U.S. services companies. Small and me- 
dium enterprises are the largest component of the U.S. services 
sector and will hope to take advantage of new opportunities pro- 
vided by the Uruguay Round Agreement. 

To shed light on all these issues, we have a very distinguished 
group of witnesses, all trade experts, who have been intimately in- 
volved in the Uruguay Round process in one way or another. 

We have two panels. Panel one will be representatives from the 
administration. Deputy Trade Representative Rufus Yerxa has had 
the privilege, and pain, of being involved in negotiations from both 
Geneva and Washington. 

Assistant Secretary of Commerce Susan Esserman has the re- 
sponsibility to ensure that our U.S. trade laws for dumping and 
countervailing duties remain strong and effective under the new 
WTO. We welcome you both. 

On panel two, we will have Mr. Ralph Nader, founder of Public 
Citizen; Howard D. Samuel, who is now executive director of the 
Labor/Industry Coalition for International Trade as well as vice 
president of the Economic Strategy Institute. Mr. Samuel was dep- 
uty under secretary for International Labor Affairs during the 
Carter administration. 

Rounding off that panel we will have Robert Morris, senior vice 
president of the U.S. Council for International Business, and Dr. 
Gregory Woodhead, economist at the Task Force on Trade for the 
AFL-CIO. 

Before we go to the first panel, I will call on Representative 
Knollenberg for any opening comments. 

[Chairman LaFalce's statement may be found in the appendix.] 

Mr. Knollenberg. I will be very brief. 

I welcome the various panels here this morning. With the signing 
of the Uruguay Round of GATT, the United States stands poised 
to enter into a new world of international economic cooperation. 
Reduced tariffs, access to more open markets, reduced nontariff 
barriers to trade will give the United States the opportunity to fur- 
ther expand our exports and continuing to grow our economy. 

After full implementation of GATT, our economy is expected to 
grow by $200 billion dollars annually. Before GATT, however, our 
small businesses will likely continue to be the main force in driving 
that growth. 



Small businesses must play an important role here continuing to 
bring employment prosperity and innovation to our private sector. 
The framework for GATT will be there. We must now make sure 
that small businesses are able to take advantage of the new world 
climate of openness and the many benefits it will provide. 

I look forward to having an opportunity to hear your testimony. 
If I leave unexpectedly, it is because I have another meeting. I 
want to make sure we do all we can to maximize the benefits of 
GATT ensuring that the small business person continues to play an 
important part in the world economy as they continue to do in 
ours. 

Thank you, Mr. Chairman. 

Chairman LaFalce. Thank you very much. 

Mr. Yerxa, why don't you tell us a little bit about your back- 
ground. I know you worked on the Hill. You were staff counsel to 
Sam Gibbons for awhile. 

TESTIMONY OF RUFUS YERXA, DEPUTY U.S. TRADE 
REPRESENTATIVE 

Mr. Yerxa. That is correct, Mr. Chairman. 

Chairman LaFalce. President Bush appointed you 

Mr. Yerxa. After that, I was appointed to serve in Geneva as the 
U.S. Ambassador to the GATT and was there for 4 years and then 
was asked by Ambassador Kantor to take this position here as 
Deputy Trade Representative. 

Mr. Chairman, it is a pleasure to be here today and thank you 
for this critical hearing. I know the impact of the Uruguay Round 
on the U.S. economy in general and on small business which, as 
you say, is the main engine of economic growth in the United 
States. 

The vast majority of our economy is small business so it is ex- 
tremely important to ask the question of the impact of this agree- 
ment and of our entire trade policy on the health and stability of 
small business in the United States. 

As the chairman said, last week 125 countries concluded the 
Uruguay Round which by any measure is the largest, most com- 
prehensive trade agreement in history. It was intended to deal with 
a very serious problem. The existing GATT system was incomplete, 
was not a reliable system and was not serving either United States 
or global trade well. It had become outmoded and antiquated and 
it was necessary to bring these agreements into the 21st Century 
if we were to have a stable and viable international trading system. 

The new agreements do open up major areas of trade and pro- 
vide an important dispute settlement system which will allow the 
United States to ensure that other countries begin to play by the 
rules. 

I want to emphasize that this is obviously only part of a com- 
prehensive economic strategy to deal with U.S. competitiveness. We 
already have the most productive workers in the world. The United 
States per man-hour of work is always at the top of the pile when 
it comes to a comparison of the major trading nations, but it is 
clear that we have other things to do in order to make ourselves 
truly competitive, an integrated economic strategy that deals with 
our budget deficit, with reforming our educational system, our 



health care system, maintaining a viable and improved reemploy- 
ment program, all geared toward solving the problem of competi- 
tiveness. 

We have to emphasize the critical importance to the United 
States of the world economy and opening foreign markets. Expand- 
ing trade is critical to our ability to compete in the global economy 
and to create high-wage jobs in the United States. This can be ex- 
plained more just by looking at the very fundamentals of the world 
demographics. 

Ninety-six percent of the world population lives outside the Unit- 
ed States. The fastest-growing economies and the fastest-growing 
markets in the world are outside the United States. Recent esti- 
mates by international institutions show that about two-thirds of 
the increase in imports by all countries in the trading system will 
occur in the developing world in the so-called big emerging mar- 
kets, two-thirds of the increase in trade in the next 20 years. 

For the United States, that means that if we are effectively ex- 
cluded from those markets, we will suffer adversely in comparison 
to all of our trading partners and for U.S. industry, the domestic 
market is no longer an adequate basis for sustained economic 
growth. 

We need to have an open world economy. I think the United 
States has passed the point where we can respond to this challenge 
of the global economy where over a quarter of our economy is de- 
pendent on trade by closing our own markets to imports. Our only 
viable option is to make other markets as open as the United 
States. That is why this agreement represents such a quantum 
leap over what we had in the past. 

There is no doubt that the United States is positioned economi- 
cally, culturally and geographically to reap the benefits of the glob- 
al economy; economically because our workers are the most produc- 
tive; culturally because we are the most diverse Nation on Earth; 
and geographically because we are at the nexus of our trading rela- 
tionsnips between Europe and Japan and the new dynamic econo- 
mies in Latin America and Asia. 

But clearly unless trade is a two-way street, the United States 
will suffer in world economy. The past system imposed many obli- 
gations on the United States, but when it came to broadly sharing 
the obligations of the trading system, the United States had fewer 
rights than others in the GATT system. 

The Uruguay Round changes that. We did not accomplish every- 
thing we wanted in the Uruguay^ Round, but the final result is 
positive for U.S. producers and companies. It helps bolster the abil- 
ity of key industries to create jobs and foster economic growth. It 
will give the global economy a major boost, as the reductions in 
trade barriers create new export opportunities, and as the new 
rules give businesses greater confidence that export markets will 
remain open and that competition in foreign markets will be fair. 

More importantly, the final Uruguay Round Agreement plays to 
the strengths of the U.S. economy. It opens world markets in the 
very areas where we are most competitive. From agriculture to 
high-technologh electronics, to pharmaceuticals and computer soft- 
ware to business services, the United States is uniquely positioned 
to benefit from these strengthened rules. 



Let me go through a few specifics of the agreement and what it 
does for the U.S. economy. Economists have estimated that in- 
creased trade from the agreement will pump between $100 and 
$200 billion annually into the U.S. economy after the Uruguay 
Round is fully implemented. 

A study by DRI/McGraw Hill estimated that the net U.S. employ- 
ment gain over and above the normal growth of the U.S. economy 
will be about 1.4 million jobs by the 10th year after implementa- 
tion. 

That is for the following reasons: This historic agreement will cut 
foreign tariffs on manufactured products by over one-third, the 
largest reduction in history, and on some of our major markets, the 
cuts are more dramatic. The cut on U.S. exports to Europe, for ex- 
ample, is about 50 percent. 

The agreement will also protect the intellectual property of entre- 
preneurs in industries such as pharmaceuticals, entertainment and 
software, some of the fastest growing sectors of our economy. It will 
ensure U.S. exporters of services such as accounting, advertising, 
computer services, tourism, engineering, and construction. 

It will greatly expand export opportunities for U.S. agricultural 
products by reducing the massive export subsidies which have 
turned the European Community from the world's larger importer 
to the world's largest exporter in the last 20 years. By limiting 
those subsidies and the intervention of foreign governments to 
block our exports through tariffs, quotas, subsidies, and other tariff 
restrictions, it will greatly enhance the opportunity for the United 
States, which is already the most competitive agricultural producer 
in the world, to export even more. 

It will ensure that developing countries live by the same rules as 
developed countries and that there will be no free riders in the 
trading system. This is a dramatic departure from the previous 
GATT. 

Under this agreement, there is what we call a single undertak- 
ing; that is, all parties to the agreement sign on to the same set 
of obligations and rights. All of them sign the nontariff agreements 
that are part of this new regime. 

In the past, we only had a few developed countries that signed 
on, for example, to rules regarding import licensing and customs 
valuation, antidumping, countervailing duties, subsidy practices, 
and the like. 

Under this agreement, all 125 signatories sign on to the same 
basic code of obligations and the United States has rights under an 
effective dispute settlement procedure to challenge countries that 
do not abide by those rules. By and large that favors the United 
States because we already abide by most of those rules in our cur- 
rent trade policy and trade practices and a number of other coun- 
tries do not. 

So as of date of entry and the force of this agreement, we can 
expect those countries to begin assuming new obligations in the 
system. 

It will create a new World Trade Organization to implement the 
agreements reached. 

I want to explain at the end of my testimony exactly what the 
implications of this new agreement are because I don't think there 



is any area of this agreement that is less understood and that is 
more subject to mischaracterizations than the WTO as a substitute 
for the existing GATT. 

This new agreement also opens a very important dialog on trade 
and the environment by creating a committee for Trade and Envi- 
ronment where we can look at the relationship between trading 
rules and environmental policies as well as labor standards and 
labor practices. 

As you said, Mr. Chairman, it is very important for the United 
States to ask whether other countries are going to become bene- 
ficiaries of an open trading system without moving in the direction 
of the kinds of standards that U.S. industries face in international 
trade, both in the environment field and in labor standards. 

I want to emphasize that this agreement will not impair the ef- 
fective enforcement of U.S. laws, either our unfair trade laws which 
are protected under the agreement, or our ability to respond to for- 
eign practices that we deem to be unreasonable. It will not limit 
the ability of the United States to set its own environmental or 
health standards. 

Nothing under this agreement will prevent us from maintaining 
higher than international standards. I cannot envision cir- 
cumstances under which U.S. environmental and health laws will 
be challenged. 

It will not erode the sovereignty of the United States. I will re- 
turn to that point in a moment. I think that as we examine the 
broad benefits of this agreement, we have to recognize that the 
whole is greater than the sum of the parts. 

You can look at individual aspects, whether it is intellectual 
property rules, which has a phase-in period, or the market access 
rules where we would have liked to have seen bigger tariff cuts on 
the part of our partners on some products, and you can certainly 
find grounds for criticism, but there is little question that this 
agreement, both with respect to basic trade restraints, such as tar- 
iffs, and with respect to the new rules of the system, such as intel- 
lectual property, the far better the status quo for the United 
States. 

It will substantially improve international rules, it will substan- 
tially improve the certainty that U.S. businesses can compete in 
international markets, and will be supported by their government 
in enforcing rules of fair play on the system. 

Let me return for a moment to the issue of sovereignty because 
I want to respond directly to many of the misguided accusations 
that have been made about this new agreement, this new WTO. I 
think there is some misunderstanding of exactly what it is, but cer- 
tainly a great misunderstanding of what it means for U.S. sov- 
ereignty and U.S. law. 

The WTO does replace the GATT as an institution, but that is 
in part a necessary housekeeping matter to embody these new 
agreements because instead of the existing GATT, we now have 
three agreements: The GATT itself, which has been updated, which 
is the General Agreement on Tariffs and Trade; a General Agree- 
ment on Trade and Services; and a General Agreement on Trade- 
Related Intellectual Property Rights. 



8 

All three are technically separate agreements which will be 
housed under a new organization called the WTO, which will really 
assume many of the features of the existing GATT. 

The basic charter is drawn from the GATT charter. The rights 
and obligations of the parties are drawn from the GATT charter. 
The protections against a loss of sovereignty that the United States 
insisted on as part of the GATT are contained in the charter. 

Contrary to claims of critics, the WTO does not affect the sov- 
ereignty of the United States to pass its own laws, to enforce exist- 
ing laws or to set its own environmental and health standards. 
Only the United States and Congress has the authority to change 
U.S. law. While the new dispute settlement procedures will prevent 
countries from blocking adverse panel reports, the United States 
stands to benefit greatly from this new procedure. 

As the world's leading exporter, we need an effective remedy 
against foreign unfair trade barriers, and the new dispute system 
is precisely what Congress instructed United States negotiators to 
obtain in the 1988 Trade Act. 

The WTO will continue the GATT tradition of operating by con- 
sensus. That is something that the United States has benefited 
from in the past in the GATT system because major changes to the 
agreement cannot be made over U.S. objections. The core provisions 
of the WTO can only be amended by consensus and no change in 
the agreement that affects the substantive rights and obligations of 
the United States can occur unless the United States agrees to ac- 
cept it. 

The WTO charter carries forward a provision that was in the 
GATT that said that if an amendment is adopted by two-thirds of 
the members, it does not apply to countries which do not accept it. 
So as a practical matter, if the U.S. decides that it will not accept 
an amendment to this agreement, it would not apply to the United 
States. 

I know there are others who have stated a different point of view 
in letters and communications to Congress, but I would urge you, 
first of all, to study very carefully the range of views of thoughtful 
commentators. 

For example. Professor John Jackson, who is perhaps the leading 
student of the international trading system, who wrote World 
Trade and the Law of the GATT, says the following: "It is doubtful 
that the WTO provides any additional institutional power to that 
effectively exercised by the GATT, and indeed WTO clauses provide 
some additional checks and balances against misuse of authority. 

"A careful examination of the WTO charter leads me to conclude 
that the WTO has no more real power than that which existed for 
the GATT under previous agreements. The notion that the WTO 
will suddenly impose on the world a vast new bureaucracy or an 
all powerful organization is more than just an overstatement. It is 
ludicrous." 

That is a statement by Professor John Jackson of Michigan. Also, 
an observer who has looked at this carefully, Joe Cobb, who holds 
the John Olin chair at the Heritage Foundation, who said that the 
concern that United States sovereignty would be compromised by 
participation in the WTO is a dangerously confused argument 
which is exploited by some opponents of open trade. Without this 



uniform system of international trade law and the new rules in the 
Uruguay Round Agreement, including the enforcement provisions, 
the United States would find it much harder to continue its eco- 
nomic progress into the 21st Century. 

Mr. Chairman, I recognize that the Uruguay Round Agreement 
is ambitious and far-reaching and consequently the implementing 
legislation will also be a major undertaking. 

We recognize that the Congress will want to fully understand its 
provisions and implications, and I along with others in the admin- 
istration are committed to explaining the legislation in as much 
depth as the Members want and the underlying agreement. 

I believe that we must move ahead to implement the results of 
this round which will bring great benefits for the United States 
and the world economy and will not compromise our ability to 
maintain strong and effective laws, will not compromise our sov- 
ereignty and will benefit the United States disproportionately to all 
others. 

I think it would be a great tragedy if the United States alone 
among the 125 countries that have signed this agreement comes to 
the conclusion that we can't live with this kind of a new dynamic 
international trading system. 

Thank you, Mr. Chairman. 

Chairman LaFalce. Thank you. 

[Mr. Yerxa's statement may be found in the appendix.] 

Chairman LaFalce. Our next witness will be the assistant sec- 
retary for Import Administration, Ms. Susan Esserman. 

Is this your first testimony before Congress? 

TESTIMONY OF SUSAN G. ESSERMAN, ASSISTANT SECRETARY 
FOR IMPORT ADMINISTRATION, U.S. DEPARTMENT OF COM- 
MERCE 

Ms. Esserman. It is, Mr. Chairman. 

Chairman LaFalce. Welcome. 

Would you share your background? 

Ms. Esserman. I was confirmed last month for the position of As- 
sistant Secretary. Prior to that, I was in the private practice of law 
where I specialized in international trade law with Steptoe & John- 
son. 

Chairman LaFalce. Who did vou represent? 

Ms. Esserman. I representea a wide range of U.S. industry. I 
had some experience representing foreign industry as well and had 
experience under the antidumping and countervailing duty laws as 
well as Section 301 and a wide range of trade laws. 

Chairman LaFalce. Thank you. 

Ms. Esserman. Mr. Chairman, members of the committee, thank 
you for the opportunity to testify today. Because of my responsibil- 
ity for the administration of the antidumping and countervailing 
duty laws, I would like to focus my remarks on the effects of the 
Uruguay Round agreements in those areas. 

The Department of Commerce has a special concern and sensitiv- 
ity regarding the impact of the Uruguay Round agreements on the 
effectiveness of our laws. I believe that the Uruguay Round agree- 
ments on antidumping and subsidies effectively promote the inter- 
ests of the United States. The outcomes of both the antidumping 



10 

and subsidies negotiations meaningfully advance the ability of U.S. 
manufacturers large and small to compete in our domestic market 
and abroad. 

The United States accomplished its objectives in these negotia- 
tions. In antidumping, our goal was to preserve the strength and 
effectiveness of our law, and we prevailed, despite stiff opposition 
from most of our trading partners. At the same time, we held other 
governments administering antidumping laws accountable to the 
principles of openness and due process that we apply under our 
system, so that U.S. exporters' access to foreign markets will not 
be prejudiced by unfair application of antidumping and countervail- 
ing duty laws. 

With respect to subsidies, we insisted that the countervailing 
duty law remain an effective remedy against subsidized imports 
into the U.S. market. But subsidized imports are not the only prob- 
lem. U.S. products must also compete abroad against unfairly sub- 
sidized goods. So we looked beyond our own borders to deal with 
the problems U.S. producers face in foreign markets. 

The Subsidies Agreement represents a landmark step forward in 
defining and strengthening international disciplines over the most 
distortive kinds of subsidies. For the first time, U.S. producers 
have an effective remedy against unfair, subsidized competition not 
only in the United States, but in other markets. 

The Agreement also protects from foreign challenge a number of 
U.S. technology programs which help thousands of small busi- 
nesses to assume the risks of innovative research that they would 
otherwise not be capable of assuming. As to both antidumping and 
subsidies, we were able to incorporate into the agreements a num- 
ber of the most important aspects of U.S. law and practice. 

In brief, the Uruguay Round agreements preserve the ability of 
the United States to take tough and effective action against unfair 
trade. This is absolutely crucial especially for small businesses. 
LF.S. companies must know that they do not have the laws. Both 
the Commerce Department and the International Trade Commis- 
sion today work actively with small businesses interested in bring- 
ing cases. 

At the Department, we begin by counseling them on the require- 
ments and procedures of the law, helping them to identify informa- 
tion necessary to file a petition, and in many instances lending a 
hand in the preparation of the petition document. Still, more can 
be done to simplify and lessen the burden of using these laws. 

This is an important issue. Of course, I recognize that AD and 
CVD proceedings are necessarily complex because of the inherent 
nature of the issues and the many procedural protections afforded. 
On the other hand, it is often impossible for industries with limited 
resources to take advantage of our laws. 

I want to do whatever I can to minimize this problem. I am 
afraid that too often small companies and industries are confronted 
with unfair trade practices but simply do not have the resources to 
attack them. 

The administration is fully committed to ensuring that the AD 
and CVD laws remain a prominent feature of U.S. trade policy. We 
will work hard to ensure that the antidumping and countervailing 
duty laws remain strong and effective. 



11 

Thank you for the opportunity to appear before this committee. 
I would be happy to answer any questions you may have. 

Chairman LaFalce. Thank you very much. 

[Ms. Esserman's statement may be found in the appendix.] 

Chairman LaFalce. Ms. Esserman, what do you think of our ex- 
isting antidumping laws, our countervailing laws, our Section 301 
laws? What is your personal opinion of them? 

Ms. Esserman. I believe that those laws provide strong remedies 
for U.S. industry and I believe that with the implementation of 
careful legislation, they will remain equally strong. 

Chairman LaFalce. When you were involved in those laws in 
the private sector, did you represent individuals seeking to have 
them applied or did you represent industries saying that they 
shouldn't be applicable to them? 

Ms. Esserman. I primarily represented U.S. industries that 
sought to have the laws applied to them, that were users of the 
law. I did have experience with representing some foreign compa- 
nies and I think that experience will be very valuable to me 

Chairman LaFalce. What foreign countries did you represent? 

Ms. Esserman. No foreign countries; a foreign company in Can- 
ada and in Mexico. 

Chairman LaFalce. What were the companies? 

Ms. Esserman. The Canadian Forest Industry Council, CEMEX, 
and I had limited involvement on behalf of British Steel. 

Chairman LaFalce. You said you thought that your representa- 
tion of those industries would be helpful to you in your job taking 
about enforcement of U.S. trade laws. Could you expand upon that? 

Ms. Esserman. I think it has given me extensive familiarity with 
how the procedures work and how companies respond to the laws. 
Already I can see how valuable it is to understand the practical ef- 
fects of the law and how to strengthen the disciplines of the law. 

Chairman LaFalce. Good. 

Mr. Yerxa, in my opening statement, I articulated a number of 
concerns. I wonder if we could spend a little bit of time on some 
of them. 

Mr. Yerxa. Certainly. 

Chairman LaFalce. You were taking some notes down. 

Mr. Yerxa. Yes. 

Chairman LaFalce. Why don't you try to take them in some 
order. The first has to do with labor rights. 

Mr. Yerxa. Yes. 

The United States has long taken the position — and this is, by 
the way, something that I should emphasize has been a bipartisan 
effort on the part of the United States, first reflected in the con- 
gressional mandate in the 1988 Trade Act in which the Congress 
said one of our objectives in international trade talks was to 
achieve better understanding of the relationship between inter- 
national labor standards and trade rules and to ensure that trade 
was not being conducted on the basis of abuse of internationally 
recognized labor rights. 

For example, the rights that, the standards that most countries 
have signed on to regarding child labor, regarding forced labor, re- 
garding the right to freedom of association by workers and that 
sort of thing, and there was a fairly consistent push throughout the 



12 

last 6 years to get a better dialog on this. It came after the Uru- 
guay Round had already begun, so it was not possible for the Unit- 
ed States to convince other countries to include in the Uruguay 
Round Agreement a plank on labor standards. 

I must be honest. A number of countries oppose consideration of 
such a plank because they say the appropriate international body 
for discussion of labor standards is the international labor organi- 
zation, but the United States has consistently taken the view that 
it is important to look at this relationship and to build some basic 
understanding into the trading system about whether or not abuse 
of workers' rights is a problem for the trading system. 

I should mention that existing GATT did have a provision in it 
dealing with prison labor, dealing with forced and compulsory labor 
and that is carried forward in the new WTO. 

Other than that, basically labor standards have been handled in 
the ILO and the United States believes that we must have a dialog 
over the next few years to consider the relationship between labor 
and trade. 

We are not at this time making specific proposals for inclusion 
in the Uruguay Round Agreement itself because as I said it is too 
late for that. But we have obtained an understanding in Marrakesh 
that this item will be on the agenda of the preparatory committee 
for the WTO and that when the WTO comes into existence, there 
will be a dialog in Geneva on labor standards. 

With respect to 

Chairman LaFalce. I appreciate the goodwill of the administra- 
tion on this issue, but for those of us who feel so fervently that the 
rights of labor must be coequal and linked with the rights of capital 
and some agreements which deal extensively ad nauseam with the 
rights of capital and give nothing but lip service, if that, to the 
rights of labor, we are wondering whether we should be reassured 
by hopes subsequent, not even conditions subsequent, as opposed 
to conditions preceding. 

Shouldn't the establishment of the rights of labor be a condition 
precedent as opposed to a subsequent hope? 

Mr. Yerxa. I want to emphasize, Mr. Chairman, that a number 
of these rights are reflected in U.S. trade law. For example. Section 
301 has a provision that allows us to take action against countries 
based on violation of internationally recognized labor standards. 
Our GSP law allows us 

Chairman LaFalce. That would be an internationally recognized 
labor standard, though? 

Mr. Yerxa. Many of these basic standards are recognized under 
normative international law and under ILO agreements. For exam- 
ple, the right 

Chairman LaFalce. Are we a signatory to the ILO? 

Mr. Yerxa. We effectively implement most of the ILO agree- 
ments, yes. 

Chairman LaFalce. Are we a signatory? 

Mr. Yerxa. There are some we are not. 

Chairman LaFalce. Will we have standing to assert those? 

Mr. Yerxa. I am not an expert on ILO, but I think within the 
ILO, because we are not signatories to certain of the conventions, 
our rights to assert them in the ILO may be limited. My point is 



13 

that these are internationally recognized standards, standards with 
respect to child labor, with respect to minimum age for employ- 
ment. 

Chairman LaFalce. If they are internationally recognized and if 
we pride ourselves on being able to use Section 301 to assert those 
rights, why don't we have them as conditions precedent to the 
agreement? 

Why don't we have them as part of the agreement? Wouldn't it 
be easier — especially since we could almost certainly anticipate an 
objection by those countries that the WTO and Section 301 are in- 
consistent, perhaps even contradictory. Let's turn to that issue 
now. 

There has been speculation about the effects of this agreement 
and the WTO on Section 301. I believe the administration has in- 
sisted that U.S. trade law will not be weakened, and vet your boss, 
Mickey Kantor, was quoted in Financial Times recently as agreeing 
that in practice it would. 

How will Section 301 operate and what position will the adminis- 
tration take when a dispute settlement panel rules under the WTO, 
rules against a Section 301 action? 

Mr. Yerxa. There are a number of issues here, Mr. Chairman. 
First of all 

Chairman LaFalce. I am also wondering, too, are you respon- 
sible, Ms. Esserman, for determining whether to pursue Section 
301? 

Mr. Yerxa. That is USTR. 

Chairman LaFalce. I am wondering whether the administration 
will be hesitant to initiate or accept a private sector position for a 
Section 301 action because they might think it is not GATT-able, 
inconsistent with WTO, et cetera? 

Mr. Yerxa. Our relationship to the WTO with regard to Section 
301 is very much — will be very much like our relationships to the 
existing GATT with respect to Section 301. The biggest change is 
that there are a number of actions which the United States might 
contemplate under Section 301 for which we will have effective rec- 
ommendations under the new WTO. For example, intellectual prop- 
erty violations, countries violating customs procedures, and import 
licensing procedures, those kinds of things which are now covered 
by the rules. 

We will be able to take those matters to WTO and obtain a rem- 
edy. Section 301 is the domestic counterpart to our access to the 
dispute settlement procedure. Under existing Section 301, there is 
a provision which says that the administration may take actions 
that are covered by international rules to the dispute settlement 
process. That is a practice we would continue. 

So our use of 301 is likely to be affected by these agreements in 
the sense that there will be more successful 301 cases that we can 
take to dispute settlement in the WTO, and many of our most suc- 
cessful 301's have been ones where we have had a GATT right in 
the past. For example our 301 cases against Japan and Europe on 
agricultural products. 

There are other 301 cases which would not be covered by the new 
rules. For example, workers' rights, which are not yet covered by 
the WTO. In those cases, the United States will continue to use 



14 

301 in another area that the statute expHcitly specifies has to do 
with toleration of cartels and anticompetitive behavior. 

Those would be situations where the United States would take 
a 301 action, would not expect to take it to the dispute settlement 
procedure, but instead would move bilaterally against the country. 
In any of these cases, the issue of compatibility with WTO will 
come about only after the United States has taken some retaliatory 
action under 301. 

As you know, Mr. Chairman, that is not the preferred course of 
action under 301. The preferred course of action is to get a nego- 
tiated solution to the problem. Normally if you get to the point of 
retaliation, it is an acknowledgment that you have not succeeded 
in your objectives. Retaliation is not going to solve the problem for 
the industries which brought the 301 complaint. 

But there may be circumstances where the United States is 
forced to take action. When we do that today, we do that with the 
full recognition that there may be implications with respect to our 
GATT obligations if we take action in a manner that would be con- 
trary to GATT. That would be true under this new WTO as well. 

Under the statute, the administration has that authority and the 
question of whether or not to exercise it has to be taken in light 
of all the circumstances. 

Do we feel that under the circumstances it is appropriate for the 
United States to act in that manner? Are we prepared to live with 
the consequences of another country perhaps counter-retaliating 
against us? 

Those are all factors that have to be considered whether or not 
we have a WTO because the reality of 301 is that it is a mecha- 
nism where the use of economic force has to be taken in consider- 
ation of how another country will respond. But I am not at all trou- 
bled by the prospect of our maintaining that authority in U.S. law 
notwithstanding our GATT-WTO obligations. 

It has to be used prudently and only in cases where it is clearly 
in the economic interest of the United States to go forward. 

You asked why labor standards should not be made a condition 
precedent. In my judgment, we have a lot of progress to make in 
convincing other countries, including some of our partners who 
share our views, about the need for high labor standards that the 
United States is not merely seeking to elect protectionist barriers 
in the guise of worker standards. 

We have an educational effort to undertake and we have to build 
some support in the international system for some reasonable rela- 
tionship between trade and worker standards. We are going to 
have to push the envelope on this because much of the rest of the 
world views with suspicion some of our past efforts, but I believe 
that we can make progress. 

I do not believe that it would be sensible to hold up this entire 
agreement on the basis of insufficient progress there, because 
frankly, we can capture a lot of very important gains for U.S. work- 
ers and for the U.S. economy by going forward with this agreement 
while at the same time continuing to push for better understand- 
ings on workers rights. 

Chairman LaFalce. I have more questions, but I will defer to 
other Members and come back. 



15 

Mrs. Meyers? 

Mrs. Meyers. I am going to ask you a question to get your com- 
ments, although it may be a question you can't answer at this par- 
ticular time, but I would like to have you try. I am a supporter of 
free trade and I know that GATT has taken 7 or 8 years to develop, 
and I hope it goes forward. But I have some real concerns about 
that. 

I know that there are $13 billion in revenue that is lost; that is 
going to be a very difficult problem. I know that the south is going 
to be very concerned because the textile agreement is phased out 
and because of sugar. 

I know that the environmentalists are extremely concerned about 
the WTO, and the impact that is going to have on our sovereignty 
and our ability to follow through with our environmental laws and 
the laws affecting endangered species. 

I know that Califomians are very concerned about the impact on 
the entertainment industry or the fact that at least we had to back 
off on that aspect. I know that the Midwest is concerned at this 
time with a problem that may be partially GATT and partially 
NAFTA, and that is that Canada is utilizing the GATT agreement 
to subsidize in wheat, which we say is essentially not quite in the 
spirit of the North American Free Trade Agreement. 

So it seems to me like there are problems with a great deal of 
the segments of society in the United States. What do you foresee 
as the major difficulties? Is GATT going to be passed this year? Are 
we even going to try? 

Mr. Yerxa. Well, you certainly pointed to a number of problems 
and concerns that exist out there, and I suppose I should say from 
the standpoint of U.S. trade negotiators, that there are always a 
multitude of problems to deal with in the system. 

I think all of the concerns you raised can be addressed if they 
are looked at rationally and patiently by the Congress. I am not 
going to presume to speak for the Congress as to whether or not 
the Congress will be willing to give its assent to this agreement 
this year. 

I can tell you the administration believes that it has great impor- 
tance. The President has indicated his support for approval of the 
agreement this year. We are going forward with drafting of the im- 
plementing legislation and are prepared to submit it to you this 
year. 

Obviously the fast track procedures under which this will be con- 
sidered require cooperation on both sides. So a large part of the 
question has to be answered by the Congress. But I think the ques- 
tions you raised can all be answered adequately. 

I don't think any one of them represents a basis for disapproving 
this important agreement and for really putting the United States 
alone in the world and not going forward, particularly since we are 
likely to be the principal beneficiary. 

Ms. Esserman. I fully concur. I believe that the agreement is 
sound and while we need to work through some of these issues and 
fully explain our positions, I am optimistic about the prospects for 
an agreement this year. 

Mrs. Meyers. You do believe that we will go forward this year 
then? 



16 

Ms. ESSERMAN. Yes. It is the administration's intent to move as 
quickly as possible on this legislation. 

Mrs. Meyers. One more question. Who makes up the member- 
ship of the World Trade Organization, and how is it selected, and 
does it change from time to time? 

Mr. Yerxa. You can be either an original member of the WTO, 
which means you are a member of the GATT, and you have signed 
all of the Uruguay agreements and implemented all of its obliga- 
tions. Those would be original members of the WTO. 

And currently there are 

Mrs. Meyers. So everyone who is a member of GATT? 

Mr. Yerxa. All GATT signatories who sign the Uruguay Round 
agreements and implement them. In other words, we are a member 
of the GATT, but if we don't implement the Uruguay Round agree- 
ments, we would not be entitled to membership in the WTO. 

You can also become a member by a process of accession, and 
that is subsequent to the entry into force of the WTO, new mem- 
bers can join. There are about 23 countries right now which are ap- 
plying to accession to the GATT. 

When the GATT passes out of existence and the WTO comes into 
force, they will continue seeking accession into the WTO. This in- 
cludes many of the nations of the former Soviet Union, it includes 
China, it includes Taiwan, it includes some of the Gulf States, for 
example. 

They are all seeking accession, but they have to negotiate to the 
WTO members to join, and the original members have to give their 
consent to their joining. 

Mrs. Meyers. Membership in the World Trade Organization is 
not weighted in any way? 

Mr. Yerxa. Well, the voting procedure is not a weighted voting 
procedure, but there are few items for which in practical reality the 
way the system operates there are very few matters on which there 
are votes. 

I can remember in 4 years as representing the GATT, I think I 
remember two votes other than the standard votes which were on 
noncontroversial matters. But with respect to most matters that 
are fundamental to our rights, it is either by consensus or if there 
is a two-thirds voting procedure, the results don't apply to a coun- 
try that votes against it. 

Mrs. Meyers. I think this is maybe the most important thing 
that we consider this year, because I do think that trade is very 
much the issue of the 1990's and this is an extremely important 
decision. I do share some of the Chairman's concerns about our 
being able to take a strong stand on the rights of labor and on envi- 
ronmental issues. 

Thank you very much for your testimony. 

Chairman LaFalce. Mr. Knollenberg. 

Mr. Knollenberg. I have no questions, Mr. Chairman. 

Thank you. 

Chairman LaFalce. Mr. Collins. 

Mr. Collins. Are you ready? 

Mr. Yerxa. Yes, sir. 

Mr. Collins. We know Susan's background. What is your back- 
ground prior to getting involved with the Grovernment? 



17 

Mr. Yerxa. Prior to getting involved with the Government, I was 
in law school, so I took my first Government job in about 1976. 

Chairman LaFalce. Mr. Yerxa was an employee of the House, 
counsel to Sam Gibbons, the House Ways and Means Subcommittee 
on Trade, then he was deputy counsel to the Chairman of the Ways 
and Means Committee and then President Bush appointed him to 
the position he now has in 1989. 

Mr. Yerxa. I served 4 years in Geneva, and I have come back 
here to work for Ambassador Kantor. 

Mr. Collins. The Chairman didn't help your status any. What 
has been the purpose of implementing tariffs in years past? 

Mr. Yerxa. Well, the basic purpose in years past — well, some 
time ago it was to raise revenue and to protect U.S. industries. But 
of course the tariff system, which was our primary source of reve- 
nue until income tax was introduced in the early 20th Century, is 
now really a minor source of Federal revenue. 

But of course a number of our tariffs still do have a protective 
function. The United States has a very low average tariff rate com- 
pared to other countries. Our average tariff now is about 3 percent 
on industrial products. 

Mr. Collins. Protective in what way? How does it protect U.S. 
industry? 

Mr. Yerxa. If you go far enough back, we had tariffs of 50 and 
60 percent on average in the 1920's and 1930's before we began re- 
ducing them through GATT negotiations. 

Obviously a 50 percent tariff is pretty protective against foreign 
competition. We began leading the world in negotiations of lower 
tariffs starting with the reciprocal trade agreement program in the 
early 1930's and have brought tariffs down worldwide consistently 
since then. 

The United States, Europe, and Japan have average tariffs that 
are under 5 percent. One of the important. parts of this agreement 
is that it substantially reduces a number of high tariffs of develop- 
ing countries and makes those tariffs bound in the WTO, in other 
words, they would have an international obligation to maintain low 
tariffs. They couldn't go back and raise them in future. 

Mr. Collins. You look at ways to equalize trade, you look at the 
selling price of an item when it comes to the air tariff and to the 
equalization of the trade. 

Having background only in law school and Government explains 
to me why you don't look at the cost of the good prior to trade. 
What causes the cost? What factors come into play that establish 
the cost of an item that is put up for trade? 

Mr. Yerxa. Obviously labor, capital, materials, regulatory costs, 
the costs of taxes and other measures. All of those go into the fun- 
damentals of determining your costs. 

Mr. Collins. Each one of those that you just named, there is leg- 
islation waiting for action by this Congress to increase each in the 
area of OSHA, the Environmental Protection Agency, labor law, 
taxation, health care reform, you name it, it is waiting for action 
of this Congress and will further increase the cost of every item 
that you are trying to equalize the trade for around the world. 

Mr. Yerxa. You all in the Congress are going to have to decide 
what to do with that legislation. I am not an expert on most of 



18 

those matters. I do know that opening up foreign markets is good 
for U.S. exporters, and that is what we are trying to do under this 
agreement. 

Mr. Collins. I think you are following the wrong end of the 
horse or following the wrong horse. As long as you continue to fol- 
low that horse, your scenery will never change. 

Thank you, Mr. Chairman. 

Chairman LaFalce. Thank you. 

Mr. Knollenberg. Mr. Chairman, could I — I said I was going to 
shut up, and I just thought of something. 

I know it is our responsibility to deal with the matter of cost — 
there is a cost to this process. 

I recognize that when you lower tariffs, you are losing revenue, 
and that is the whole point of NAFTA and GATT. Do you have any 
opinions, any views or thoughts about how we would go about 
reaching that revenue or finding that money? 

It is a fair amount of change. I wondered if you had any thoughts 
about how we do that. 

Mr. Yerxa. That is a 5-year figure. I think there have been dis- 
cussions between Secretary Bentsen, Director Panetta, people in 
the Congress both in the leadership and the revenue committees 
and the spending committees elsewhere, the Budget Committee, 
about various ideas for dealing with the pay-go problem. 

I would merely emphasize that we wouldn't be approving this 
agreement if it really was going to cost the United States in the 
long term. In the long term, this is going to raise far more revenue 
than it loses. 

The problem is that most of those are dynamic gains which can't 
be measured. 

Mr. Knollenberg. That is the problem we have, it is a linear 
measurement that they apply, I don't think dynamically, but we 
have to pass muster on a linear basis, so we are dealing with the 
realities of finding money todav. 

I wondered if you had a preference for 

Mr. Yerxa. Not a specific proposal. There have been a number 
of possible spending cuts, revenue provisions which have been dis- 
cussed by Secretary Bentsen and Director Panetta with the leader- 
ship. 

I don't have a specific proposal to lay before you today. Obviously 
that is something that would have to be developed as part of this 
legislation, so working it through the relevant committees would be 
very important. 

I recognize that the fiscal, maintaining the fiscal integrity of our 
budget process is exceedingly important. The administration is 
working on that to develop a reasonable proposal. 

To my way of thinking, it is very hard for the United States to 
say that we are never going to enter into any agreements to liberal- 
ize trade in the world because there is a budget implication. It 
seems to me we have to find a way to overcome that. 

Mr. Knollenberg. I agree. I wondered if you had focused on a 
single method. I would like to ask the same question 

Ms. ESSERMAN. I don't have a particular proposal. 

Mr. Yerxa. The administration will be making proposals to the 
committees during the process. Ultimately, under fast track, the 



19 

President has to send a bill to the Congress, so the President has 
to put his name to whatever he submits, but at the same time, it 
has to be something that we have worked out in advance with the 
Congress. 

Chairman LaFalce. I have a few questions with some of the spe- 
cifics. Are you familiar with the Small Business Innovation Re- 
search Program? 

Mr. Yerxa. Yes. 

Ms. ESSERMAN. Yes. 

Chairman LaFalce. Would this program remain intact under the 
Uruguay Round provisions or would products developed through 
the SBIR Program be exposed to trade actions under the subsidy 
code? 

Ms. EssERMAN. We do not believe that products that have been 
developed through this program would be exposed to trade action. 

Chairman LaFalce. Do you contemplate the necessity of any 
changes in that law in the implementing legislation or do you think 
that that is an area that will not need to be changed? 

Ms. EsSERMAN. We believe that if we implement the legislation 
consistent with our new Uruguay Round commitments, it will pose 
no problem for that program. 

Chairman LaFalce. The Small Business Set Aside Program has 
specifically been exempt from the procurement agreement? 

Mr. Yerxa. That would remain unchanged. 

Chairman LaFalce. That was a mistake that Bob Strauss ini- 
tially made and we had a hearing and encouraged him to get it de- 
leted and he did. 

You are making a number of specific changes in United States 
dumping and countervailing duty laws in order to comply with 
Uruguay Round; I am advised that has as many as 16 changes. 
How many changes; what changes; do you have a Hst of those 
changes? 

Ms. Esserman. We are contemplating a number of changes to 
the antidumping and countervailing duty laws to comply with our 
Uruguay Round commitments. For example the dumping code is 
quite a detailed code, so it requires a number of technical changes. 
One thing you have to keep in mind, though, is that the dumping 
agreement, as well as the subsidies agreement, incorporates many 
practices already in U.S. law and in the regulations. In fact in the 
main the methodologies for calculating dumping and subsidies re- 
main the same. There will however be a number of changes to re- 
flect the technical changes. 

Chairman LaFalce. Have you yet bounced those changes off of 
any committee of the Congress? 

Ms. Esserman. We are working with the Ways and Means Com- 
mittee now as to the very technical provisions. As I indicated, there 
are lots of very detailed noncontroversial and technical changes 
that won't affect the substance of our practice. 

Chairman LaFalce. Are there some detailed controversial provi- 
sions? 

Ms. Esserman. There are provisions that have, that are more 
than word changes, and we are in the process of getting input from 
the private sector working with the Ways and Means Committee 
to try 



20 

Chairman LaFalce. Private sector — is that both business and 
labor? 

Ms. EssERMAN. Yes. 

Chairman LaFalce. What mechanism do you have to get the 
perspective of both business and labor on these changes in? 

Ms. EssERMAN. We have invited in everyone who is interested to 
provide their views so that we can hear them. 

Chairman LaFalce. Did you send out specific letters? Do you 
have a list of the people to whom you sent letters? You invited ev- 
eryone; how was the invitation extended? 

Ms. EssERMAN. I was recently confirmed, so I came in the middle 
of their process. People have been coming in to see Commerce offi- 
cials, USTR. 

Chairman LaFalce. You say everyone has been called? 

Mr. Yerxa. I should point out, we have statutory advisory com- 
mittees set up by the Congress. We have an overall advisory com- 
mittee for trade negotiations which is the principal committee. 

That has just been rechartered and it includes a number of both 
business and labor and environmental officials on it. We also have 
a labor advisory committee chaired by Tom Donahue. 

We have advisory committees for each of the industry sectors 
which are statutory and which have statutorily appointed people. 
All have been required by the legislation to write a report on the 
agreement. 

With respect to dumping, it was quite clear at the time we con- 
cluded the dumping agreement, because it is a very detailed and 
specific agreement, so it was quite clear what specific changes in 
United States practices were contemplated by the agreement. 

These were things we had put through our advisory process we 
talked with them about, there are some that you will find some of 
them are unhappy with. We had specific objections which the Unit- 
ed States put on the negotiating table which the United States was 
successful in addressing before we signed the agreement — if you 
look at the list, there are 11 key changes that many of our private 
sector advisors put to us. We were successful in getting many of 
those changes made. 

Chairman LaFalce. One last question. I believe trade is very im- 
portant, but I don't believe trade is the only important thing in the 
world. So we — one danger we have when we negotiate trade agree- 
ments internationally is that if we don't have other international 
agreements in other areas of equal stature and weight, then we 
give primacy to trade oftentimes at the expense of these other con- 
cerns. 

We have been witnessing trade liberalization, which in the ab- 
stract, most individuals think is a good concept. But I am con- 
cerned by increasing economist findings that trade liberalization 
often brings about, most often has brought about, a wider disparity 
between the rich and the poor in the countries that have partici- 
pated in this trade liberalization. 

To what extent are you aware of this, concerned about this; to 
what extent is the administration discussing this issue, this un- 
wanted consequence, but real consequence of trade liberalization? 

Mr. Yerxa. Well, I certainly share your view that if you don't 
have other fundamental understandings in place, that you can 



21 

have — give a primacy to trade liberalization at the expense of other 
values, and I think it is very important for us to make progress on 
a broad front, both with regard to the environment and with regard 
to other social values and social issues. 

The fact of the world becoming more integrated means that these 
policies are going to come into conflict, or that as countries break 
down barriers to trade, fundamental aspects of their internal regu- 
latory and internal social systems will come into conflict. 

Finding ways to coexist with other countries in a manner that 
promotes economic growth but also promotes social values is ex- 
tremely important for the United States as for other countries that 
place a high value on these things. Many of the signatories to this 
agreement are countries which place very high value on social pol- 
icy goals. The Nordic countries for example who are big advocates 
of this agreement are also significant advocates of higher consumer 
environmental protection and higher labor standards. 

I don't entirely share your conclusion about disparities being in- 
creased. Some of the biggest disparities between wealth and pov- 
erty have existed in countries that had highly protectionist re- 
gimes, in Latin America, for example. Liberalization has led to, in 
many countries, an improvement of that situation. Not overnight 
and not entirely, but some of the countries that have opened up 
and have become more part of the international economy have seen 
wage rates grow and have seen living standards increase. 

Countries which have had highly protected economies have not 
always done well in eliminating disparities. I think in the United 
States certainly there were huge disparities between wealth and 
poverty in the 1920's when we had a highly protected economy. 

Mrs. Meyers. One more quick question to follow up. 

Chairman LaFalce. Sure. 

Mrs. Meyers. I am a supporter of, I think because I think the 
economy has to grow and I don't know of any way that it can grow 
until we expand trade — let me ask you, what do you think would 
happen to world trade, to our role in it, if we did not implement 
GATT? 

Mr. Yerxa. I think if the United States doesn't implement it, it 
is likely that the agreement would collapse because being the major 
participant in the system, being the world's largest exporter and 
importer, it is hard for me to believe that other countries would be 
willing to go forward without the United States being a part of it. 

I think it would lead to a period of increasing tensions and un- 
certainty. I think there would be a long period of struggling to find 
some acceptable basis for maintaining friendly trade relations. 
Chances are that a number of the grievances that our industries 
that our industries have and that other countries have couldn't be 
resolved through sort of the normal system of trade rules, and 
countries would have to resort to more regionalism, more mer- 
cantilism, more bilateralism. 

I think that chances are that you would see an emergence of 
more exclusionary trading blocks than we have today. The trading 
blocks we have today rest on an assumption that there is not an 
increase in the barriers between the blocks; that is even though we 
are creating our own regional trading block, we are doing it on the 
basis of a multilateral system which is reasonably open. 



22 

But if you started having the loss of that kind of underlying 
foundation, I think you would have an increase in interregional 
tension. 

Mrs. Meyers. Thank you. I yield back. 

Chairman LaFalce. I want to thank both Mr. Yerxa and Ms. 
Esserman for the testimony today. We have more questions, but we 
have a second panel. We will follow up in private conversations. 
Thank you very much. 

Will the second panel please come to the table. We will begin the 
second panel with the testimony of Mr. Ralph Nader. Let me ap- 
prise all the panelists that if there is no objection, I will put the 
entirety of all your text in the record as if read, and you may feel 
free to summarize your testimony. 

TESTIMONY OF RALPH NADER, FOUNDER, PUBLIC CITIZEN 

Mr. Nader. Thank you, Mr. Chairman, Members of the House 
Small Business Committee. I have testimony that runs about 30 
pages. 

Chairman LaFalce. I thought you wouldn't mind 
particularly 

Mr. Nader, [continuing], which I would like to submit for the 
record along with other supplementary material. 

Chairman LaFalce. Without objection. 

Mr. Nader. With me is Lori Wallach, counsel at Public Citizen 
on trade agreements, who is available for questions as well. 

The congressional consideration of Uruguay Round agreements 
will have far-reaching implications not only on the economy, but on 
our sovereignty and on our democracy. I want to thank you for con- 
ducting these hearings because I think few Members have raised 
the questions dealing with the fundamental change that the Uru- 
guay Round would bring to the United States system of govern- 
ance. 

I think any international trade agreement must pass many tests, 
but the foremost one is, does it damage our democracy, does it un- 
dermine our sovereignty in ways that are impermissible and not 
needed to create expansion of world trade. 

The Uruguay Round agreement and the World Trade Organiza- 
tion, which is created under that agreement, must be considered as 
a system of international governance, for that is what it is. As a 
system of international governance it is proper to test it in coopera- 
tion with our democratic procedures and our democratic principles. 

Unfortunately the Uruguay Round or New GATT and its World 
Trade Organization establishes an international regime of autoc- 
racy laid over our domestic democracy. In so doing, it places com- 
mercial trade dictates in a supreme position, which subordinates 
other noncommercial values such as labor, consumer, environment 
and our domestic democratic procedures. 

For instance, Mr. Chairman, this Congress conducted open hear- 
ings. The tribunals under the World Trade Organization in Geneva 
are closed. This Congress has a public transcript. There is no tran- 
script in the tribunals in Geneva. This Congress allows the press 
in. The press is not allowed before these tribunals in Geneva, a 
point that seems to be lost on some of the editorial writers of the 
New York Times and Washington Post. 



23 

This Congress allows other than Executive Branch witnesses. 
Under the Tribunal rules, only the Federal Government can rep- 
resent the United States even if another country is challenging an 
ordinance in Buffalo or a statute in New York State. Neither the 
mayor nor the governor nor their representatives can participate 
before these tribunals. 

This Congress allows citizens to testify. It allows States and local 
officials, citizen groups to testify. This Congress can pass laws 
which can be challenged before independent judiciary bodies. The 
Tribunal's decision under WTO can be vertically appealed within 
the WTO. It cannot be challenged either before an independent 
world trade court or before our courts. 

Similar comparisons can be made between our courts and these 
tribunals in Geneva if we wish to make more proximate judicial 
analogies. Our courts are open, the press can sit in, increasingly 
the television can be there, parties other than Government can par- 
ticipate. There are transcripts, there are authentic appeals. 

Indeed, the Congress can overrule a court decision assuming the 
Supreme Court agrees that it is constitutional. When I say autoc- 
racy over democracy, that is what I mean, but that is not all I 
mean. These tribunals allow not just foreign countries to challenge 
our higher health, safety, workplace, and environmental standards, 
accusing them of being nontariff trade barriers, keeping out food 
imports, automobile imports, chemical imports, pesticide imports, 
but in addition, domestic companies that do not like our existing 
health safety and workplace standards can hire a K Street cor- 
porate law firm like Steptoe & Johnson, they can then rent a gov- 
ernment overseas, through the influence of subsidiaries, to take our 
standards which exist now to Geneva before these secret tribunals. 

They can do so because they fear that they might lose if they 
tried to overturn these standards in Springfield, Illinois, Sac- 
ramento, California, or Washington, DC or that they might lose if 
they try to overturn these standards in our courts. So they go to 
Geneva, which is basically outside the process of democratic access, 
openness, and accountability. 

The Uruguay Round agreement or New GATT with its World 
Trade Organization are dramatic departures from previous GATT 
agreements. The key departure is the establishment of the World 
Trade Organization. That means that we go from old GATT, which 
is a complex of international contracts between countries, to New 
GATT through the World Trade Organization, which has its own 
legal personality and status similar to the United Nations, or the 
ILO, and this new World Trade Organization with its distinctive 
legal personality has as one of its 120-odd nation members the 
United States of America, but there is no veto by the United States 
of America in many of these important decisions, and there is no 
Security Council similar to the U.N. On many of these decision the 
new nation of St. Kitts with a 70,000 population has an equal vote 
with the United States. 

The dispute resolution systems described by the USTR view the 
United States primarily as a plaintiff on the attack against unfair 
trade barriers overseas. 

I submit, Mr. Chairman, that the United States is going to be 
very frequently a defendant, because it has some of the more ad- 



24 

vanced health, safety, workplace and environmental standards and, 
as such, as it has even occurred under old GATT, which is much 
weaker in terms of its sanctions and jurisdiction than New GATT, 
as such, is a sitting target for challenges against these noncommer- 
cial living standards that we call labor, consumer, environment, ac- 
cusing these living standards as being too advanced and as being 
nontariff trade barriers violative of the World Trade Organization 
agreement. 

To show you the bias, Mr. Chairman, apart from prison slave 
labor, nations cannot violate this agreement by having too terrible 
standards, too weak standards, too inadequate standards treating 
workers, consumers and environment. Where they can violate this 
agreement in the nontrade area is if they have too advanced stand- 
ards. 

If we have fuel efficiency standards, gas guzzler taxes, asbestos 
phase-out, cleaner food standards, advanced motor vehicle stand- 
ards, that is where our standards can be pulled down through 
these. A, tribunal disputes and, B, harmonization committees 
which will harmonize downward our standards, and C, equalization 
procedures. 

Indeed, what is important here to note is not that this agreement 
takes away the right of Congress under our Constitution to enact 
or to repeal laws. What it does is confront the Congress with either 
the option of accepting the tribunal's decision, thereby repealing or 
amending our laws to come in conformance with that decision, or 
to pay perpetual monetary trade fines. 

That is the choice that we have agreed to be held to if Congress 
approves this agreement. I might add that the Tribunal is run by 
three trade specialists. They can be corporate lawyers from the var- 
ious countries, no conflict of interest standards and no knowledge 
about health safety or worker rights. 

Why? Because they are running a Tribunal under the World 
Trade Organization in Geneva that subordinates these rights to the 
dictates of international trade. This is not an international trade 
agreement on labor that subordinates commercial trade, this is not 
an international agreement on consumer rights that subordinates 
international trade, this is not an international agreement on envi- 
ronmental rights that subordinates international trade; this is the 
reverse. Under this world trade agreement other international 
agreements that we have adhered to, such as in the environmental 
area, are subordinated to the dictates of this agreement. That is 
why we believe that this agreement, and this is not the whole 
agreement, the procurement part of this agreement was not part 
of this agreement which is being sold to the American people for 
$30 by GPO. 

There are over 60 pages of procurement agreement which, shall 
we say, were agreed to in December but not publicly made avail- 
able by the USTR. 

To revert to the point I was making on the World Trade Agree- 
ment, the World Trade Organization has sanctions that are unilat- 
erally imposable; that is it can challenge the United States itself, 
and it can turn the issue before a tribunal and set it in motion. 
Under old GATT there was no such institution to do this. 



25 

Under old GATT the United States had an emergency brake. 
When it lost the tuna dolphin case before a Geneva Tribunal after 
Mexico took us to the Tribunal because our Federal statute prohib- 
ited imports of tuna which were caught in drift nets that killed dol- 
phins, the United States in effect, had an emergency brake and 
could refuse to abide by it. If you heard Mr. Yerxa say that the 
same is true now, but in many areas, it is not true now. We have 
lost our emergency brake. 

Congressional prerogatives here are at stake which are quite 
troubling. For instance, we know that Congress cannot bind a fu- 
ture Congress, and yet such is the penetrating impact of the World 
Trade Organization that when the House Commerce Committee 
passed its telecommunications bill and provided for domestic con- 
tent of telecommunications equipment up to a certain percent, im- 
mediately the USTR, Mickey Kantor, informed Chairman Dingell, 
of all people, to tell this to, that that provision would be New 
GATT illegal. 

That in effect, says to Congress that this principle that a present 
Congress cannot bind a future Congress is going to be subjected to 
a "real politique" emitting from the Executive Branch backed by 
the World Trade Organization. 

Again and again your proposals are going to have to pass the 
chilling test as interpreted by the USTR, under heavy multi- 
national corporate influence, as to whether they are permissible 
under the new GATT. 

There are questions about Buy America. There are questions 
about labor and human rights or other process or production stand- 
ards. There are questions whether we can unilaterally retaliate 
under Super 301. 

Our interpretation of this agreement is that all of these stand- 
ards are vulnerable and these authorities are unlikely to be exer- 
cised without some country saying this is GATT illegal. 

You will note that the former prime minister of Japan on several 
occasions said publicly in recent weeks with regard to the United 
States threatening 301 retaliation, we will take that up before the 
World Trade Organization. So it is Japan's interpretation that 
Super 301, while it can remain on our statute books, if it is exer- 
cised, is going to be subject to a successful challenge under the 
World Trade Organization. 

One can also adhere to other interpretations that are being ban- 
died about. Mr. Sutherland, who is likely to be the head of the 
WTO, was quoted in The New York Times that such interferences 
as labor and consumer and environmental issues should not be 
part of any trade agreement. He said "Governments should inter- 
fere in the conduct of trade as little as possible." 

I might add, Mr. Chairman, the United States of America be- 
came the United States of America precisely because noncommer- 
cial human values of decent working conditions and consumer 
health and safety and environmental rectitude were enacted in a 
way that were primary over the crass commercialism that would 
destroy these values — prohibition of child labor, OSHA, EPA, auto 
safety standards. These were not enacted by Congress subordinated 
to the primacy of commercial or corporate development policy in 
other legislation. We should never forget that. 



26 

Why did our representatives go to Geneva and not export democ- 
racy as President Clinton stated in his State of the Union message 
recently that the United States should do? Why did our representa- 
tives, Mickey Kantor et al, go to Geneva and allow a kangaroo type 
procedure before these Tribunals in Geneva so inimical to our tra- 
ditions going back 200 years? Why did he go backwards when it 
came to surrendering and not exporting and even worse, allowing 
the internal penetration by these autocratic procedures of our do- 
mestic democratic practices? This is a good question. 

In 1947 there was a similar international trade organization pro- 
posed before this Congress in addition to other trade liberalization. 
The Congress accepted the other trade liberalizations, but they 
turned down the international trade organization as an intolerable 
infringement on our sovereignty and democracy. 

Every international trade agreement involves giving up some 
sovereignty. It should not involve giving up zones of sovereignty in 
areas of democratic procedures that are not necessary for the ex- 
pansion of world trade, but are only necessary for the expansion of 
multinational corporate Governments, over established nation, and 
sovereignties. 

I heard Mr. Yerxa make statements which are absolutely incred- 
ible for anybody who has read these agreements. When he stated 
flat out that the consensus principle is preserved in new GATT as 
it was in old GATT, he must not have looked at Article 9 of the 
World Trade Agreement which indicates that major amendments 
can be made without United States approval. 

He need not cite Professor Jackson. He only needs to read the 
text. Article 9, 2 to 5 makes clear that changes can be made by 
two-thirds and three-quarters votes that are automatically applied 
to the United States. I describe this on pages 5 to 7. It doesn't 
cover every decision. These are very intricately written provisions, 
but it covers many that can be considered important. 

Regarding labor rights, such touching noneffective references to 
labor rights in his testimony. In the preamble here there is a ref- 
erence to environmental rights, no reference to labor rights. The 
United States dropped its demands for mere hortatoiy language on 
labor rights in Geneva on April 8 per the Journal of Commerce, Fi- 
nancial Times articles of April 9. 

All the United States got was a mention of labor in the Marra- 
kesh closing statement. However, the topic can only be discussed 
if consensus exists to bring it up under the rules of the World 
Trade Organization Transition Committee, and India has an- 
nounced it will veto it under that consensus principle. 

The WTO allows unilateralism like 301, claimed Mr. Yerxa. How- 
ever, read the Congressional Research Service's American law divi- 
sion opinion, which concludes that under Article 23 of the World 
Trade Organization dispute resolution text that the United States 
can no longer use Section 301 without violating the World Trade 
Organizations rules and facing possible sanctions. Mr. Yerxa is 
making dubious de facto, not de jure, arguments on Congress stay- 
ing in charge. 

Of course Congress can still enact or repeal, but under WTO if 
the United States loses. Congress will by its own agreement, and 
this is Federal law — if it approves this, it is Federal law, by its own 



27 

agreement to this if it should approve it, it will have to either 
eliminate the contradictory U.S. law or pay perpetual trade sanc- 
tions. 

Already reported is the EPA action which conceded to Venezuela 
on the gas composition matter. We have let in mangoes, European 
Community wine dealing with the threat on pesticides. Right now 
the old GATT mechanism is about to decide in a Tribunal in Gene- 
va whether Mercedes' challenge of our gas guzzler law and our fuel 
efficiency standards are nontariff trade barriers and old GATT ille- 
gal. Whatever old GATT does, if Mercedes loses because old GATT 
is weaker than new GATT in such matters, it is almost certain that 
Mercedes will bring it forward under the World Trade Organization 
powers. 

In conclusion, I would like to have the committee consider this 
issue with all the importance and comprehensiveness it deserves, 
because what we are dealing with here is with not any given Fed- 
eral law that can be amended and reversed in Congress. We are 
dealing with an international trade agreement that has the stature 
of Federal law, and that is very difficult to amend or change. 

Anyone who tells you that the effective safeguard of withdrawing 
from an international trade agreement is really our trump card, 
ought to look at history and see how almost impossible it is to 
withdraw because of so many vested interests that are involved in 
perpetuating a commitment to that international trade agreement. 

Chairman LaFalce. Thank you very much. 

Mr. Nader. The last paragraph, Mr. Chairman. 

It is the duty of this committee and the Congress to assess the 
broadest implications of this agreement on the continued viability 
of democratic institutions here at home and their continued capac- 
ity to regulate commerce to suit the needs of their constituents. 

In two, three, or four decades when historians look back on this 
period during which so much of the world's system of self organiza- 
tion is being reconfigured, they will point to the United States' con- 
gressional debate and consideration of the Uruguay Round as a 
turning point in the post-Cold War era. Either they will focus on 
it as a moment in which Congress resisted the destructive GATT 
and NAFTA programs designed by society's most powerful forces 
for their own benefit, or they will view it as a moment in which 
Congress ceded authority to safeguard the interests of this country 
and its inhabitants to large multinational corporations that would 
gain excessive power from the Uruguay Round which they were so 
deeply involved in shaping in Geneva. 

Who among you on this committee will be the prophets? Who 
among you will be the safeguarders? These two roles are different 
sides of the same coin. 

Thank you. 

[Mr. Nader's statement may be found in the appendix.] 

Chairman LaFalce. Thank you very much. Our next witness will 
be Mr. Howard Samuel. It is a pleasure to see you again, Howard. 
We first met, you may recall, at a conference sponsored by LICIT 
in 1983. You had two Members of Congress, Stan Lundine and my- 
self and many business people. One was the president of Corning, 
at that time Amory Houghton. That was in Baltimore if you recall. 



28 

Tell me about the LICIT that exists today because you have worn 
primarily a labor hat in the past, and this group is a labor coalition 
for international trade. Tell me a little bit about the coalition be- 
fore you testify. 

TESTIMONY OF HOWARD D. SAMUEL, EXECUTIVE DIRECTOR, 
LABORyiNDUSTRY COALITION FOR INTERNATIONAL TRADE, 
FORMER DEPUTY UNDER SECRETARY FOR INTERNATIONAL 
LABOR AFFAIRS 

Mr. Samuel. As you indicate, we have been in business for a 
while. LICIT was originally formed when I became president of the 
Industrial Union Department of the AFL^CIO with Amo Houghton, 
then CEO of Corning, Inc. who is now a Member of Congress. 

Our decision at that time was although there were some items 
which divided business and labor with regard to trade, there were 
other areas where we shared a joint concern and interest. So over 
the years, we have looked for those areas where business and labor 
could work together to strengthen our Nation's industrial capacity 
and enhance our standard of living through international trade. 

We have found a number of areas where we could join hands and 
have done so. One particularly important area was the fact that in 
1985 we introduced the first suggestions which eventually turned 
out to be the 1988 Omnibus Trade Act vastly expanded from our 
original suggestions, but nevertheless it is where it generated. 

Our concern with the Uruguay Round was first expressed in a 
study issued in 1989, and we completed an analysis of the Dunkel 
Text issued approximately 6 months ago, well before the December 
15 completion of the negotiations. 

We have since reviewed the Uruguay Round negotiations and our 
decision is that at the present time despite the uncertainties, and 
there are many that remain, we believe that current U.S. law pro- 
vides the domestic industry with more effective remedies against 
injurious foreign trade than will exist under the new Uruguay 
Round regime. Let me point out 

Chairman LaFalce. Is this the position of the industry members 
that belong to your association? 

Mr. Samuel. Yes. All our decisions are made on a consensus 
basis. The industry members include Corning, Inc., Motorola, 
Chrysler, Bethlehem Steel, Intel, and the Association for Manufac- 
turing Technology, which is the association of the machine tool in- 
dustry. 

The labor members include most of the industrial unions, steel- 
workers, communications, the two unions in the electronic and elec- 
trical field, the two unions in the textile and apparel field, rubber 
and glass workers. For medium and small business, the loss of cur- 
rent remedies against unfair trade practices imposes a particularly 
harsh burden. Large companies, major multinationals, are also im- 
pacted by those practices but their resources enable them to ex- 
plore alternate courses of action. 

No company large or small is immune, but small business is par- 
ticularly vulnerable. The new code will make it more difficult to 
bring cases, to win orders and to maintain orders once won. Obvi- 
ously, small companies with fewer resources will be the most 
harmed by this. We have dealt with a number of issues. 



29 

I will do this rapidly because time is growing late. We first dealt 
with the issue of dumping. We recognize that an effective anti- 
dumping regime is essential to our open trading system as well as 
to the preservation of the American industrial base. Congress rec- 
ognized this and specified in the 1988 Omnibus Trade Act that a 
key U.S. objective in the Uruguay Round was the strengthening of 
international rules relating to antidumping. 

Unfortunately, countries that dump and subsidize have had an 
unfavorable effect on the Antidumping and Subsidies Code agreed 
upon in Geneva last December 15. Implementing legislation must 
be drafted to be as strong as the codes permit to overcome this dif- 
ference. 

Our chief areas of concern which are spelled out in my full testi- 
mony include provisions regarding sunset, regarding standing, and 
regarding dumping calculation provisions. 

With respect to subsidies, the Uruguay Round code is a fun- 
damental departure from the current GATT and the U.S. unfair 
trade law. For the first time subsidized goods which cause injury 
will be immune from either GATT complaint or U.S. trade rem- 
edies. 

Among our concerns which my full testimony deals with are is- 
sues such as the standard of review, the financial contribution 
issue, and greenlighted subsidies. With respect to both antidump- 
ing and subsidies, our own statutes must be strengthened to the 
maximum extent feasible consistent with the new codes, and provi- 
sions should be made to compensate firms injured by dumping 
through antidumping duty collections, and to firms injured by for- 
eign subsidies through countervailing duty collections. 

Section 301. It is a common understanding of most foreign coun- 
tries that they have negotiated an agreement that neutralizes the 
ability of the United States to use Section 301 effectively. For this 
reason, we urge that new and effective measures should be devised 
to provide leverage to open foreign markets, and provide a remedy, 
through Section 301 or other means, against practices which are 
not subject to adequate disciplines under the new international 
trade rules. 

For the first time, GATT dispute settlement will be compulsory 
for GATT violations and other GATT-related issues and will be 
binding on all parties. For this reason the dispute settlement proc- 
ess should be implemented in a manner which maximizes its effec- 
tiveness against foreign unfair trade practices. This should include 
provision of a right of private parties directly affected by dispute 
settlement cases to be present throughout the proceedings, to have 
access to all relevant documents, and where appropriate to present 
documents on their own behalf There should also be provision for 
an independent review process to judge the fairness and effective- 
ness of the dispute resolution process on a continuing basis. Con- 
gress should play a leading role in such a review. 

Neither the results of international negotiations nor the decisions 
of dispute settlement panels, if in conflict with existing U.S. law, 
should be given effect without special approval through separate 
implementing legislation. 

Anticompetitive practices. LICIT and the coalition for open trade 
has been particularly disturbed by the failure of the Uruguay 



78-702 -94 -2 



30 

Round to deal with the subject of private anticompetitive practices. 
The problem has been exacerbated by the potential weakening of 
Section 301. For this reason we are giving serious consideration to 
a proposal which would offer an alternate method of dealing with 
this kind of unfair practice, which is otherwise not subject to inter- 
national trading discipline. 

The basic problem is that U.S. firms are prohibited from engag- 
ing in a variety of practices while foreign firms are not — an imbal- 
ance which has led to the erosion or even the destruction of some 
U.S. industries. Restrictive practices by private firms in Japan are 
arguably now the principal source of friction between the United 
States and Japan and pose a continuing problem for U.S. firms in 
Europe and other parts of the world as well. 

Wc will be proposing an amendment to clarify that presidential 
authority exists to impose fines on certain restrictive business prac- 
tices that burden U.S. commerce. The scope of the amendment is 
limited to certain types of highly egregious conduct that would be 
clearly illegal under the laws of the United States as well as those 
of many foreign countries. The enforcement mechanism, fines lev- 
ied against the U.S. business operations of foreign and domestic en- 
terprises engaging in restrictive business practices, is utilized to 
ensure consistency with United States obligations under the GATT. 

Intellectual property. Some progress was made in protecting U.S. 
firms against the theft of intellectual property in the Uruguay 
Round, but the potential protection could be lost through the weak- 
ening of our ability to use Section 301. Intellectual property protec- 
tion must be assured through the adoption of an effective revision 
of Section 337 of the 1930 Tariff Act and by a new Special 301, so 
that the infringement of intellectual property rights can be discour- 
aged and countered. 

Several other issues very briefly. Priority attention must be given 
to solving chronic trade imbalances which stem from foreign mar- 
ket closure, anticompetitive practices, subsidies and industrial 
targeting. 

For key sensitive areas such as textiles and apparel, and autos 
and auto parts, trade liberalization should be conditioned upon re- 
ciprocal market access opportunities abroad. 

An issue which has won a good deal of attention at this hearing 
and has been supported by the six industry members, having won 
agreement that GATT will give consideration to the worker rights 
issue, the U.S. Government should remain firm in its goal of adopt- 
ing, as a principle of GATT, that the denial of worker rights should 
not be a means for a country or its industries to gain competitive 
advantage in international trade. 

I might add that this statement has been endorsed not only by 
the companies I mentioned, but by three additional Companies, and 
we are looking forward to having further companies beyond that. 
When we have a list, I will submit that list to you. I will also sub- 
mit the specific amendment which I mentioned dealing with anti- 
competitive practices which will be finalized within the next 24 
hours. 

[Mr. Samuel's statement may be found in the appendix.] 



31 

TESTIMONY OF ROBERT J. MORRIS, SENIOR VICE PRESIDENT, 
U.S. COUNCIL FOR INTERNATIONAL BUSINESS 

Chairman LaFalce. Thank you very much. Our next witness is 
Robert Morris, senior vice president of the U.S. Council for Inter- 
national Business. 

Mr. Morris. We are a membership organization with a mission 
to represent American business in a variety of international organi- 
zations. We are the American affiliate of the International Cham- 
ber of Commerce in Paris. 

Chairman LaFalce. Not the U.S. Chamber of Commerce Inter- 
national section? 

Mr. Morris. No, sir. Shortly after World War II it was decided 
to create a separate business organization for this purpose. The 
other institutions where we represent American business are the 
Business and Industry Advisory Committee to the OECD, and we 
are the business participant in the tripartite body that administers 
the International Labor Organization. 

The U.S. Council for International Business has been a strong 
supporter of the Uruguay Round since its inception in the mid- 
1980's. Throughout the long and somewhat tortured history of the 
Round, the Council has consistently argued the case for as com- 
prehensive an agreement as possible which would result in: First, 
a substantial reduction in tariffs and other obstacles to trade in 
both goods and services; second, an extension of GATT rules and 
disciplines to commercial activities not previously covered, includ- 
ing trade in services, investment and protection of intellectual 
property, and third, a significant strengthening, elaboration or clar- 
ification of GATT rules and processes to assure effective implemen- 
tation of the new trade regime. 

Because we have followed the negotiations very closely over their 
7 year course, we were able to conclude very soon after the results 
were announced in mid-December that the agreements reached 
merited the support of both the American business community and 
the U.S. Congress. With your indulgence, let me quote from a 
statement we issued on that occasion: "The package of agreements 
announced in Greneva will produce immediate benefits for U.S. ex- 
ports of goods and services. Beyond these tangible benefits, it will 
adapt the GATT rules to today's global marketplace. The resulting 
reinvigorated GATT system will be a strong framework that is nec- 
essary to protect the integrity of the multilateral trading system 
and to serve as a basis for integrating Central and Eastern Euro- 
pean economies and other developing countries into that global 
economy. 

"As should be expected in this type of negotiation involving so 
many countries at different stages of economic development and so 
many separate but interrelated aspects of commercial activity, U.S. 
business did not achieve all of its objectives. Companies and Con- 

fress should however, consider these results from the standpoint of 
ow much progress has been made and whether we are better off 
with or without them. 

"Failure to ratify this agreement in the United States would not 
mean a simple return to the status quo. Rather, it would probably 
result in a worldwide loss of business confidence as markets con- 
template a period of international hostility in the trade field and 



32 

a U.S. administration that would have lost its credibility in foreign 
economic affairs. 

"We therefore urge business and Congressional support of the 
agreement, congressional approval is essential to further the 
progress of world trade liberalization." 

We believe the positive reasons why the agreements should be 
approved are even more compelling. The U.S. Council is a member 
of the business coalition which has been formed to work for the 
early implementation of the Round's results, called the Alliance for 
GATT Now. Let me just tick off a few of the benefits which we in 
the coalition have identified for U.S. business and U.S. workers 
Ambassador Yerxa already signaled the point about the effect it is 
likely to have on U.S. economic growth, growth in addition to that 
we would ordinarily expect of up to $200 billion annually after the 
full implementation of the agreement. Many tariffs will be reduced 
or eliminated, affecting some of our most competitive sectors in this 
economy. There will be significant opening in some of the more dy- 
namic economies, particularly in Asia. Stronger protection of intel- 
lectual property rights, inclusion of trade in services under the 
GATT for the first time. Prohibition of some trade-related invest- 
ment measures, not as many as we would have liked, but at least 
it is a good start. There would be reduced nontariff barriers to U.S. 
exports. Unlike Mr. Nader, I conclude on reading the sanitary and 
phytosanitary chapter of the agreement as well as the chapter on 
technical barriers to trade that there will be full maintenance of 
U.S. health and environmental standards. 

In fact the agreement explicitly recognizes the right of the Unit- 
ed States and other signatories to maintain and establish appro- 
priate health, safety and environmental regulations. 

Finallv, we see a significant reduction in paperwork costs which 
should be a boon to smaller exporters. Simplification, harmoni- 
zation of customs procedures and licensing will slash costs of proc- 
essing export orders and raise profits, thus inducing more small 
businesses to get into exports. 

Perhaps the most important effect which the Round will have on 
smaller business in the United States will be in their role as sup- 
pliers to the major U.S. exporters. The greater the stimulus to the 
exports of the latter, the more orders they will place with their sup- 
pliers. Smaller businesses will be winners even if they do not get 
into exporting directly at all. 

Now, Mr. Chairman, let me say a few words about the new 
World Trade Organization and to build on some remarks we have 
heard this morning. The central responsibility of the WTO will be 
to implement the new Understanding on Dispute Settlement. Most 
of our members, and indeed of American business as a whole, have 
been strong supporters of a reformed GATT dispute settlement 
process. We believe it will give our traders and investors greater 
confidence that countries which have violated their GATT obliga- 
tions would be required to take action to bring their practices into 
conformity with those obligations or pay compensation or accept re- 
taliation. A set of agreed rules of international conduct will only be 
as effective as the process for enforcing them. That has long been 
a weakness in the old GATT system, which we now believe has 
been considerably improved. 



33 

Under the new agreement, the process has been changed in the 
following ways: First, it will provide for the automatic establish- 
ment of a panel upon a request of another government. It will fa- 
cilitate the automatic adoption of the report of the dispute settle- 
ment panel, unless the council, by consensus, decides to the con- 
trary. 

Second, it will establish an opportunity for appellate review of a 
panel report. Third, it will provide for strict surveillance of the im- 
plementation of panel reports. 

Fourth, in the absence of conformity with the panel rulings and 
recommendations within the specified time period, it will require 
the automatic approval by the council of a request for authorization 
to retaliate, and, fifth, it will provide for expeditious arbitration of 
any disagreement about the amount of retaliation. 

I realize that some have expressed concern that these new proce- 
dures will undermine the effectiveness of Section 301 or even of 
U.S. sovereignty. However, I would argue that the agreement may 
well operate to make United States use of Section 301 procedures, 
investigations and negotiations even more effective and credible. 
Furthermore, nothing in the GATT rules or procedures prohibits 
the United States or anyone else from taking whatever action we 
as a Nation believe is necessary to promote or protect our interests. 

Section 301 has always required that the United States use the 
GATT dispute settlement process in cases where the foreign prac- 
tice involved was a violation of GATT rules. However, many, per- 
haps even most, 301 cases have involved practices not covered by 
then existing rules, especially those involving trade in services or 
inadequate protection of intellectual property rights. The new 
GATT extends many of these rules into these areas, and the great- 
er assurance that panel recommendations will be expeditiously 
adopted make the use of GATT machinery a much more effective 
instrument for many 301 cases than it ever has been before. 

Some have, of course, argued that precisely because GATT rules 
now extend to such previously uncovered areas, the United States 
now has less flexibility to use 301 to get at practices which may 
indeed "burden U.S. commerce," but which are either not prohib- 
ited by the new rules or which may even be explicitly permitted. 
This could be especially a problem for intellectual property prac- 
tices which the negotiators agreed to exempt for 5 years from ac- 
tion under GATT's nullification or impairment provisions. 

I accept those arguments, but would also remind those who make 
them that unilateral United States action to breach a GATT bind- 
ing to penalize such practices was not permitted under GATT rules 
before, and that has not changed. Further, if the problem is impor- 
tant enough to justify unilateral action, the United States retains 
the right to take it and accept retaliation, and again, just as before. 
The only real difference is that policymakers and the public will 
know up front what the costs of such action will be, and will thus 
be better able to make informed decisions on the merits of such 
cases. I submit that that is an improvement in the democratic proc- 
ess. 

In this regard, I would like to conclude by quoting from a paper 
recently prepared by Judy Bello and Alan Holmer, both former offi- 



34 

cials in USTR's Office of the General Counsel, assessing the future 
of Section 301. 

In that paper they say, "In evaluating the new dispute settle- 
ment rules, it is imperative to view them in context. It would be 
irresponsible to consider the rules solely from the viewpoint of the 
United States as either a defendant or a plaintiff. As the United 
States is likely to continue to participate in GATT disputes in both 
capacities, it is essential to recognize and weigh the benefits of the 
rules to the United States as plaintiff, even if there are some dis- 
advantages to the United States as defendant and as a plaintiff in 
a dispute in which the WTO rules are considered inadequate." 

I hope that all involved in this debate, and the Congress in par- 
ticular, will keep clearly in mind that the interests of the United 
States, its businesses, its workers and its citizens as consumers are 
best served by a trade regime governed by the rule of law, adminis- 
tered fairly to all through effective institutions. The Uruguay 
Round brings us as close to that condition as we ever are likely to 
get at this point in history. It can doubtless be improved and that 
should be our joint task for the year ahead. But to succeed, we 
must have a firm foundation from which to build. The Uruguay 
Round gives us that foundation, and I urge early Congressional ap- 
proval of it. 

Thank you. 

[Mr. Morris' statement may be found in the appendix.] 

Chairman LaFalce. The next witness is Dr. Woodhead, Task 
Force on Trade for the American Federation of Labor of Industrial 
Organizations. 

TESTIMONY OF DR. GREGORY WOODHEAD, ECONOMIST, TASK 
FORCE ON TRADE, AFL-CIO 

Dr. Woodhead. Mr. Chairman, Members of the committee, 
thank you for the opportunity to express the views of the AFL-CIO 
on this important trade initiative. I would like to give you a brief 
assessment of the Uruguay Round Agreement, talk a little bit 
about trade deficits and their effects, and then give you some rec- 
ommendations for the implementing bill before Congress. 

The AFL-CIO believes that the proposed trade agreement result- 
ing from the Uruguay Round offers little if anything positive for 
United States workers and in certain respects will directly harm 
their interests. As a staff designee for the Advisory Committee for 
Trade Policy and Negotiations, it is clear to me that this agreement 
was negotiated under the guidance and direction of representatives 
of large multinational corporations. It should be no surprise that 
the multinational corporations are best positioned to benefit from 
the agreement. The jury is still out on the benefits that will accrue 
to small businesses. 

The agreement negotiated under the auspices of the GATT falls 
far short of the trade negotiating objectives legislated by Congress, 
and may seriously limit the ability of the United States to fashion 
policies and take actions that will address this country's persistent 
and growing trade deficit. 

Nevertheless, the AFL-CIO will continue to work with the Con- 
gress in an effort to craft an implementing bill that will strengthen 
and expand U.S. trade law, minimize the damage to other U.S. 



35 

laws and regulations, and develop collateral legislation that will 
promote job and income security for U.S. workers. 

Chairman LaFalce. Is it the AFI^CIO's position then that this 
agreement through implementing legislation can be made salvage- 
able? 

Dr. WooDHEAD. It can be improved and the AFL-CIO will have 
to wait to see the bill to see how much improvement can be made. 

I would like to say a little about trade deficits and the economic 
context under which this agreement was negotiated. The trade defi- 
cit is again growing rapidly and exceeded $115 billion for 1993, a 
40 percent increase over the previous year. Ambassador Yerxa 
mentioned that we are the world largest exporter, neglecting to 
mention that we are also the world's largest importer. The $115 
billion deficit represents very clearly that imports exceeded exports 
in 1993, and continue to do so in large numbers. 

The trend continues in 1994. The February deficit of $13.9 billion 
in merchandise trade was the largest monthly deficit in 6 years. 
Unchecked, the trade deficit portends even more painful reductions 
in the standard of living of American workers. As Ambassador 
Yerxa mentioned, we are the most productive work force in the 
world. Unfortunately we are not the best paid work force in the 
world. 

The American manufacturing worker's average hourly compensa- 
tion is 30 percent below the OECD average. We have very high 
worker productivity and are considered a low wage country by in- 
dustrial developed world standards. Central to the trade problem 
is the $115 billion imbalance in manufactured goods trade. In fact, 
between 1981 and 1993, as the total amount of imports doubled to 
$581 billion, manufacturing imports surged from 54 percent to 83 
percent of all imports. This rapid and massive shift in trade has 
severely weakened America's industrial base, and has had a major 
negative impact on employment. Since 1979, 3.3 milHon manufac- 
turing jobs have been lost in America, including 170,000 jobs lost 
in manufacturing last year alone. 

Using the administration's own calculations that every $1 billion 
of net exports creates or destroys 20,000 jobs, if trade were bal- 
anced in 1993, this economy would have had 2.3 million more jobs 
than it does today. There is a ripple effect associated with jobs in 
manufacturing because each manufacturing job supports four other 
jobs in the economy. 

Moving directly to the recommendations of the AFL-CIO on the 
implementing bill, the number one issue is worker rights. The Uru- 
guay Round did nothing to address the suppression of human and 
worker rights by governments seeking a low wage, low standard 
comparative advantage on the world market. Even proposals to cre- 
ate a process for studying the inclusion of basic, internationally 
recognized worker rights in the GATT have been stalled by those 
who wish to keep the benefits of world trade as the private pre- 
serve of the privileged few. 

GATT is the only practical way of ensuring that governments 
that want to enjoy the benefits of the world trading system respect 
the rights of citizens. The administration post-Uruguay Round dis- 
cussion of the social dimension of GATT is a step in the right direc- 
tion, and we urge to move decisively toward that goal. 



36 

The opportunity to raise the issue of worker rights and labor 
standards in the Preparatory Committee that estabHshes the World 
Trade Organization represents a small step toward the fulfillment 
of the AFL-CIO's long-held goal that adherence to basic worker 
rights should be included in a global trading system. Unfortu- 
nately, it does not go as far as establishing an actual committee to 
explore the issue. Thus Ambassador Kantor is exactly right when 
he says this is a beginning, not an end. 

The fact is, trade and worker rights are already linked. The 
burning question is whether that linkage will serve working people 
and their aspirations for a better life or facilitate those who would 
profit from exploiting them. 

As Ambassador Kantor points out, worker self-organization has 
played a crucial role in prosperity and freedom around the world. 
The United States and its allies must redouble their efforts to gain 
support for a formal structure to include worker rights on the 
World Trade Organization's agenda. 

The number two issue is the World Trade Organization and Dis- 
pute Settlement. The establishment of the World Trade Organiza- 
tion to replace the GATT and with it, a binding dispute settlement 
mechanism is a major concern. 

Actions against the WTO covered, unfair, unreasonable or dis- 
criminatory trade and investment practices that are in dispute 
would require the prior authorization by a panel of experts and its 
decision, pending a review by a permanent appeals panel, would be 
binding. This is a major change from existing procedures and has 
far reaching implications for the operation and implementation of 
existing U.S. laws. We are concerned that it would severely restrict 
the use of section 301 of the Trade Act without prior WTO 
authorization 

Chairman LaFalce. You are saying that 

Dr. WooDHEAD. The proposed agreement states in Section 23: 
"Members shall not make a determination to the effect that a viola- 
tion has occurred that benefits have been nullified or impaired or 
that the attainment of any objective of the covered agreements has 
been impeded, except through recourse to dispute settlement in ac- 
cordance with rules and procedures of this understanding." 

Chairman LaFalce. Action under the World Trade Organization 
you must have the prior authorization of the World Trade Organi- 
zation? 

Dr. WooDHEAD. That is correct. If you intend to go to the WTO 
dispute settlement process, and all remedies that would be GATT 
covered would also go through the dispute mechanism of the WTO, 
those findings are binding. 

Chairman LaFalce. You are saying that this would restrict the 
use of 301 without prior WTO authorization — is that your position 
too? 

Dr. WOODHEAD. Yes, it is. 

Chairman LaFalce. Mr. Morris, what do you say about that? 
Isn't 301 something you can pursue under U.S. laws, and if you 
wanted to proceed under WTO then you would need a prior author- 
ization, but couldn't you proceed under U.S. law independent; but 
then you run into the possible problem of whether or not the WTO 
would rule that your 301 determination was violative. 



37 

Mr. Morris. I think that is basically right. The issue is not 
whether you need WTO approval to initiate a 301 investigation or 
a case. The question is when you get to a point where you have 
finished negotiation, say it concerns a practice which is not in vio- 
lation of a GATT rule, and therefore you are negotiating bilaterally 
with another country, you reach the stage in those bilateral nego- 
tiations in which you can't go any further, the other country re- 
fuses to do what you want them to do, you decide that the issue 
is sufficiently important to merit taking action unilaterally and 
risking a ruling by the panel that you have violated your obliga- 
tions under the GATT, in which case then you make a decision: Are 
you prepared to accept the retaliation which would then be author- 
ized because you think the issue is so important that it justifies 
that, or do you back off and try something else? 

Chairman LaFalce. Is there going to be some hesitancv to bring 
a 301 action because of this concern that you will be violating the 
World Trade Organization? Will 301 become an ineffectual tool? 

Mr. Morris. I can assure you, sir, on the part of the American 
business community there won't be hesitation to bringing a Section 
301 case if we think we have a good case. Particularly since there 
are many more issues that we would have been inclined to bring 
cases for that are now covered by GATT rules, we think we have 
a much better opportunity to get redress under the new GATT sys- 
tem than we had in the past, because in the past it depended ulti- 
mately on whether or not the United States was prepared to breach 
a GATT binding of a tariff in order to punish the other country for 
maintaining a practice that we objected to. That didn't occur very 
often. The United States negotiated up to a point where the threat 
of retaliation was enough frequently to bring the other country into 
line. Now we have the full force of the GATT behind us in many 
of the cases that we would be inclined to bring and our members 
certainly will not be hesitant to bring those cases forward for 
USTR consideration. 

Mr. WOODHEAD. Two points. One is that you really can't predict 
the finding of the dispute panel. If we don't agree with the finding, 
we can't continue to ignore them. The panel finding is binding. The 
other point is that many more of the remedies are now covered 
under the GATT. What kind of remedies are there that are consist- 
ent with the WTO? We need to explore these types of remedies to 
be able to effectively use Section 301, Super 301 and Special 301. 

On the issue of trade rules, dumping and subsidies, the results 
in the antidumping text appears to represent a weakening of cur- 
rent law. Congress should be as expansive as possible in interpret- 
ing the agreement to protect U.S. interests. 

For subsidies, the agreement would make permissible certain re- 
gional research and environmental subsidies even if they harm 
U.S. industry that under current laws are countervailable. While 
the AFL^CIO believes that these types of governmental support 
are appropriate, it has consistently stated that the United States 
must retain the right to impose offsetting duties when these pro- 
grams injure American workers. It is clear that other countries are 
far more likely to utilize such subsidies than the United States. At 
the very least the administration must develop programs to ensure 
equity in this area. 



38 

The next issue is the textile and apparel industry and textile and 
apparel workers. The Multifiber Agreement is going to be phased 
out over 10 years. The textile and apparel agreement reached 
under this Round of negotiations is a severe threat to more than 
1.7 million workers directly employed by those industries and to 
additional hundreds of thousands of workers in supplying indus- 
tries. 

The administration argued that reciprocal market opening by 
supplying nations would more than compensate the job losses re- 
sulting from further openings of the U.S. market. No exporting 
countries other those already pursuing open market policies have 
made significant market opening commitments. 

No penalties or incentives were negotiated to induce countries to 
reciprocally open their markets. Even basic equity has not been 
achieved. 

The last major issue is the issue of funding. The AFI^CIO is con- 
cerned over how the proposed tariff reductions in this agreement 
will be paid for, estimated by the administration to be nearly $14 
billion in the first 5 years. Included in that package must be the 
cost of renewal of GSP, probably $4.5 to $5 billion. Our country 
cannot afford reductions in needed social programs to pay for these 
lost revenues. 

Since I am an economist at the AFL-CIO, I would like to address 
a couple of numbers mentioned by Mr. Yerxa and Mr. Morris about 
the projected economic gain of this trade agreement. Numbers re- 
peated by the USTR and business coalition center on $100 to $200 
billion of economic gain annually in 10 years. I think that a more 
realistic number given the different studies available that don't ex- 
aggerate the numbers, is the OECD study, that claims a maximum 
gain of $27 billion annually at the end of 10 years. The OECD esti- 
mate may be on the high end. 

I think we have to be careful about projections of overall macro- 
economic gain from trade agreements, and clearly we must be care- 
ful about projections of anticipated job growth, because as I ex- 
plained in my testimony on trade data, in an era of expanded trade 
we have seen a significant reduction in number of manufacturing 
workers here in the United States. 

In conclusion the AFL-CIO is greatly disappointed in the out- 
come of the Uruguay Round negotiation. As compared with large 
multinational corporations, the interest of small business have 
been overlooked. U.S. sacrifices, particularly for textile and apparel 
workers, loom large, while opportunities to bring equity and fair- 
ness to the international trading system have been sidetracked or 
lost. The massive and continuing trade deficits of the past decade 
and their human costs have been ignored. The AFL-CIO will make 
every effort to address these problems in the implementing and col- 
lateral legislation to promote the interest of working Americans. 

[Dr. Gregory's statement may be found in the appendix.] 

Chairman LaFalce. Thank you. 

On the first panel, we had two administration witnesses, decid- 
edly supportive of this Uruguay Round, of the GATT, and on this 
panel, we had four witnesses, one extremely supportive, the others 
either opposed or at most reserved. We have had a balance. But we 



39 

haven't, unfortunately, because the administration always wishes 
to stand alone, had much of an opportunity for a joining of issues. 

Now that we have heard the testimony of all of you, I think the 
first question I want to ask is if there is any rejoinder of issue that 
any of you would like to take with each other, not necessarily three 
against one, although it may turn out to be that way. 

I am sorry for that, Mr. Morris, but you are more than competent 
to handle yourself Are there any statements that any of the panel- 
ists made that you wish to take issue with or to underscore and 
highlight? 

Mr. WOODHEAD. I would like to underscore one statement made 
by Mrs. Meyers who said that Canada is using the GATT to sub- 
sidize its wheat exports to the United States and that this practice 
is really not in the spirit of NAFTA. I think it provides an oppor- 
tunity to look at some of the data in North American trade. 

As I testified previously before this committee, the devaluation of 
the peso will change the trade numbers dramatically. In February, 
we saw that the overall surplus with Mexico shrank to $48 million 
while the deficit with Canada continues to be very large; more than 
$1 billion a month. The single month trade deficit with Canada 
won't be matched in a year with trade surpluses with Mexico if this 
trade continues. 

As Candada continues to subsidize the export wheat to the Unit- 
ed States, and accumulates huge trade surpluses with the United 
States, we have a problem with North American trade now. 

Mr. Samuel. One point I would like to make 

Chairman LaFalce. With respect to Canada, if I may, and 
wheat, within the Canadian American Free Trade Agreement was 
there not a dispute resolution mechanism that was called for, and 
hasn't that mechanism withstood the NAFTA and haven't they 
come down on the side of Canada on that particular issue? 

Mr. WooDHEAD. I think that the crucial issue was the makeup 
of the dispute panel. This speaks to what Mr. Nader said. 

Chairman LaFalce. But we did decide in advance that that 
panel would be OK. So in that particular instance, is the United 
States coming to the table with clean hands, if you will, on that 
particular issue? 

Mr. Woodhead. I would prefer not to answer for the United 
States. 

Chairman LaFalce. I would have some concerns about our en- 
tering into an agreement — I have. to get more facts on what really 
is taking place there — but I am a little concerned that we may be 
crying foul when we have already established the rules of the 
game, and now just don't like the results. 

There is a question, too, as to it is not just the wheat growers 
who are concerned, it is the pasta producers who are concerned, 
too. They are concerned about the impact United States action 
might have on the cost of pasta within the United States and as 
a pasta lover, I am especially concerned about that issue. 

Mr. Woodhead. I understand. 

Mr. Samuel. On a different subject, I want to make sure that it 
is understood by the committee that the business community is 
surely not united on the issue of the Uruguay Round. 



40 

There are a number of companies obviously associated with Mr. 
Morris' organization, but there are also many other businesses 
which have grave doubts about the Uruguay Round, some of them 
expressed through LICIT membership, some by other groups, in- 
cluding the committee for Support of U.S. Trade Laws, a very large 
group which I think has well over 100 members, including associa- 
tion, which have grave doubts 

Chairman LaFalce. This is a little bit different. In NAFTA, big 
business was almost monolithically supportive of the NAFTA. We 
do see some division here, considerable division. By the same 
token, labor was vociferously opposed to NAFTA and now they 
seem opposed, but they don't seem as adamantly opposed as they 
were to the NAFTA. Maybe I am not getting the right messages, 
but that is what my antenna are picking up. 

Mr. Morris. Let me just speak to the question of business views. 
Business was wildly enthusiastic about NAFTA because it was by 
far the best trade agreement the United States has ever negotiated 
and we may not see another as good as that for some time. When 
you negotiate with 120 other countries, you are going to have to 
make more compromises than we had to make with Mexico. 

Yes, there will be some elements of the U.S. business community 
which don't feel they have been fairly treated in the GATT Round 
and they will therefore be opposed. 

Chairman LaFalce. Your membership was created, existed prior 
to what we knew NAFTA would turn out to be. 

Mr. Morris. Sure. 

Chairman LaFalce. Do we have within your own membership 
any sizable number of businesses who are opposed? 

Mr. Morris. No. Hardly any, but there are a few. We have a 
membership of almost 200 American companies plus another hun- 
dred other enterprises. 

Chairman LaFalce. But if there is such a sizable segment of the 
business community that is opposed 

Mr. Morris. I don't think it is sizable. The Alliance for GATT 
Now Coalition to which I referred, includes all of the broad-based 
business associations; that is to say, the U.S. Chamber of Com- 
merce, the National Association of Manufacturers, the Business 
Roundtable, ECAT, and the American Farm Bureau Federation. 

Chairman LaFalce. Have they ever seen a trade agreement they 
haven't loved? 

Mr. Morris. The Chamber of Commerce is not these days a 
knee-jerk, free trade group by any standard. The fact that they 
were able to persuade their members, 180,000 of them, that by and 
large it is a good deal 

Chairman LaFalce. What is NFIB's position on this? The NFIB 
was neutral on NAFTA. 

Mr. Morris. I haven't seen their position. We are in the process 
in the coalition of developing a more exhaustive list. You may re- 
rnember that the USA NAFTA Coalition ended up with over 4,000 
signatories, a lot of them Joe's cleaners in Nogales, but so what. 
This is a Small Business Committee. I assume they count as much 
as IBM. 



41 

Chairman LaFalce. Since this is the Small Business Committee, 
we took special cognizance of the fact that NFIB did not support 
NAFTA. They didn't oppose it either. They took a walk on it. 

Mr. Morris. I don't know whether they support the GATT or not. 
I accept Howard's point that the business community is more di- 
vided over the GATT agreement than it was over NAFTA. I think 
it is necessary that we not exaggerate that division. 

The number of companies that are dissatisfied are well out- 
weighed by the those who are prepared to accept this agreement 
as the best we can get at this stage and to build from it, and I 
think that is the key; that we have to build from this agreement 
and accept it. 

Mr. Nader. Responding to your initial question, two points. One, 
I would be very cautious in raising any expectations that this 
agreement can be changed by implementing legislation. The new 
GATT agreement is much more explicit than even NAFTA. 

In Article IX, Section 2, it says "The ministerial conference and 
the general counsel shall have the exclusive authority to adopt in- 
terpretations of this agreement and of the multilateral trade agree- 
ments." 

Chairman LaFalce. That is the council where we have one vote? 

Mr. Nader. Yes. 

Chairman LaFalce. What was the name of that country with 
60,000 people? 

Mr. Nader. Saint Kitts in the Caribbean, a former British col- 
ony. In speaking with Members of Congress, many of them think 
that some of the problems that they are worried about can be fixed 
with implementing legislation. I think that is not accurate. 

The second relates to Mr. Morris's astonishing statement that 
present and future health safety standards in the consumer, envi- 
ronmental and worker area cannot be challenged by other countries 
and cannot be chilled by domestic interests in alliance with other 
countries. 

I would like to have him refer to a provision in the agreement, 
Article XVI, Section 4, which says — and this is a very important 
statement — "Each member, namely each signatory country, each 
member shall ensure the conformity of its laws, regulations and ad- 
ministrative procedures with its obligations as provided in the an- 
nexed agreements." 

One of the most prominent phrases is "least trade restrictive" not 
only in terms of the standards, but the processes used and the 
means used. 

For example, when Mercedes is challenging our laws, they are 
not saying our fuel efficiency laws and gas guzzler tax have bad ob- 
jectives. They agree with the objectives. But the means used vio- 
lates, in their opinion, the old GATT agreement. They are suggest- 
ing in the argument last fall in Geneva that we should have had 
a carbon tax. That is the way to deal with the purposes of effi- 
ciency and gas guzzler laws. 

Last year Congress turned down the carbon tax. So it doesn't just 
relate to a food safety standard. It very much relates to the process 
and to the means. 

Just to point out that this is not a list of hypotheticals, already, 
Mr. Chairman, as I pointed out on page 14 of my testimony 



42 

Chairman LaFalce. Let me ask you a theoretical question, Mr. 
Nader. 

Mr. Nader. If I may finish the example. 

Already under old GATT, a Danish recycling program, the U.S. 
asbestos ban, a Canadian reforestation program. United States, In- 
donesian and other countries' restrictions on export of unprocessed 
logs, a Canadian antiair pollution program and a U.S. law designed 
to protect dolphins have been attacked as nontariff trade barriers 
under free trade agreements. That is not a complete list. We have 
Puerto Rican milk standards, et cetera, that are discussed in my 
testimony. 

How someone who favors this agreement can say that our health 
and safety standards and worker and consumer and environment 
cannot be diminished by successful attacks as nontariff trade bar- 
riers or through harmonization procedures is incredible. 

Mexico allows trucks to weigh up to 175,000 pounds. We allow 
trucks to weigh up to 80,000 pounds. Where do you think the har- 
monization committee is going to come out? It will be closer to 
100,000 or 150,000 pounds because the trucking industry in this 
country wants to go the way Mexico goes. The same is true with 
Mexican driver licenses. 

Under DOT, under Bush, an agreement with Mexico saying that 
Mexican driver licenses are equivalent to ours even though they 
have 10-year renewals and they don't have to know by training or 
experience how to drive their rig. 

Chairman LaFalce. The primary voices on these advisory com- 
mittees from the business community are the voices of the 
transnational corporation, and so there is in trying to come up with 
some international harmonization a tendency to opt for the least 
common denominator. 

So I don't know that whenever we have advice from the U.S.- 
based corporation, it is necessarily the interest of the U.S. citizens 
who are best being served. That is, I think, a serious problem. Mr. 
Morris. 

Mr. Morris. On the question of harmonization, every country 
preserves under this agreement as they have in the past the right 
to disassociate themselves from any harmonized standard which is 
developed through the ISO or any of the other institutions. You are 
free to retain a higher standard than that which has been inter- 
nationally harmonized. 

Let me refer you to 

Chairman LaFalce. Are you subject to any penalty 

Mr. Morris. No, because the GATT explicitly recognizes that 
countries have a right to establish a standard at any level that 
they choose for their purposes. 

Mr. Nader. If they are challenged and defeated in the Tribunal, 
they have to face trade penalties or repeal the law. 

Mr. Morris. There is really only one basis under which they can 
be challenged, and that is whether the standard which they are 
maintaining is unnecessarily restrictive of trade. That is a different 
standard than least trade restrictive. 

I refer you to the two texts which contain these provisions. One 
is the sanitary and phytosanitary text saying that standards shall 
be no more restrictive than required to achieve their appropriate 



43 

level of protection. That is not least trade restrictive. The TBT text, 
which governs all the standards which are not subject to SPS cri- 
teria, says that they shall not be more restrictive than needed to 
fulfill a legitimate objective, and protection of the environment or 
health and safety are defined in the text as legitimate objectives. 

Sure, it will be up to the panels to interpret what the phrases 
and the various footnotes mean. We as an organization have sug- 
gested how to refine those criteria to make them more certain in 
their outcome. For example, we have suggested that, in reaching a 
decision about whether or not a standard is unnecessarily trade re- 
strictive, the GATT panels be required to apply a test similar to 
that which the Supreme Court has dictated be used in the case of 
challenges to individual State standards under the Interstate Com- 
merce Clause. 

We think that could be fairly easily transmuted into an inter- 
national standard. 

Chairman LaFalce. What is the standard? 

Mr. Morris. There are three basic tests which the Supreme 
Court has said should be used. I didn't bring my material with me. 

Chairman LaFalce. Flesh it out for me in writing. 

Mr. Morris. OK 

[The letter from Mr. Morris may be found in the appendix.] 

Chairman LaFalce. Let me ask a philosophical question. Mr. 
Nader, is it possible for any government to enter into any bilateral 
accord or multilateral accord without entering into mutual contrac- 
tual obligations, rights and responsibilities and to that extent giv- 
ing up a portion of its national sovereignty? 

Isn't that the essence of a contract between 2 parties or 100 par- 
ties, that whatever rights or responsibilities you have entered into, 
to that extent you have assented to infringement of your sov- 
ereignty? 

Mr. Nader. Yes, but under two umbrellas. One, democratic pro- 
cedures; and two, that trade agreements relate to trade. We have 
environmental agreements that relate to environment. We have 
consumer and labor agreements relating to consumer and labor 
matters and they are on level playing fields. 

The problem with this is trade possesses a supremacy over other 
matters and within an autocratic structure. 

Chairman LaFalce. I share some of your concerns there. Is there 
anything under this GATT that differs under the previous GATT 
insofar as the extent to which we give up a bit of our sovereign 
rights, our prerogatives? 

Mr. Nader. Many things. 

First of all, as USTR Kantor admitted before another House com- 
mittee in response to a question by Congresswoman Long, if we 
lose the Tribunal dispute case in Geneva, we only have two choices: 
Repeal the law or pay the fines. 

Under old GATT, we could invoke the consensus principle and in 
effect, veto and not accept the Tribunal as we did in the tuna dol- 
phin case. Second, there is no WTO under old GATT. You have a 
WTO now where every country has one vote on many important is- 
sues and the WTO can be the prosecutor; that is, it can initiate 
challenges, not just leave it to any other country. 



44 

Chairman LaFalce. I am wondering if— because of the format of 
the WTO, Mr. Morris, it would seem to me there are more develop- 
ing nations than developed nations and if the developing nations 
band together and vote en bloc, couldn't they almost always get a 
majority vote over the developed nations? 

Is there some concern about that? We had a concern when we 
created the Constitution about the big States and the little States, 
so we came up with some compromise. We have a unicameral legis- 
lative body here in the WTO, one vote for the biggest and strong- 
est, one vote for the weakest and smallest. 

If you have a lot of developing countries getting together, couldn't 
that pose some potential problems? 

Mr. Morris. My reading of the text— and I am not an expert in 
this and the administration should be asked to give a definitive re- 
sponse — it is very difficult to get an amendment voted through 
under almost any circumstances that touches the substance of the 
GATT rules or the WTO rules as they will be. 

Chairman LaFalce. It is not an amendment; it is an interpreta- 
tion, isn't it; an application? 

Mr. Morris. There is a difference between changing a GATT rule 
through the amendment process. On that, I agree with Ambassador 
Yerxa that it basically will require consensus on any significant 
matter. 

Chairman LaFalce. Why would it require consensus as opposed 
to a majority vote? 

Mr. Morris. As he explained earlier, for a substantive change in 
the rules which have been laid down in this new agreement, you 
require a consensus. Or if there is a two-thirds majority, then you 
are not bound by it. I am not an expert in this. 

The other question which you raise which is legitimate is the 
question of the panel report and the extent to which that begins 
to create case law. It would in the United States create case law, 
no question. But you have to remember that GATT as an inter- 
national institution does not formally acknowledge the value of 
legal precedent so consequently each case is decided on its merits 
without at least formal reference to past cases. 

Nevertheless, it is obvious that in many cases, there is something 
of a precedent that is established. That is why among other things 
we think that the United States needs to work to sharpen the cri- 
teria that are going to be used in reaching various agreements, 
particularly in health and environment which we believe does need 
some clarification. 

We do not think that the texts have gone far enough, but are 
prepared to accept them as a basis for ongoing work. We are will- 
ing to work with anybody to see what the best way of dealing with 
these issues are, and indeed we have had several informal dfiscus- 
sions with a variety of American environmental organizations to 
examine whether or not we can come up with some agreed criteria. 

We are not disappointed in this process. We think it can work 
and so do they, incidentally. 

Mr. Nader. Article IX of the agreement says "Except as other- 
wise provided, where a decision cannot be arrived at by consensus, 
the matter at issue shall be decided by voting. Each member shall 
have one vote." 



45 

So you can be right at the USTR and say these decisions are to 
be arrived at by consensus, but if you don't finish the sentence, you 
will be misleading. Sure it can be arrived at by consensus, but if 
it isn't it must be decided by voting. 

I would like to not leave this room without having two areas of 
agreement with Mr. Morris. Does he agree that the European Com- 
munity put out a list of U.S. laws as alleged United States non- 
tariff trade barriers which include the Consumer Nutrition Label- 
ing Act, the State recycling laws and fuel efficiency regulations for 
motor vehicles — they put it on a list that says these U.S. laws are 
nontariff trade barriers, waiting for the challenge once WTO opens 
its doors. The second is would he agree that the Tribunal should 
be open to the press, that all submissions by Governments to the 
three trade expert panel should be available for scrutiny by citizens 
in the various countries? Just those two simple procedures. 

Mr. Morris. I take it as a given that the EC did put those mat- 
ters on their equivalent of the National Trade Estimate — is that 
what it is called these days — the National Trade Estimate Annual 
Report. Whether they will bring them to the GATT for a complaint 
procedure is their decision; I don't know. 

Second, do I think the panel should be open to the public? Not 
particularly. This is after all an intergovernmental organization. It 
is not a sovereign body standing alone that should be subject to 
rules which are essentially different from those of any international 
organization. However, speaking as a representative of the busi- 
ness community, if the system wants to be opened up to observers 
or even amicus curiae type of activity, sure, we as a business orga- 
nization will participate in that exercise. 

I regard that as an issue which is up to the governments. I would 
note that under the procedures which have been adopted for the 
panels at the request of one of the parties to it, the other party 
must make public at least a summary of its presentations to the 
panels. That is certainly a major advance over the current GATT 
system which contains absolutely no requirements that anything be 
divulged to the public. 

Mr. Samuel. Mr. Chairman, LICIT, which does include business 
members, does believe that the panel should be open and should 
allow participation by the private sector. 

Mr. WOODHEAD. Since Mr. Morris explained the response to busi- 
ness, I would like to explain the AFL-CIO's response to the GATT. 

Labor's response to GATT must be contrasted with our vehement 
opposition to NAFTA, in which our membership drove the opposi- 
tion. They understood the problems with NAFTA at gut level, and 
when I went to speak on that agreement around the country, I was 
preaching to the choir. Nobody understands the provisions of 
GATT, least of all individual citizens who do not have access to the 
400-page document. 

It would be very difficult for the average worker to try to make 
reasonable comment on what may or may not be right or wrong 
with the GATT agreement based on what has been analyzed and 
released so far. If we are willing to say we are for expanded trade, 
we can all wave the flag and say this is a great deal. But if we are 
willing to take a harder look at the individual provisions of the 
agreement it is going to take a while. 



46 

I would therefore, urge Congress to not implement this ageement 
in too great of a hurry. We don't really understand what the projec- 
tions are for economic growth, for job growth, for international 
trade. We have to look at each individual chapter and that is why 
we are somewhat reserved at this point 

Chairman LaFalce. I don't see how we can do health care and 
this GATT this year at the same time. I think this is going to have 
to be taken up next year. 

Mr. WooDHEAD. To be done properly, I agree. 

Chairman LaFalce. I think it would have a difficult time pass- 
ing if taken up prematurely. I think this is going to have to be 
massaged quite a bit. Maybe the implementing legislation can deal 
with a good many of the concerns; I don't know. 

I am wondering the extent to which we can implement the legis- 
lation in such a way that would make it clear that our acceptance 
of the GATT is contingent upon the reservations that we put in im- 
plementing legislation. When we ratify treaties, we sometimes do 
it with reservations, with exceptions. 

I am wondering to what extent this GATT— it is more difficult 
with a multilateral agreement than a bilateral or trilateral agree- 
ment to understand, but I would think that this is worthy of explo- 
ration — by coming out with our own definitions and saying our ad- 
herence to this is contingent upon this definition of the term. I 
don't know. 

Mr. Nader. Except that the terms of the GATT agreement pro- 
hibit exceptions or reservations, unlike other treaties that we have 
signed. 

Chairman LaFalce. Do you have the section? 

Mr. Nader. I will get it for you. In the ILO agreement, we have 
reservations, exceptions, et cetera. This one is up or down on the 
whole agreement and the whole thing is only interpreted by the 
Ministerial Council, not by any implementing legislation. 

[The following information was subsequently received from Mr. 
Nader:] 

Agreement Establishing the World Trade Organization, Article XVI-5. 

Mr. Morris. May I suggest, sir, that this it is a function of the 
fast-track legislation, the up-or-down vote. I would not be discour- 
aged about the possibility of negotiating with the administration 
some kind of interpretations. After all, they will be submitting 
along with the draft legislation a statement of administrative ac- 
tion, how they intend to implement the obligations of these agree- 
ments. You will have an opportunity during the so-called markup 
to say could we put in an interpretation here, would this the obli- 
gations you have entered into compromise? That is the sort of thing 
you ought to be talking to the Administration about. I would not 
be discouraged at all about it. That is what was done in 1979 when 
we did the Tokyo Round. 

Mr. LaFalce. You must understand what fast-track legislation 
means. It is simply an attempt by any Member, Democrat or Re- 
publican, to usurp power and power of the Congress. 

If I were President, I would probably try to do the same thing. 
But it is an absolute constitutional nullity. There is no way that 
a President, and there is no way that a Congress can give up its 
constitutional power. 



47 

One of the unfortunate aspects about fast-track authority is that 
the Congress fools itself. The Congress passes legislation saying 
they can't amend and therefore believes it can't amend, but the 
Congress has at all times the constitutional capacity to amend any- 
thing it wants at any time it wants. 

Mr. Morris. Mr. Chairman, I don't disagree with you at all. I 
know that you have that right and you can vote to change the fast- 
track rules any time you want to. I urge you not to do so. 

Chairman LaFalce. When you talk about fast track, it gets to 
me. 

Mr. Nader. One problem with fast-track is it discourages Mem- 
bers of Congress from getting interested in the details. So often 
they deal with knee-jerk stereotype emblems on the overall pack- 
age 

Chairman LaFalce. The biggest sales job ever done on the Con- 
gress by the Congress. 

[The information may be found in the appendix.] 

Chairman LaFalce. We have to conclude now. It is after one 
o'clock. 

Thank you for your participation. We have just begun to scratch 
the surface. We will be calling upon you much more in the future 
as we help the administration develop its fast-track legislation. 

[Whereupon, at 1:05 p.m., the committee was adjourned, subject 
to the call of the chair.] 



48 
APPENDIX 



Opening Statement 

OF 
THE HONORABLE jAY DiCKEY 

Fourth District - Arkansas 

Before the Small Business Committee 

Regardin(; a Hearin(7 on 
"The GATT Uruguay Round: Implications for Small Business" 

APRIL 26, 1994 



Mr. Chairman, thank you for holding this hearing regarding the Uruguay Round of the 
General Agreement on Tariffs and Trade (GATT).You have gathered an esteemed panel of guests 
and I look forward to their testimony. 

As you are aware, I am a strong advocate of free trade and the estabhshment of protections 
for American interests as they venture abroad. Routine theft of inteUectual property, foreign 
subsidies that undercut market realities, and restrictions to U.S. access to foreign markets are all 
issues that are addressed for the first time by the Uruguay Round. I hope that this hearing will help 
to shed some light exactly how well the United States negotiating team fared. My own 
understanding suggests that while there are many special interests that may feel slighted by the 
agreement, the benefits to all outweigh these concerns. 

Additionally, 1 hope that this hearing will be an open forum for discussing the funding 
scheme as proposed by the Administration. As a representative from an agricultural district slated 
to gain tremendously from the agreement, it is disturbing to hear that my farmers will bear an 
disproportional share of the burden. Apparently, of the total $14 billion in lost tariff revenue, 
farmers are supposed to shoulder approximately 40% of the cost even though agriculture accounts 
for only 5% of that lost revenue. This at the same time that the GATT agreement trumpets 
American subsidy reduction programs by forcing all other nations to "catch up." 

Finally, I hope that this hearing helps to validate my understanding that the GATT 
agreement will be good for small business. More and more, small businesses are flexible enough 
and better able to adapt to changing realities to immediately take advantage of GATT achievements. 
A simplification and harmonization of international trade regulations will allow current exporters to 
examine new market opportunities. The additional support of regulatory norms, established by the 
World Trade Organization, will facilitate solutions to unfair trade practices abroad. 

Thank you and I look forward to the testimony of the distinguished panelists. 



/49 



STATEMENT OF REP. JOHN J. LaFALCE 

COMMITTEE ON SMALL BUSINESS 

"THE GATT DRDGDAY ROUND: IMPLICATIONS FOR SMALL BUSINESS" 



This morning the Small Business Committee convenes to review 
the primary features of the GATT Uruguay Round Agreement and its 
implications for U.S. companies and their workers. 

We meet barely one week after the Agreement's historic 
signing in Marrakesh, Morocco which brought 125 GATT member 
countries together to agree to increased international discipline 
on global commerce. The question we in Congress--and the 
American people--must now consider is whether this Agreement is, 
on balance, good for the United States. 

The Uruguay Round is in many ways a victory for the United 
States. It was United States leadership that launched the Round 
in Punte del Este, Uruguay in September 1986, insisting that not 
only traditional trade in goods be liberalized, but that new 
sectors and issues also come under the GATT umbrella. 

As is typical in such rounds, we had the usual "bread-and- 
butter" issues of market access--tarif f s and nontariff barriers-- 
to pursue with over 100 Contracting Parties of GATT. But, as the 
result of U.S. insistence, GATT members also considered new trade 
rules for agriculture, intellectual property, services, and 
trade-related investment measures. We faced resistance across 
the board, as well as specific assaults on U.S. trade law. As a 
result, these negotiations dragged on for seven years--three 
years past the first deadline and several deadlines thereafter. 
The fact that we have finally concluded such a monumental 
international trade agreement is a tribute to the consistent 
effort of our dedicated team of U.S. negotiators over the years. 

The signing of the Uruguay Round Agreement occurs at a 
critical time for the international economy. This month, the 
most recent U.S. trade figures were released showing a 
substantial increase in our trade deficit. February figures were 
the worst monthly posting in six years, rising sharply to $9.7 
billion from January's $6.4 billion. The increase in the 
merchandise deficit was 20 percent, while the traditional 
services surplus dropped 11 percent. This disappointing 
performance is attributed primarily to the slowdown in U.S. 
exports due to the sluggish economies of our trading partners and 
to the surge of U.S. imports resulting from vigorous growth of 
the U.S. economy. Under these conditions, further opening of 
international markets is critical for sustaining U.S. economic 



50 



recovery and creating new employment opportunities. 

For this reason, the Committee begins to explore this 
morning not only the main features of the Uruguay Round, but also 
its possible drawbacks. The following issues are of particular 
concern : 

Although labor rights are not specifically addressed in 
the Uruguay Round Agreement, there is an understanding 
that this important issue can be placed on the agenda 
of the World Trade Organization. In an increasingly 
integrated global economy, the rights of workers 
overseas--their wages, working conditions, and freedom 
to associate and organize--will affect the wages and 
jobs of U.S. workers. Studies have shown that trade 
liberalization often increases the income gap between 
rich and poor within countries as well as between 
countries. Unless we insist on basic uniform labor 
standards for the workers of our trading partners, U.S. 
workers will inevitably have their wages and living 
standards decline because of unfair labor competition, 
and ultimately could lose their jobs. 

While tariffs are being reduced generally by 30 

percent, we must determine exactly how U.S. -reduced 
tariffs compare with the tariffs of others--whether our 
tariffs still remain substantially lower or whether the 
tariff gap has narrowed. 

The new subsidies provisions create several concerns. 
We must assess whether permitted, or "green lighted, " 
subsidies for R&D will mean that, in practice, our 
trading partners will take greater advantage of 
government supports and possibly force the United 
States into more R&D subsidies than we otherwise might 
pursue. Of specific concern is whether the existing 
Small Business Innovation Research program will be 
adversely affected by subsidies restrictions or will 
fall into the permissible category. Finally, we must 
examine whether subsidies for regional development will 
simply provide a backdoor means for supporting specific 
industries, such as steel. 

We must be concerned about preserving the effectiveness 
of U.S. trade law and having adequate recourse to trade 
remedies that will protect U.S. industry from unfair 
trade practices. A Dispute Settlement Understanding 
that infringes on the U.S. ability to invoke Section 
301, for example, will cause considerable consternation 
in the Congress. 



51 



This Uruguay Round Agreement creates a new institution, 
the World Trade Organization, that will replace GATT 
and reportedly will have greater enforcement and 
rulemaking powers. We need to know exactly how the 
World Trade Organization will operate and what its 
advantages and disadvantages will be for the United 
States. It is critical that we fully understand how 
U.S. trade obligations might increase under the WTO, 
and how they will compare with those of other WTO 
signatories, particularly developing countries. A 
central question is whether Special and Differential 
Treatment for developing countries with respect to 
obligations remains a feature of the WTO. 

The Committee must examine the practical effects of 

phase-in agreements, and whether certain provisions put 
U.S. companies at a clear disadvantage. The long 
phase-in for intellectual property protection is of 
particular interest since intellectual property 
protections are of special importance for small 
business, especially in the high-tech field. 

We must review how the services agreement will operate 
and what the benefits will be to U.S. services 
companies. Small and medium enterprises are the 
largest component of the U.S. services sector and will 
hope to take advantage of new opportunities provided by 
the Uruguay Round Agreement . 

To shed light on all these issues, we have a distinguished 
group of witnesses, all trade experts, who have been intimately 
involved in the Uruguay Round process in one way or another. We 
begin on Panel I with witnesses from the Administration. Deputy 
Dnited States Trade Representative Rufus Yerxa has had the 
privilege--and pain--of being involved in negotiations from both 
Geneva and Washington. Assistant Secretary of Commerce Susan 
Esserman has the responsibility to ensure that our U.S. trade 
laws for dumping and countervailing duties remain strong and 
effective under the new WTO. We welcome you both. 

On Panel II, we will begin with Ralph Nader, Founder of 
Public Citizen. Howard D. Samuel is Executive Director of the 
Labor/ Industry Coalition for International' Trade as well as Vice 
President of the Economic Stategy Institute. Mr. Samuel was 
Deputy Under Secretary for International Labor Affairs during the 
Carter Administration. 

Finally, we will hear from Robert J. Morris, Senior Vice 
President of the U.S. Council for International Business, and we 
welcome back to the Committee Dr. Gregory Woodhead, Economist at 
the Task Force on Trade, AFL-CIO. We are pleased to welcome all 
of you this morning. 



52 



REMARKS OF THE HONORABLE DON MANZULLO 

BEFORE THE SMALL BUSINESS COMMITTEE 

ON THE IMPACT OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE 

ON SMALL BUSINESS 

APRIL 26, 1994 

Mr. Chairman, thank you for holding hearings today on the 
issue of the GATT accord. The world of exporting is extremely 
complex and cumbersome to many small businesses. This 
effectively prevents many small businesses from even venturing 
into foreign markets. I am pleased that this GATT round has 
further eliminated many trade barriers for these small businesses 
so that they can compete on a global scale. That's because U.S. 
exporters will now have the chance to become more price 
competitive in more than 117 countries who have signed GATT. 

However, some have raised serious concerns about provisions 
in GATT that permit increased government assistance to industry 
by Europe and Japan. It is already difficult enough for Boeing 
to compete against the heavily subsidized European Airbus. If 
further industrial subsidies are permitted, it would force either 
the U.S. government to mimic European policies or deny Boeing 
export opportunities. I enclose for the record a copy of a 
February 1, 1994 Washington Post news article, which discusses 
this problem in more detail. 



53 



There are literally hundreds of suppliers to Boeing, many of 
them small businesses. The largest single employer in Rockford, 
Illinois, the biggest city in the 16th Congressional District, 
Sundstrand Corporation, is a major supplier to Boeing. This is 
no academic exercise for my constituents. 

I look forward to the testimony of the witnesses before us 
to see if they have any comments on this specific issue. Thank 
you, Mr. Chairman. 



54 



Washington Post , February 1, 1994, p. A4 



•^ III lldiill llltl 




55 



OPENING REMARKS OF THE HONORABLE GLENN POSHARB 

COMMITTEE ON SMALL BUSINESS 

April 26, 1994 

Mr. Chairman, thank you for bringing together today a panel of experts to 
discuss the GATT Agreement and its effects on the small business community in 
America. I believe GATT has the potential of benefitting our nation's economy and 
its workers. The GATT Agreement will allow American businesses to take advantage 
of a prosperous and growing international market. 

As was my concern with NAFTA, I believe we must insure that GATT 
addresses the issues of workers' rights and the environment. In order for the United 
States and many other developed countries to compete in an international market, we 
must insure that all nations participating in the GATT Agreement play on a level 
playing field. I believe it is important that the World Trade Organization further 
address such important issues as workers' safety, the exploitation of child labor and 
forced servitude, and stricter antidumping laws. I also feel very strongly that the 
American worker must be protected by the World Trade Organization through tougher 
intellectual property rights protections. 

As the doors to international trade open, we must assist small business in 
developing the means in which to play an important and prosperous role in exporting 
goods to the world. As our economy becomes global, so must America's small 
business community. Mr. Chairman, we must identify ways to allow small and 
medium enterprises the opportunity to grow and profit from the GATT 
Agreement and future trade agreements. I look forward to the panel's testimony and 
recomm^endations for involving small businesses as active participants in a growing 
global market. 



56 



^J\L^ 



STATEMENT OF CONGRESSMAN JIM RAMSTAD 

BEFORE THE HOUSE SMALL BUSINESS COMMITTEE 

THE URUGUAY ROUND: IMPLICATIONS FOR SMALL BUSINESS 

April 26, 1994 

Thank you Mr. Chairman for calling this hearing today. I also want to welcome our 
distinguished panelists, who I hope will relieve some of my concerns about the GATT 
agreement. 

Having carefully monitored the Uruguay Round negotiations for the last six years, I was 
certainly pleased when an agreement was reached. 

Clearly, our nation's long-term economic prosperity depends heavily on our ability to market 
goods and services in the increasingly global economy. We all know the critical role 
international agreements like the GATT play in facilitating such trade. 

I am anxious to consider the details of the agreement and I am pleased we have such an 
expert panel with us this morning to consider the treaty. 

Again, thank you for calling this hearing Mr. Chairman. 



57 



OPENING STATEMENT OF 

CONGRESSMAN BILL ZELIFF (R-NH) 

Small Business Committee 

April 26, 1994 



Mr. Chairman, thank you for organizing today's hearing on the recently 
completed Uruguay Round of the GATT agreement - especially its impact 
on small and medium sized businesses. 

The latest round of GATT represents the most ambitious world trade 
agreement ever undertaken. It has the potential to reach just about every 
sector of our economy. 

I believe that free trade - trade without tariffs or arbitrary restrictions 
- is normal and productive trade. Free trade spurs economic growth and 
benefits the citizens of all countries involved. 

As the world's leading exporter, the United States has an enormous 
stake in promoting free and fair trade through the GATT agreement. 
Literally millions of American jobs can be created with the right agreement. 
Hundreds of thousands of small businesses can be spurred by this increased 
economic activity. 

Even small businesses which don't export directly can benefit from 
GATT. These small businesses may supply larger businesses which have 
increased exports. By fighting for lower tariffs and foreign market access, 
the United States is securing a domestic industrial base that will likely source 
raw materials and other components through local small businesses. 

However, I understand that there have been concerns raised about some 
elements of this agreement. We should explore these concerns fully so that 
we can arrive at an answer to the central question of this debate, "On 
balance, will this GATT agreement benefit the people of America and the 
world?" 

Mr. Chairman, I look forward to today's testimony. 



58 



TESTIMONY OF SUSAN G. ESSERMAN 

ASSISTANT SECRETARY OF COMMERCE 

FOR IMPORT ADMINISTRATION 

BEFORE THE COMMITTEE ON SMALL BUSINESS 
U.S. HOUSE OF REPRESENTATIVES 

April 26, 1994 

Introduction 

Mr. Chairman, Members of the Committee, thank you very much. 
It is a pleasure to be here today to discuss the tremendous 
achievements of the Uruguay Round, focusing in particular on the 
results of the antidumping and subsidies negotiations. 

Overview of Uruguay Round Gains 

The Uruguay Round agreements are a groundbreaking achievement 
for the advancement of free and fair trade in an increasingly 
complex and interrelated world economic setting. This historic 
trade treaty provides for: 

o lower tariff and non-tariff barriers to U.S. manufactured 

products, 
o rules to protect the intellectual property of U.S. 

entrepreneurs ; 
o fair competition and open markets in agriculture; 
o integration of textiles into the GATT system; 
o full participation of developing countries in the global 

trading system; 
o improved "rules of the road" in many regulatory areas 

which can affect international trade; 
o a revised and revitalized dispute settlement system that 

provides the means of ensuring that trade disputes will 



be addressed in a more certain, timely and effective 
manner; and 
o a successor institution to the GATT, the World Trade 
Organization, which will: ensure the full, effective 
implementation of the revitalized trading system; 
require, for the first time, the full participation of 
all members; and provide a permanent, comprehensive forum 
to address the new or evolving issues of the 21st century 
global market. 

Uruguay Round Achievements Affecting U.S. Trade Laws 

As the agency responsible for the enforcement of U.S. 
antidumping (AD) and countervailing duty (CVD) laws, the Department 
of Commerce has a special concern and sensitivity towards how the 
Uruguay Round agreements could impact the effectiveness of our 
laws. On this score, it is my view that the Uruguay Round 
agreements on antidumping and subsidies effectively promote the 
interests of the United States. The outcomes of both the 
antidumping and subsidies negotiations meaningfully advance the 
ability of U.S. manufacturers — large and small — to compete in 
our domestic market and abroad. 

The United States sought to and did fulfill a variety of 
objectives in these negotiations. In antidumping, where we faced 
stiff opposition from a host of countries, we had to ensure that 
the effectiveness of U.S. law was preserved. At the same time, we 
sought to hold other governments administering antidumping laws 



60 



accountable to the same standards of transparency and due process 
that we apply under our system. In subsidies, we also strived to 
maintain the countervailing duty law as an effective remedy against 
subsidies in the U.S. market, but we looked beyond our borders to 
the establishment of strong, new multilateral rules which would 
discipline the most distortive subsidies and create effective 
remedies for U.S. companies facing subsidized competition in 
foreign markets. 

U.S. Negotiating Results 

The Uruguay Round agreements permit, and in many ways enhance, 
the ability of the United States to take tough and effective action 
against unfair trade. This is absolutely crucial — especially for 
small businesses. U.S. companies must know that they do not have 
to compete in the U.S. market against injurious, unfairly traded 
imports made possible either by the deep pockets of protected 
foreign competitors or of foreign government treasuries. We in the 
United States do not like closed markets for a variety of good 
reasons. However, the most objectionable aspect of closed markets 
abroad is that they 'permit foreign industries to export the 
consequences of their own refusal or inability to adjust to 
international competition — consequences which are realized in 
terms of lost U.S. jobs and closed U.S. businesses, whose pockets 
may not be nearly so deep as those of their protected foreign 
competitors. 

This is unacceptable. International trade rules have for 



61 



decades recognized that the ability to respond to and offset 
injurious dumped and subsidized import competition is an integral 
aspect of the liberal trading system. Unfair trade remedies need 
to remain reliable and accessible as an insurance for the expansion 
of world trade and the further opening of markets. The Uruguay 
Round agreements provide for this, and the Administration is fully 
committed to ensuring that the AD and CVD laws remain a prominent 
feature of an aggressive yet liberal U.S. trade policy. 

But the assurance of fair trade in the U.S. market alone is no 
longer sufficient to provide for the competitiveness and prosperity 
of U.S. firms and workers. U.S. exporters need to know that their 
increased access to foreign markets will not be prejudiced by the 
application of foreign AD/CVD laws that in the past have not lived 
up to U.S. standards of openness and due process. This is 
especially important for small businesses, whose share of U.S. 
export trade is growing but who may not have the wherewithal to 
retain expensive legal counsel or consultants. This, too, has been 
secured by the Uruguay Round agreements. Virtually all of the U.S. 
proposals relating to the transparency of investigations, the 
rights of participants, the access to information, and the. 
guarantee of judicial review were incorporated into the final 
agreements. This will go a long way towards eliminating the 
possibility that the fate of U.S. exporters will be decided in the 
proverbial "black box." 

Finally, in the area of subsidies, the agreement strikes a 



78-702 0-94 -3 



62 



fine balance which comprehensively and successfully addresses the 
competitive interests of the United States. The agreement 
represents a landmark step forward in defining and strengthening 
international disciplines over the most distortive kinds of 
subsidies. It also protects from foreign challenge a number of 
U.S. technology programs which help thousands of small businesses 
to assume the risks of innovative research that they would 
otherwise not be capable of assuming. 

Specific Accomplishments; The Antidumping agreement 

Negotiations on antidumping issues were extremely difficult 
and controversial. While the United States did not feel that 
changes to the 1979 Antidumping Code were essential, many of our 
trading partners wanted changes that would have crippled the 
effectiveness of our laws. Almost without support from other 
countries, we were able to resist these efforts and emerge from the 
negotiations with an agreement that satisfies our fundamental 
interests in this area. 

The previous draft agreement — the so-called "Dunkel Draft" 
— contained provisions that would have severely eroded the 
integrity of our antidumping law in many key respects. Had the 
Dunkel Draft been accepted, it would have been significantly more 
difficult for U.S. industries to file, win and maintain antidumping 
relief. Instead, U.S. negotiators were able to turn the tide 
against the more harmful provisions, in no small part thanks to the 
active, vocal support for changes voiced by many in the Congress. 



Listed below are some of the most important changes that we were 
able to obtain. 

Dispute Settlement: One critical achievement was in the area 
of dispute settlement, where we were able to negotiate standards to 
prevent panels from being able to second-guess our judgments or to 
impose unreasonable rules through exclusive "interpretations" of 
general provisions. The new WTO dispute settlement process is much 
Tiore effective than under the prior GATT system. Panel findings 
will be binding. The United States encouraged and applauded this 
development, but recognized a need for special rules for panels 
reviewing AD actions and interpreting the relevant agreements. Our 
goal was fully achieved with special rules for panels to follow 
when deciding disputes between WTO members on the application of AD 
laws. 

Sunset Provisions; There will be reviews of AD and CVD orders 
every five years to determine if they are still serving their 
purpose. These so-called "sunset" reviews will enable us to 
continue duties if their removal would likely lead to renewed or 
continued dumping and injury. This is in stark contrast to the- 
Dunkel Draft, which would have made the continuance of duties 
beyond five years nearly impossible. 

Anti-Circumvention; The Dunkel Draft also contained fatal 
restrictions on our exercise of anti-circumvention authority. The 
final agreements totally eliminated these restrictions. If the WTO 



64 



members are able to craft uniform international rules on the 

application of anti-circumvention authority through the process of 

consensus, we will of course adopt them. Until that time, we 

remain free to apply or improve our current laws against 
circumvention of AD and CVD duties. 

Standing; The Dunkel Draft would have stolen from U.S. 
workers the right to file AD and CVD petitions to protect their 
livelihoods from injurious dumping and subsidization. This right 
has been completely restored with the agreements. In addition, we 
have obtained clear and precise rules for determining the degree of 
support needed by domestic management or labor to justify the 
initiation of AD and CVD investigations. The lack of guidance on 
this point in the prior Codes led to adverse GATT panel rulings 
with the potential to invalidate fully justified duties on narrow 
technical and procedural grounds. 

Cumulation; The cumulation of imports from several countries 
in finding the injury required to impose AD and CVD duties has been 
specifically authorized in the final Antidumping Agreement. While 
the Dunkel Draft had done so for CVD, it was silent on antidumping. 
The potential loss of this authority would have been disastrous for 
our antidumping law. Our objective here was fully recognized. 

Specific accomplishments; The Subsidies Agreement 

While the Dunkel Draft on subsidies shared some of the 
problems outlined above, it also represented a great improvement 



65 



from the 1979 Subsidies Code in the development of effective 
multilateral disciplines on subsidies. This is critical where the 
damage to American producers comes through competition with 
unfairly subsidized production in foreign markets. Under the 1979 
Code, there is no definition of a subsidy and there are no clear or 
enforceable standards for showing how subsidized competition has 
harmed one's ability to enter or keep a foothold in foreign 
markets. Plus, even in those cases where the adverse effects of 
subsidies could be shown, the subsidizing parties have consistently 
exercised their ability to delay and block the approval of rulings 
made against them. In contrast, under the new system, we have 
clear rules for defining subsidies and for demonstrating the 
adverse effects which subsidies cause, all of which is 
automatically enforceable under the new binding dispute settlement 
system. For the first time, these rules will provide a credible, 
alternative remedy, in addition to our own countervailing duty law, 
to protect U.S. firms and industries from unfair subsidies. 

The Subsidies Agreement takes a "traffic light" approach. 
"Red-light" subsidies are forbidden. This includes export 
subsidies, and subsidies conditioned on local content. "Green- 
light" subsidies are shielded from both multilateral disciplines 
and application of countervailing duties. These include, under 
stringent conditions which will prevent abuse and harm to domestic 
producers, certain subsidies for research and carefully 
circumscribed development, certain subsidies for economically 
deprived regions, and subsidies of up to 20% of the cost of 



66 



equipment required for brinqing existing facilities into compliance 
with new environmental regulations. 

The green-light categories had existed for some time in 
previous drafts of the agreement. Our goals were to see that the 
categories were not subject to abuse and did not unduly restrict 
the ability of the United States to use them where we desired. 
This was a particular concern in the R&D category. We recognized 
that the Dunkel formulation could endanger many current and past 
U.S. technology initiatives while fully protecting the R&D 
assistance programs of some of our largest foreign competitors. 

All other types of subsidies ( i.e. , those not prohibited or 
protected) are in the "yellow-light" category. They may be subject 
to countervailing duties if injury is shown, or subject to multi- 
lateral action if adverse trade effects in other markets are 
demonstrated. A special feature of the latter provision is that 
adverse effects are presumed to exist in various circumstances, 
such as if the subsidy exceeds 5% of the value of the subsidized 
product. Though the presumption can be rebutted by the subsidizing 
government, this new rule will be of great benefit to the United 
States where we choose to use multilateral remedies. Even where 
the 5% level is not reached, the new objective measurements 
provided in the agreement for showing adverse trade effects are a 
great step forward in our efforts to curb and remedy unfair 
subsidies . 



67 



Implementing Legislation and Administrat ion of the Laws 

We are now hard at work preparing the legislation which will 
be needed to implement these agreements. Our overall goals for the 
implementing legislation are to promote the strength of the 
antidumping and countervailing duty laws, faithfully reflect our 
Uruguay Round commitments, and promote a sound structure to the 
laws. We are carefully reviewing the proposals of all parties and 
working with Congressional committees and the private sector to 
develop positions that will best advance these goals. We would 
welcome the suggestions of this Committee. 

One of my personal priorities is to seek wherever possible to 
reduce unnecessary burdens and procedures to afford greater access 
to our laws for small businesses and industries. This is an 
important consideration as we develop implementing legislation and 
regulations, and in our everyday administration of the laws. 
Both the Commerce Department and the International Trade Commission 
work actively with small businesses interested in bringing cases. 
At the Department, these efforts include counseling small 
businesses on the reguirements and procedures of the law, helping 
them to identify information necessary to file a petition, and in 
many instances lending a hand in the preparation of the petition 
document. Still, more can be done to simplify and lessen the 
burden of using these laws, and I am committed to exploring every 
reasonable means of doing so. 

This is a fundamentally important issue. We all recognize 



68 



that the inherent nature of the issues addressed in these laws is 
complex, and that many of the laws' requirements are for the 
purpose of ensuring equity and due process. On the other hand, 
however, it is often impossible for industries with limited 
resources to take advantage of our laws. I want to do whatever I 
can to minimize this problem. I am afraid that too often small 
industries are confronted with unfair trade practices but simply do 
not have the resources to attack them. 

We expect the legislative process to go forward soon, and hope 
that members of Congress and the private sector will help to 
expedite the process so that U.S. firms of all sizes can begin to 
take advantage of the benefits of this unprecedented package of 
agreements. Thank you for the opportunity to appear before this 
Committee. I would be happy to answer any questions you may have. 




United States Council for 
International Business 



1015 I5ih SIreet. NW. Suiie 975 
Washinglon. C 20005-2605 
Telephone, 1202) 371-1316 
Fax (202)371-8249 



irican Business as U S Alliliate 



I Chamber ol Commerce 
The International Organisation of Employers 
The Business and Industry Advisory Committee to the OECD 
The ATA Carnet System 



Statement of 

Robert J. Morris 

Senior Vice President 

U.S. Council for International Business 

to the Committee on Small Business 

U.S. House of Representatives 

April 26, 1994 



The U.S. Council is a membership business association which advances the global 
interests of American business both at home and abroad. It is the American affiUate of the 
International Chamber of Commerce (ICC), the Business and Industry Advisory Committee 
(BIAC) to the OECD, and the International Organization of Employers (lOE). The 
Council's objective is to promote an open system of trade, finance and investment in which 
business can flourish and contribute best to economic growth, human welfare and protection 
of the environment. 



70 



The U.S. Council for International Business has been a strong supporter of the 
Uruguay Round since its inception in the mid-1980's. Throughout the long and 
somewhat tortured history of the Round, the Council has consistently argued the case 
for as comprehensive an agreement as possible which would result in: 

- a substantial reduction in tariffs and other obstacles to trade in both goods and 
services; 

- an extension of GATT rules and disciplines to commercial activities not 
previously covered, including trade in services, investment and protection of 
intellectual property; 

- a significant strengthening, elaboration or clarification of GATT rules and 
processes to assure effective implementation of the new trade regime. 

Because we had followed the negotiations very closely over their seven year 
course, we were able to conclude very soon after the results were announced in mid 
December that the agreements reached merited the support of both the American 
business community and the U.S. Congress. With your indulgence, let me quote from 
the statement we issued on that occasion: "The package of agreements announced in 
Geneva will produce immediate benefits for U.S. exports of goods and services. Beyond 
these tangible benefits, it will adapt the GATT rules to the reahty of today's global 
marketplace. The resulting reinvigorated GATT system will be a strong framework that 
is necessary to protect the integrity of the multilateral tradmg system and to serve as a 
basis for integrating Central and Eastern European economies and other developing 
countries into the global economy. 

As should be expected in this type of negotiation involving so many countries at 
different stages of economic development and so many separate but interrelated aspects 
of commercial activity, U.S. business did not achieve all its objectives. Companies and 
Congress should, however, consider these results from the standpoint of how much 
progress has been made and whether we are better off with or without them. 

Failure to ratify this agreement in the U.S. would not mean a simple return to the 
status quo. Rather, it would probably result in a worldwide loss of business confidence 
as markets contemplate a period of international hostiUty in the trade field and a U.S. 
Administration that would have lost its credibility in foreign economic affans. 

We therefore urge business and congressional support of the agreement. 
Congressional approval is essential to further the process of world trade liberahzation." 

We believe the positive reasons why the agreements should be approved are even 
more compelhng. The U.S. Council is a member of the business coalition which has 
been formed to work for the early unplementation of the Round's results, called the 
Alliance for GATT Now. Let me just tick off a few of the benefits which we in that 
coalition have identified for U.S. business and workers: 



71 



U.S. Economic Growth - U.S. economy will grow by an estimated additional $200 
billion annually after full implementation. 

Tariffs Eliminated or Reduced - Many tariffs will be eliminated in major foreign 
markets for U.S. goods including: Pharmaceutical; Medical Equipment; 
Construction Equipment; Agricultural Equipment; Steel; Beer; Distilled Spirits; 
Paper. Pulp and Printed Matter; Toys; and Furniture . Deep cuts, averaging one 
third, will occur on tariffs in a wide range of products affecting 85% of world 
trade. 

More Open Market Access - To rapidly-growing developing country markets such 
as Korea, Malaysia, Thailand, Argentina, Brazil and others. 

S tronger International Intellectual Property Protection - For patents, copy right, 
trademarks, industrial designs and trade secrets of U.S. companies. 

Inclusion of Trade in Services Under the GATT for the First Time - Substantial 
liberahzing commitments will be achieved in some sectors, including accounting, 
engineering, construction, computer services, retaihng and wholesaling, education, 
tourism and health services. 

Prohibition of Some Trade-Related Investment Measures - Certain trade 
distorting TRIMs will be prohibited, including local content, export performance 
and trade balancing requirements. 

Reduced Non-tariff Barriers to U.S. Exports - U.S. firms will benefit from 
discipline on technical standards and customs-related procedures to prevent their 
abuse as unnecessary obstacles to trade. 

Full Maintenance of U.S. Health and Environmental Standards - The agreement 
explicitly recognizes the right of the United States and other signatories to 
maintain and establish appropriate health, safety and environmental regulations. 

Significant Reduction in Paperwork Costs Will be a Boon to Smaller Exporters - 
Simplification, harmonization of customs procedures and licensing will slash costs 
of processing export orders and raise profits, thus inducing more small businesses 
to get into exporting. But perhaps the most important effect which the Round 
will have on smaller business in the U.S. will be in their role as suppliers to the 
major U.S. exporters. The greater the stimulus to their exports, the more orders 
they will place with their suppliers. Smaller businesses will be winners even if 
they do not get into exporting directly at all. 



72 



Now Mr. Chairman, let me say a few words about the new World Trade 
Organization--the WTO-which has been created to streamline multilateral oversight of 
trade policies and to improve observance by all countries of the GATT rules which have 
been reaffirmed or newly negotiated. 

The central responsibility of the WTO will be to implement the new 
Understanding on Dispute Settlement. Most of our members, and indeed of American 
business, have been strong supporters of a reformed GATT dispute settlement process. 
We believe it will give our traders and investors greater confidence that countries which 
have violated their GATT obhgations would be required to take action to bring their 
practices into conformity with those obhgations or else pay compensation or accept 
retaliation. A set of agreed rules of international conduct will only be as effective as the 
process for enforcing them. That has long been a weakness in the old GATT system, 
which we now believe has been substantially improved. 

Under the new agreement, the process has been changed to: 

1) provide for the automatic establishment of a panel upon request; 

2) facilitate the automatic adoption of the report of a dispute settlement 
panel, unless the Council, by consensus, decides to the contrary; 

3) establish an opportunity for appellate review of a panel report; 

4) provide for strict surveillance of the implementation of panel reports; 

5) in the absence of conformity with the panel ruhngs and recommendations 
within the specified time period, require the automatic approval by the 
Council of a request for authorization to retaliate and; 

6) provide for expeditious arbitration of any disagreement about the amount 
of retaliation. 

I realize that some have expressed concern that these new procedures will 
undermine the effectiveness of Section 301 or even U.S. sovereignty. However, I would 
argue that the agreement may well operate to make U.S. use of Section 301 procedures, 
investigations and negotiations even more effective and credible. Furthermore, nothing 
in the GATT rules or procedures prohibits the U.S.--or anyone else--from taking 
whatever action we as a nation believe is necessary to promote or protect our interests. 

Section 301 has always required that the U.S. use the GATT dispute settlement 
process in cases where the foreign practice involved a violation of GATT rules. 
However, many (perhaps even most) 301 cases have involved practices not covered by 
then existing rules, especially those involving trade in services or inadequate protection 



73 



of intellectual property rights. The new GATT extends many of its rules into these 
areas, and the greater assurance that panel recommendations wiU be expeditiously 
adopted make the use of GATT machinery a much more effective instrument for many 
301 cases than it was before. 

Some have, of course, argued that precisely because GATT rules now extend to 
such previously uncovered areas, the U.S. now has less flexibiUty to use 301 to get at 
practices which may indeed "burden U.S. commerce" but which are either not prohibited 
by the new rules or which may even be explicitly permitted. This could be especially a 
problem for IP practices which the negotiators agreed to exempt for five years from 
action under GATT's nullification or impairment provisions. 

I accept those arguments, but would also remind those who make them that 
unilateral U.S. action to breach a GATT binding to penalize such practices was not 
permitted under GATT rules before, so that has not changed. Further, if the problem is 
important enough to justify unilateral action, the U.S retains the right to take it and 
accept retaliation, again, just as before. The only real difference is that policy makers 
and the public will know up front what the costs of such action will be, and will thus be 
better able to make informed decisions on the merits of such cases. 

In this regard, I would like to conclude by quoting from a paper prepared recently 
by Judy Bello and Alan Holmer, both former officials in USTR's office of the General 
Counsel, assessing the future of Section 301. 

"In evaluating the new dispute settlement rules, it is imperative to view them in 
context. It would be irresponsible to consider the rules solely from the viewpoint of the 
United States as either a defendant or a plaintiff. As the United States is likely to 
continue to participate in GATT disputes in both capacities, it is essential to recognize 
and weigh the benefits of the rules to the U.S. as plaintiff, even if there are some 
disadvantages to the U.S. as defendant and as a plaintiff in a dispute in which the WTO 
rules are considered inadequate." 

I hope all involved in this debate, and the Congress in particular, will keep clearly 
in mind that the interests of the United States, its businesses, its workers and its citizens 
as consumers are best served by a trade regime governed by the rule of law, 
administered fairly for all through effective institutions. The Uruguay Round brings us 
as close to that condition as we are ever likely to get at this point in history. It can 
doubtless be improved, and that should be our joint task for the years ahead. But to 
succeed, we must have a firm foundation from which to build. The Uruguay Round 
gives us that foundation, and I urge early congressional approval of it. 



74 



Testimony of Ralph Nader 



On the Uruguay Round Agreements of the 
General Agreements on Tariffs and Trade 



Before the House Small Business Committee 
April 26, 1994 



75 



STATEMENT OF RALPH NADER 

TO the; house small business committee 

APRIL 26, 1994 



Mr. Chairman and members of the House Small Business Committee, thank you for 
the opportunity to testify on the Uruguay Round agreements of the General Agreements on 
Tariffs and Trade (GATT). 

Congressional consideration of the agreement will have far-reaching implications. 
Unfortunately, the limited attention given to the Uruguay Round has focussed on specific 
problems, including those pertaining to environmental and consumer protection and the 
agreement's effect on the existing U.S. trade laws, such as section 301 and anti-dumping. As 
important as those issues are, even a cursory reading of the Uruguay Round text demonstrates 
that the agreement must be viewed as a system of penetrating international governance, not 
just as a trade agreement. 

Few people have considered what adoption of the Uruguay Round agreement would 
mean to U.S. democracy, sovereignty and legislative prerogatives. As the world prepares to 
enter the twenty-first century, the proposed GATT system of international governance would 
lead nations in the wrong direction'. The terms of the Uruguay Round would expand the 
nauire of the world trade rules in an autocratic and backwards-looking manner, replacing the 
GATT contract existing since 1947 with a new international organization, the World Trade 
Organization. The system of international governance of the World Trade Organization would 
be chronically secretive, non-participatory and not subject to any independent appeals process. 
Yet decisions arising from such governance can pull down our higher living standards in key 
areas or impose trade fines and sanctions until such degradation is accepted. 



' Moreover, the Uruguay Round deal is a sizeable step backwards from the North American Free 
Trade Agreement (NAFTA) in failing even to recognize the unavoidable entanglement of 
environmental, health and labor rights policies with trade policy. While I have said that NAFTA did 
not deal with the environmental and labor issues in any effective manner, they rose to the center of the 
public and congressional debate. For instance, as noted in the Wall Street Journal the day after the 
NAFTA vote,: "The NAFTA battle clearly leaves a powerful legacy: It gave respectability to the 
notion that something is fundamentally unfair about trading with poor nations whose labor costs 
undercut those in the United States. ...Moreover, the brawl over NAFTA has spawned a permanent 
trade opposition..." (Wall Street Journal, November 18, 1993.) 



76 



A major result of this transformation to a World Trade Organization would be to 
undermine citizen control and chill the ability of domestic democratic bodies to make 
decisions on a vast array of domestic policies from food safety to federal and state 
procurement to communications and foreign investment policies. 

Most simply, the Uruguay Round's provisions would preset the parameters for 
domestic policy-making of legislative bodies around the world by putting into place 
comprehensive international rules about what policy objectives a country may pursue and 
what means a country may use to obtain even GATT-legal objectives, all the while 
consistently subordinating non-commercial standards, such as health and safety, to the dictates 
of international trade imperatives. 

Decision-making power now in the hands of citizens and their elected representatives, 
including the Congress, would be seriously constrained by a bureaucracy and a dispute 
resolution body located in Geneva, Switzerland that would operate in secret and without the 
guarantees of due process and citizen participation found in domestic legislative bodies and 
courts. As well as undermining democratic decision-making, establishment of the WTO would 
increase the primacy of the global trade rules over all other policy goals and domestic laws 
on the federal, state and local levels. This Congress must evaluate the new GATT as a 
political and legal document, not just as an economic document. 

The Uruguay Round agreement would: 

o Establish a new global commerce agency, the World Trade Organization (WTO) 
with increased power, closed procedures and outdated substantive "trade uber alles" 
rules;^ 

o Greatly expand the reach of global trade rules to impose new restraints on many 
nontariff policies that traditionally have been controlled domestically; and 

o Significantly strengthen secretive dispute resolution mechanisms, thus guaranteeing 
stricter enforcement of the global trade disciplines over every countries' domestic laws 
and policies. 

Taken as a whole, the texts coming out of the Uruguay Round negotiations would 
strengthen and formalize a worid economic government dominated by giant corporations, 
without a correlative democratic rule of law to hold this economic government accountable. It 
is bad enough to have the Fortune 200, along with European and Japanese corporations, 
ruling the Seven Seas of the marketplace which affects workers, the environment and 
consumers. But, it is a level of magnitude worse for this rule not to have democratic 
accountabilities to the people. 



Agreement to Establish the WTO. 



77 



No one denies the necessity of international trade and commerce. However, societies 
need to shape their trade policies to suit their economic and social needs -- guaranteeing 
livelihoods for their inhabitants and their children, as well as safe and clean environments. 
For instance, as this Committees icnown first hand, policies encouraging small businesses and 
community-oriented production result in business operations that are locally rooted and more 
susceptible to democratic controls -- they are less likely to threaten to migrate and they may 
perceive their interests as more overlapping with general community interests. Although the 
Uruguay Round text has adopted the rhetoric of sustainability and its supporters claim it will 
"lift all boats", in fact its terms would handicap the very domestic policy approaches, such as 
small business programs, that could promote more sustainable economic models. 

I. Congressional Surprises in the Details: Implications for U.S. Small Business 

Programs 

However, in the midst of the congested legislative agenda, few Members have given 
consideration to the WTO and the Uruguay Round and the Clinton Administration has not 
been forthcoming in explaining to Representatives the implications of the Uruguay Round 
provisions on several important existing programs. For instance, the Uruguay Round's 
treatment of small business and minority procurement set asides would be of special interest 
to this Committee. As a committee Member and particularly as a Democratic Committee 
Member, you might assume that the Administration would consult with you before negotiating 
in the Uruguay Round on issues within the jurisdiction of this committee. This is especially 
the case because all U.S. laws must be made consistent with the trade rules -- which means 
this committee could be required to change laws within your jurisdiction. I have yet to find a 
Member of this committee who was so consulted. In fact, the final procurement text which 
will determine the future validity of small business set asides, signed almost two weeks ago 
in Marrakesh Morocco, is not yet available from the United States Trade Representative's 
Office. Even a functional courtesy towards Congress is not yet in place. 

We have obtained a draft procurement text from the GATT headquaners in Geneva. 
That text was published on December 15, 1993 when the rest of the results of the Uruguay 
Round negotiations were published. It appears to be a final text in that there are no missing 
provisions or provisions in brackets. Oddly, the procurement text was not available as part of 
the complete Uruguay Round text finally made publicly available by the Clinton 
Administration in the United States three weeks after negotiations finished on December 15. 
That text was also not available if one called the USTR Offices; rather, one was informed that 
the text was not public. Thus, we worked for weeks to find a contact in Geneva who could 
send us a copy. We have not yet been able to obtain the final procurement text that was 
signed in Marrakesh. However, unless it was changed from the draft or a special exceptions 
annex was included. Committees such as this one who have procurement within their 
jurisdictions are in for some starting revelations. 

For instance, the December 15, 1993 draft Uruguay Round procurement text appeared 
contains articles that seem to forbid small business and minority set asides. For instance. 



78 



Article III of the Agreement on Government Procurement sets forth the rules of non- 
discrimination and national treatment.' Under these rules, countries may not "discriminate" 
by treating "like products" or services produced locally differently than foreign-produced 
ones. The minority and small business set asides programs not only treat domestic producers 
deferentially, but provide "discriminatory" treatment among specific sub-categories of such 
domestic producers by guaranteeing a certain percentage of procurement contracts to small 
and ininority business so as to promote and support such firms. 

Similar provisions in the NAFTA were discovered by Government Operations Chair 
Conyers before the NAFTA negotiations were finished and he was able to get an exception 
put into the NAFTA agreement to allow the United States to maintain such set asides.'* 
Unless such an exception was placed in the Uruguay Round procurement Code, USTR 
effectively negotiated away small and minority business set asides in federal procurement in 
the name of greater market access for U.S. mega-contractors to bid on foreign country 
procurement opportunities. 

Some Members of Congress have argued that the Uruguay Round's threats to existing 
domestic legislation can be limited in implementing legislation. However, nothing can be 
done unilaterally in the United States enabling legislation to reverse provisions in the 
multilateral internationally legally binding Uruguay Round text. Moreover, in the case of 
ambiguity in the Uruguay Round text, the WTO text makes quite clear that the WTO has the 
exclusive authority to interpret the terms of the agreement.' Thus, any Congressional 
interpretation or definition of ambiguous Uruguay Round language in U.S. enabling 
legislation meant to preserve Congressional prerogatives is irrelevant to the WTO's dispute 
resolution and other functions. 

II. Establishment of the World Trade Organization Would Shift Power from Nations 
to an Undemocratic, Backwards-Looldng Institution 

While USTR Mickey Kantor has testified before congressional committees that the 
WTO would not be much different than the existing GATT Secretariat, in reality analysis of 
the WTO text argues otherwise. The Uruguay Round would fundamentally transform the 
nature of the world trade rules by replacing what has been a contract between countries 



' Agreement on Government Procurement. GATT Document # GPR/Spec/77, December 15, 1993, 
Article in. As well. Article XVI forbids "offsets" in procurement, which in the Agreement on 
Government Procurement are defined to mean "measures used to encourage local development..." 
Article XXni, on Exceptions to the Agreement, lays out basis for not following the rules, such as 
measures necessary for national security, to protect public morals or order, etc. Nothing in these 
exceptions provides a basis to protect U.S. small or minority business set asides. 

* NAFTA, Chapter Ten, Annex 1001.2b, Schedule of the United State, paragraph 1. 

' Agreement Establishing the WTO, Art IX-2. 



79 



(GATT) into a new international organization (WTO) with a "legal personality," similar to 
that of the United Nations.* 

A. THE URUGUAY ROUND WOULD ESTABLISH A POWERFUL NEW 
INTERNATIONAL ORGANIZATION WITH NO ACCOUNTABILITY 

Since its establishment in 1947, GATT has existed as a contract between nations, 
which have been called "contracting parties." Establishment of the WTO would raise the 
relative importance and strength of the global trade rules as against non-trade consumer, 
worker and environmental values by giving them a permanent international organizational 
structure with an ongoing infrastructure and powers that GATT didn't have, such as self- 
executing dispute resolution and trade sanctions.' 

When the GATT first was developed in the late 1940s, it was intended to be the rules 
that would be administered by a new international organization to be named the International 
Trade Organization ("ITO"). The ITO was to be the third Bretton Woods organization along 
with the International Monetary Fund and the World Bank. However, in large part, because 
the U.S. Congress balked over sovereignty issues concerning the establishment of the ITO in 
1947, that body never came into being. As a result, the GATT rules have had no established 
institutional organization. Although a bureaucracy has evolved to administer the GATT rules, 
it has owed its legitimacy to the consent of the contracting parties to the GATT and has been 
cautious in taking actions without express authorization. 

The WTO would have broader powers and a more authoritative infrastructure than has 
the existing GATT. It's approval would represent a fundamental shift of control and authority 
in the international trade regime from governments to the WTO institution. For example, the 
WTO allows changes to some rules by a two-thirds vote of the members which would then be 
binding on all members'. Under GATT, such changes have been made through new 
negotiations, the results of which have been binding only upon those countries that agree to 
be bound by them. In addition, members of the WTO must agree to be bound by all the 
multilateral Uruguay Round agreements, whereas at the conclusion of past rounds of GATT 
negotiations, countries could choose which agreements to enter into." Furthermore, WTO 
entities "shall have the exclusive authority to adopt interpretations of this Agreement and of 
the Multilateral Trade Agreements," which may be adopted by three-fourths majority of the 



' Agreement establishing the WTO, Art VIII- 1. 

WTO Dispute Settlement Understanding. These provisions are described in detail below. 
' Agreement Establishing the WTO, Article X, TI 4, 5. 

' Id. f 2. 



80 



members."' Under the existing GATT, interpretations are adopted by consensus. 

The WTO also establishes numerous standing committees that may initiate 
negotiations, whereas under the GATT, negotiations could be initiated only by consensus of 
all the contracting parties." The Uruguay Round also provides for periodic assessments of 
each member's trade policies and practices and their impact on the international trade 
system.'^ It is unclear what power the WTO will have to act on the results of these 
assessments. For instance, there is some speculation that the WTO secretariat could initiate 
dispute resolution panel review of domestic laws identified as nonconforming through the 
Trade Policy Review mechanism. 

The WTO would also have greater powers than the current system to enforce GATT 
rules. The determinations made by dispute settlement panels would automatically become 
binding on the member country, unless aH the member countries vote not to make the 
decision binding. Currently, decisions are not adopted, unless all countries agree to do so. 
Thus, powerful countries such as the Unite States have an effective "emergency brake" 
because they can block final adoption of politically unacceptable GATT decision, as was done 
with the 1991 ruling in a Mexican challenge against the U.S. Marine Mammal Protection Act 
regarding the incidental killing of dolphin in tuna-fishing. In addition, if a country losing a 
trade challenge does not change a measure found to be in violation of GATT rules within a 
prescribed period of time, other countries challenging that measure have an automatic right to 
impose retaliatory trade sanctions. Currently, a separate unanimous authorization from all 
GATT contracting parties is required before trade sanctions may be imposed, something that 
has occurred only once in GATT history. Thus, unlike the GATT regime, under the WTO, the 
United Slates would face a no-win decision within a short number of days for any U.S. 
federal or state law successfully challenged as violating the WTO rules: change the U.S. law 
or face trade sanctions until the law is removed." 

B. US REQUIRED TO ENSURE CONFORMITY OF ALL DOMESTIC LAWS, 
REGULATIONS AND ADMINISTRATIVE PROCEDURES WITH WTO RULES 

All of the substantive trade rules that resulted from the Uruguay Round negotiations 
(agreements on trade in goods and services, intellectual property rules and more) fall under 
the WTO structure. Countries are obliged to ensure that their domestic laws conform with the 
substantive trade rules of the WTO under an extremely worrisome provision, Article 16-4 of 



'° Id- Article IX, % 2. 

"Id. Article X,f 1. 

" Annex on the Trade Policy Review Mechanism. 

" This point was confimied by USTR Mickey Kantor in response to a question raised by Rep. Jill 
Long during the March 23, 1994 hearing of the House Agriculture Comminee. 



81 



the WTO text, which requires that: 

"Each Member shall ensure the conformity of iU laws, regulations and 
administrative procedures with its obligations as provided in the annexed 
Agreements."" 

This obhgation is much more stringent and inflexible than similar provisions in other 
trade agreements, including the 1991 "Dunkel" draft text of the Uruguay Round which 
required countries only to "endeavor to take .... steps as are necessary."" Even under this 
weaker formula, the Congressional Research Service concluded in an 1991 analysis of the 
"Dunkel" draft text that: a "party would no longer have control over whether or not it 
must change that particular policy or law [a successfully challenged law or policy] to 
conform with the GATT.'*" 

Not only would establishment of the WTO add yet another layer of bureaucracy in a 
vast anay of policy areas, but that bureaucracy would be a truly publicly unaccountable, yet 
highly powerful, one. Moreover, the final text extends the stronger obligation to ensure 
conformity with the WTO to encompass additional areas of domestic policy: regulations and 
administrative procedures. Bringing federal and state administrative procedures into 
conformity with the requirements of all of the WTO agreements could have significant 
impacts on the openness, citizen participation and due process guarantees available in current 
domestic administrative procedures under explicit federal and state statutes. 

C. NEW ORGANIZATION HAS NO LABOR OR HUMAN RIGHTS, 
ENVIRONMENT MANDATE 

The WTO text would establish a powerful new international institution whose mandate 
looks backwards to an era when environmental, consumer, labor and other citizen 
considerations were not taken into account.The binding provisions setting out the WTO's 
functions and scope do not incorporate any environmental, health, labor rights or human 
rights considerations. In fact, the only reference to the environment is in the rhetoric of the 
WTO's preamble, which does not have the binding legal effect of the agreement. Labor and 
human rights are not mentioned in the preamble or the rest of the agreement at all. Moreover, 
there is nothing in the institutional principles of the WTO to inject any procedural safeguards 
of openness, citizen participation or accountability into the governance of this body or its 
functions. The WTO does not even have the structural capacity or procedural channels for 
citizens or nongovernmental organizations to have any role in its functions. 



'" Agreement Establishing the WTO, Article XVI - 4. 

" Agreement Establishing the Multilateral Trade Organization, XVI-4 (1991.) 

"■ CRS Legal Memo on Domestic Law Effects of the Dunkel Text's MTO Provisions for 
Representative Jill Long, April, 1992. 



82 



III. Establishment of the World Trade Organization Greatly Increases the Impact 
Global Trade Rules Will Have on Countries' Domestic Laws 

Congressional approval of U.S. membership in the WTO would greatly expand the 
reach of global trade rules to impose new restraints on many nontariff policies that 
traditionally have been controlled domestically. In the attached Annex, I have suggested the 
likely risks to our existing laws which the WTO rules, in combination with the strengthened 
dispute procedures, would pose by applying just two of the WTO's chapters on food and 
other standards to some existing and proposed U.S. laws. Please read that Annex, as it will 
make vivid how the WTO's terms could affect a broad array of important U.S. policies. 

A. EXPANSION OF TRADE DISCIPLINES 

The Uruguay Round negotiations expanded trade disciplines into new areas such as 
agriculture, telecommunications and transportation services, and intellectual property. The 
Uruguay Round would also put in place more pervasive restrictions in areas such as food 
standards and "technical standards" such as environmental or safety standards and 
procurement policies. The expansiveness of the Uruguay Round negotiations means that 
almost any domestic law that impacts international trade could be considered a "nontariff 
barrier." Only laws that are more protective of the environment or consumer or worker health 
and safety are exposed to challenge; extremely weak laws cannot be challenged as providing 
an unfair subsidy for products or services that fail to meet even minimal international 
standards in these areas. Thus, the GATT rules envision placing a ceiling on health, safety 
and environmental protection, but provide no minimal floor beyond which all nations must 
rise (except against prison labor). One does not have to guess which country's standards are 
most likely to be pulled downward. 

B. LIMITATION OF POLICY GOALS ALLOWED FOR ANY LEGISLATIVE 
BODY WORLDWIDE 

The WTO's rules would spread such trade disciplines to many issues traditionally 
controlled by domestic policy-makers. Certain goals would be forbidden to all domestic 
legislatures. 

1. Laws with "Mixed" Economic-Environmental Purposes 

For instance, laws with "mixed" purposes, such as environmental and economic, could 
easily fall outside of the WTO's requirements. The provisions of the Clean Air Act which 
implement the international ozone agreement - the Montreal Protocol - phase out U.S. use of 
ozone-depleting substances. The law also provides a ban on imponation, as well as sale, of 
foreign products made with ozone-depleting production methods. The import ban has two 
goals; One goal is to limit the global demand for goods made with ozone depleting 
substances. Another goal is to provide a level playing field for U.S. industry by ensuring that 
U.S. companies do not suffer competitive disadvantage in the U.S. market as a result of 



complying with the Montreal Protocol's rules. Under the WTO's rules, such Congressional 
attention to a non-trade policy's domestic economic implications is viewed as "managing 
trade" by interfering with the "free trade" market forces. 

2. No "Unilateral" Measures. Such as Section 301 

The Uruguay Round would effectively eviscerate Section 301 and forbid any unilateral 
trade action in the vast issue-area occupied by the Uruguay Round's broad terms. 
The Congressional Research Service's American Legal Division strongly refuted the vague 
assurances of USTR that Section 301 and other unilateral uses of trade measures could be 
continued under the World Trade Organization." 

According to CRS, a WTO provision entitled "Strengthening the Multilateral 
System,'*" requires countries to go through the WTO's tribunal system when evaluating 
another country's trade practices, deciding if there are problems, suggesting how such 
problems should be resolved, deciding what is a reasonable time for any changes to occur, 
and assessing damages of any violation and whether trade sanctions can be used." In short, 
under the Uruguay Round the United States could not undertake any step of Section 301 or 
Super 301 except collecting the evidence of a trade violation. Thus, although the U.S. could 
keep such laws on the books, membership in the WTO would mean facing perpetual trade 
sanctions as the price for implementing laws such as Section 301. 

Yet, the United States has the world's largest consumer market, so we have been able 
to use access to our market as an incentive for other countries to meet cenain environmental, 
labor rights and human rights goals we support. The Uruguay Round effectively forbids any 
country from taking any trade action on any issue covered under the broad expanse of the 
new trade rules without permission from Geneva. Thus, for instance, once China is admitted 
to the WTO, Congress will no longer be allowed to condition China's trade status on its 
human rights record. Under the WTO, China would automatically obtain Most Favored 
Nation Status and the U.S. would not be allowed to unilaterally deviate from that 
treatment. ■" 



" CRS American Law Division, Legal Opinion Requested by Rep. Cardiss Collins, March 22, 
1994. 

" Dispute ^Settlement Understanding, Article 23. 

" CRS Ugal Opinion at 7. 

^° There is a technical question of whether China will "re-enter" the GATT, as it was a contracting 
party until 1951, or whether it will become a new member of the GATT or WTO. China argues 
strongly that it will re-enter. However, only if China enters as a new member could the United States 
have any possibility of taking a country-to-country exception for human rights. (This is because one 
country must notify another country of intention to take an exception before the new country enters 



84 



As well, many environmental laws, such as dolphin, elephant and other protections 
enforced through market access limitations, would run afoul of the unilateralism ban. Our 
laws are vulnerable even if they are undertaken pursuant to international environmental 
agreements, since there is no exception to the Uruguay Round's rules for such standards.^' 
These international agreements do not have built-in enforcement mechanism. Each 
participating country is required to enforce them individually by limiting market access for 
domestic and foreign producers who do not comply. Thus, bans on ozone-depleting chemicals 
pursuant to the Montreal Protocol on Substances that Deplete the Ozone Layer or on trade in 
endangered species pursuant to the Convention on International Trade in Endangered Species 
of Wild Fauna and Flora would be vulnerable to successful challenge under the WTO. 

The WTO's ban on unilateralism not only curtails U.S. sovereignty to enforce 
important policies, it also would eliminate many of our most successful market opening tools 
such as Section 301. You may have noticed the regular references to the GATT and WTO of 
the Japanese officials lately. For instance, according to the Daily Japan Digest: 
"[Former] Japanese Prime Minister Hosokawa told the heads of Japan's four big business 
organizations: 'The United States is threatening to use Section 301 in the framework 
negotiations. Japan will have to act to contain that move through the World Trade 
Organization.' " The Japanese analysis of the fate of Section 301 and Super 301 under the 
Uruguay Round is correct. 

3. Laws Based on Process and Production Standards. Such as Human or Labor Rights 

The terms of the Uruguay Round would also limit policy goals for which legislatures 
around the world could strive. One critical issue is the extent to which trade restrictions may 
be imposed on products based on "processing and production" methods. Production and 
processing methods involve the way in which a good is produced or harvested. The WTO 
prohibits a country from banning imports of shoes made with child labor or prison labor, 
banning imports of timber that does not come from sustainably managed forests, banning 
imports of ivory from countries with inadequate elephant conservation programs, banning 
imports of beef slaughtered in violation of humane standards, banning imports of products 
produced with ozone-depleting chemicals, banning tuna imports caught in a way that kills too 
many dolphins, banning fish imports caught with large-scale drift nets, or banning shrimp 
imports caught without tunle excluder devices. 

The production and process methods issues are not only vital to effective enforcement 
of many important policies; they also have important competitiveness implications for U.S. 



into the GATT or WTO. Certain narrow country-to-country exceptions were allowed under the existing 
GATT, however whether such exceptions could be available under any circumstances under the WTO 
is unclear. 

^' NAFTA Article 103 contained such an exception for domestic measures necessary to implement 
certain international environmental agreements. 



85 



industry. The United States cannot effectively enforce its own domestic standards if it cannot 
control its own market to ensure that its domestic producers are not at a competitive 
disadvantage for merely following U.S. law. However, if a country cannot distinguish goods 
on the basis of their production methods, it will be unable to provide a level playing field for 
domestic companies which incur extra labor, safety and environmental compliance costs. 

One of the cornerstones of GATT is that like products must be accorded treatment no 
less favorable than that accorded like domestic products and like products imported from 
other countries. It has generally been interpreted under GATT to preclude imposing 
restrictions on products based on the way they are produced. In the tuna-dolphin challenge, a 
GATT panel concluded that the U.S. ban on imports of tuna caught by methods that kill too 
many dolphins were impermissible because they were based on the way the tuna was caught, 
not due to any inherent characteristics of the tuna itself. Unfortunately, nothing in the 
Uruguay Round text rejects this approach, which even the Bush Administration admitted had 
upsetting implications for U.S. human rights and labor rights policies that use trade for 
enforcement." 

C. LIMITATIONS ON POLICY TOOLS; ONLY THE LEAST TRADE 
RESTRICTIVE ALTERNATIVE IS ALLOWED 

Even for GATT-allowable goals, the means legislators choose to obtain such goals 
must be the "least trade restrictive alternative" regardless of the political feasibility of such 
means. Thus, for instance, in its recent GATT challenge against the U.S. CAFE standards and 
gas guzzler tax, the European Union (E.U.) argued that while the U.S. goal of conservation 
was GATT-allowable, the means Congress chose to obtain that goal was not the least trade 
restrictive." The E.U. argued that in order to meet he "least trade restrictive alternative" test, 
the United States should use a carbon tax to obtain the goal of conservation, instead of the 
current CAFE system. As was made evident last year in Congress, a carbon tax was defeated 
and is not a politically feasible option. Under the existing GATT rules, in which there is no 
specific least trade restrictive test, the outcome of the E.U. challenge is uncertain. Under the 
WTO, where the least trade restrictive requirement is made explicit, the CAFE standards/gas 
guzzler program would quite likely be found to be an illegal trade barrier. 

The WTO's rules and restrictions would apply to existing federal, state and local laws. 



^^ Testimony of Joshua Bolton, General Counsel USTR, Hearing of the Subcommittee on Health 
and the Environment, House Committee on Energy and Commerce, September, 1991. 

" CAFE standards and taxes apply equally to domestically and foreign-produced cars, with autos 
required to meet certain average fuel efficiency or face a tax. However, because the European auto 
manufacturers made the marketing decision in the late 1980s to import high-margin luxury cars, 
European manufacturers pay a larger percentage of the taxes than U.S. manufactory. Meanwhile, as 
ignored by the E.U GATT brief, Japanese manufacturers pay a lesser ponion of the taxes than U.S. 
manufacturers because of their market decision to focus on small, efficient imports. 



86 



as well as to future laws. The future under the WTO has already been foreshadowed by recent 
Clinton Administration action. For instance, over the past several months, we have all 
witnessed the Clinton Administration fighting against the domestic content provisions of 
Chairman John Dingell's telecommunications bill. Those provisions of the bill allow the Baby 
Bells to get into manufacturing, but only if a certain part of that manufacturing is done in 
America. USTR Kantor has argued in letters and in the press to Chairman Dingell that such 
provisions violate existing U.S. GATT obligations and future Uruguay Round obligations and 
must be eliminated. In effect, the Clinton Administration has been demanding in the name of 
GATT that the U.S. Congress not establish a law that could create more U.S. jobs. 
Meanwhile, the National Association of Manufacturers, who would undoubtedly prefer not to 
have a precedent of requiring U.S. production rather than offshore production established, has 
urged USTR Kantor into keeping up the pressure in a letter sent three weeks ago. Another 
recent example by the Clinton Administration is the announcement that all future U.S. 
environmental proposals would be put through trade reviews to ensure they complied with 
U.S. trade obligations." 

In the Annex attached to this testimony, I have listed some additional existing and 
proposed U.S. laws that would fall outside of the Uruguay Round's requirements. Such 
existing laws would be exposed to challenge through the WTO's dispute resolution system, 
which provides for the adoption of trade challenge panel rulings made by closed tribunals of 
three trade officials." Unlike the current GATT, automatic trade sanctions are also available 
for countries who fail to abide by the tribunals' decisions. As for proposed laws. Congress 
could expect the United States Trade Representative's office or the State Department or OMB 
to stall progress on proposals which fall outside of the Uruguay Round's requirements. These 
agencies would declare such proposed legislation to be in violation of U.S. obligations as a 
member of the WTO. 

IV. World Trade Organization's Focus on Non-Tariff Measures Will Have Far- 
Reaching Implications for Congressional Prerogatives 

Under the WTO, "nontariff trade barrier" would become a code phrase to undermine 
all sorts of citizen-protection standards and regulations. "Non-tariff barrier" is trade jargon for 
any non-tariff measure that limits trade, such as laws prohibiting food with too much 
pesticide residue or requiring advanced motor vehicle standards or prohibiting imports from 
countries violating human rights. Corporate interests focus on a safety or health regulation 
that they don't like, develop a story about why it favors domestic companies over foreign 



" {Inside EPA Weekly Report. Vol. 14, N. 38, Seplember 24, 1993.) 

" The new dispute resolution rules would eliminate the procedural "emergency brake" on 
adoption of dispute panel reports that allowed the United States to freeze adoption of the 1991 tuna- 
dolphin decision. Under the Uruguay Round rules. Congress would have been required to eliminate 
either the law or pay perpetual trade benefits to Mexico by early 1992. Failure to act would have 
resulted in automatic trade sanctions. 



87 



corporations and then demand that the regulation be revoked. The U.S. Congress would face 
only two options -- repeal the law and face the political consequences or pay perpetual trade 
sanctions and face the political consequences. 

As well, the WTO includes two additional mechanisms for pulling down health, safety 
and environmental standards — "equivalence" and "harmonization." These two mechanisms 
promote the establishment of unified global food, environmental and other standards. The 
WTO's specific harmonization mechanisms would pull standards down toward international 
lower common denominators because they require national standards to be based on generally 
weaker international standards established without citizen input but, with heavy corporate 
influences. The international standards provide a ceiling but not a floor for such protections. 

Under equivalence, the Uruguay Round requires countries to permit imports that do 
not comply with their own food and other product safety standards where they satisfy 
different, but "equivalent," standards or processes^'. This requirement invites wholesale 
circumvention of U.S. law. Even if Congress has established a standard or an agency has 
promulgated regulations prescribing the conformity assessment procedures to be used, imports 
may still be permitted. This would be done under the amorphous concept of equivalency, 
which calls for a subjective comparison of different standards without any clear guidelines for 
the process to undertake or the factors that must be considered. Several examples illustrate 
how insidious the concepts of nontariff trade barriers, harmonization and equivalence can be 
especially under undemocratic procedures. 

In 1991, Puerto Rico, a U.S. commonwealth, upgraded the quality of its milk supply 
by instituting the Pasteurized Milk Ordinance, a tougher system of regulation than it 
previously had in place. Ultra-high temperature (UHT) milk from Canada, was unable to meet 
the island's new more rigorous standard. Puerto Rico subsequently banned the sale of 
Canadian UHT milk. Canada then challenged Puerto Rico's standard as a nontariff trade 
barrier under the existing U.S. - Canada Free Trade Agreement. A panel of five trade 
bureaucrats -- three from Canada, two from the United States — heard the case. (The ratio 
was decided by a coin toss.) Canada won the challenge, the panel ruled that Puerto Rico must 
make a equivalence determination as required under the U.S. - Canada agreement to prove 
that the obviously different standard did not accomplish its policy goal. The Uruguay Round's 
food standards section also requires such equivalence determinations and requires the United 
States accept standards different from its own if such a determination shows the standards are 
"equivalent." 

Such a decision about "equivalence" is how the U.S. -Canada Free Trade Agreement 
also was used to strip U.S. border meat inspection standards. U.S. and Canadian officials 
decided that the two countries' inspection systems were equivalent through an arbitrary and 
closed decision-making process. To avoid "unnecessary" trade effects, inspection of meat 



^' SPS Agreement 1 14. and TBT Agreement 1 2.7. 



88 



entering the United States from Canada was reduced to several carcasses from every fifteen 
trucks crossing the border. Canadian companies were notified in advance if their shipment 
would be the fifteenth and the truck drivers were designated to select the several carcasses to 
be inspected. Unscrupulous producers on both sides of the border could take advantage of the 
loophole in inspection to export the meat that would not pass domestic inspection. Luckily, a 
25-year veteran USDA meat inspector in Montana, William Lehman, blew the whistle on the 
vile and contaminated meat that was pouring over the border and onto the plates of American 
consumers. His repeated congressional testimony about the cancerous, feces- and blood- 
smeared meat coming through his inspection station ultimately led to a greater level of 
inspection being restored. 

Finally, in the landmark non-tariff barrier GATT decision to date, there is the 
successful 1991 GATT challenge by Mexico of the U.S. Marine Mammal Protection Act. 
Despite a letter from 63 Senators and another from over 100 Representatives calling for the 
"tuna-dolphin problem" to be solved as part of the Uruguay Round, the existing flaws in the 
GATT article were not fixed. In fact several principles from the panel decision were 
incorporated into the new Uruguay Round chapters on standards. Congress has been kept off 
the hot seat in the tuna-dolphin case because the United States exercised a procedural 
"emergency brake" available in the existing GATT to stop full implementation of such a 
panel decision. That emergency brake is eliminated in the Uruguay Round dispute resolution 
procedures. Thus, if the tuna-dolphin case arises under the new Uruguay Round rules or when 
the next successful challenge of a popular U.S. environmental and health law occurs, the 
Congress will be forced to repeal the law and face constituent wrath, or the United States 
would be required to pay perpetual trade sanctions to maintain it. 

Most Americans probably find this possibility unbelievable; after all, they would 
suppose, the United States can surely impose whatever standards it wants on products made 
or consumed in this country without agreeing to an external system of decisions and sanctions 
that can vitiate them. But in approving the U.S. -Canada Free Trade Agreement and the 
NAFTA, the United States surrendered that degree of sovereignty over such laws. The U.S. 
Congress would do so on a much larger and more significant scale if it decides to approve 
U.S. membership in the Wodd Trade Organization under the proposed autocratic language. 

Consider what would have happened to auto safety if these trade agreements were in 
operation. To push for airbags in motor vehicles, auto safety advocates had to convince the 
federal government to mandate the equivalent of airbag protection in cars. If the trade 
agreements had been in place at the time, the auto companies and their political allies in 
Washington would have said, "Oh no. You can't have airbags because the applicable 
international standard just provides for three-point seatbelts. If we require all cars produced or 
imported in the United States to have airbags, that is really a disguised way to impede foreign 
cars from coming into the United States. That's a nontariff trade barrier and therefore a 
violation of the trade agreement." 

Already, a Danish recycling program, the U.S. asbestos ban, a Canadian reforestation 



program, U.S., Indonesian and other countries' restrictions on exports of unprocessed logs, a 
Canadian anti-air pollution program and U.S. laws designed to protect dolphins have been 
attacked as nontariff trade barriers under free trade agreements. The most recent version of 
the European Community's list of alleged U.S. nontariff trade barriers includes the Consumer 
Mutrition and Education Labeling Act, state recycling laws and fuel efficiency regulations for 
motor vehicles. This list can be taken as foreshadowing future trade challenges under the 
much more domestically intrusive WTO, The EC. did indeed file a formal GATT challenge 
of the U.S. gas guzzler tax and fuel efficiency penalties several months after publication of its 
list. The case was briefed and argued in front of a closed GATT dispute tribunal in the fall of 
1993 and a decision is pending. 

U.S. citizen groups already have enough problems dealing in state capitals and 
Washington with corporate lobbyists, legislators and agency officials, without being told that 
decisions affecting this country's standards will be made in other countries, by other officials, 
by other lobbies that have no accountability or administrative due process requirements that 
we have in this country. The problem is exactly the same for citizen organizations in other 
nations, already struggling against the entrenched monied interests (including foreign 
subsidiaries) in their own countries. 



V. World Trade Organization Dispute Resolution: Stronger Enforcement of Bad Rules 

The WTO's dispute resolution power is significantly strengthened compared to that of 
the GATT, thus guaranteeing stricter enforcement of the global trade disciplines over every 
countries" domestic laws and policies. This dispute resolution system has no guarantees of 
impartiality or public access. 

The dispute resolution system of the Uruguay Round must be considered from the 
perspective of a defendant, not only as a plaintiff which has been the perspective of USTR 
Kantor and other administration officials. Approval of this GATT text would put into place 
substantive trade rules that conflict with many U.S. domestic environmental, consumer and 
other policies and a strong mechanism to force the United States to comply with those rules. 
As you may have noticed in Clinton Administration statements on the Uruguay Round, the 
Administration itself is not satisfied with the Uruguay Round's outcome on environmental 
issues and admits the WTO's failure to even mention labor rights is a major shortcoming that 
the Administration failed to effectively address in its last-minute attempt before the Uruguay 
Round signing in Morocco. 

Whether or not Congress approves the United States joining the WTO, Congress and 
the Administration should insist on a moratorium on challenges to environmental, consumer, 
labor rights and human rights laws under WTO's disciplines until the agreement's terms are 
brought up to date with current environmental, safety, labor rights and human rights 
conditions and policies. Unfortunately, this ultimately reasonable moratorium idea has been all 
but rejected by the Clinton Administration. Instead, the Administration pursued "committees" 



90 



on environment and labor rights for future discussions. A two-year committee was agreed 
upon for environmental discussions. The attempt to get a labor rights committee failed 
entirely. Considering there will be no more GATT Rounds under the WTO, I find it hard to 
imagine what political leverage the Clinton Administration thinks it has to promote progress 
in these areas. After all, the GATT has had an environmental committee since the 1970's. It 
never met until 1992 and then it took up an agenda of getting environmental laws out of the 
way of trade. 

A. SECRETIVE DISPUTE TRIBUNALS WITH NO GUARANTEE OF 
IMPARTIALITY AND NO OUTSIDE APPEAL 

As with the GATT, WTO dispute resolution allows a Member nation to challenge 
another Member's domestic laws as illegal barriers to trade. Such challenges are decided in 
secret by panels of three trade experts who are chosen from a preset roster. As a general 
matter, shifting away "judicial" review to fora that do not have the procedural safeguards of 
the U.S. federal and state judicial systems is troubling. Trade dispute panels, whether in the 
WTO, NAFTA or U.S. -Canada FT A, share several highly problematic traits: 

o Panels have no guarantee of impartiality, economic disinterest of panelists or other 
conflict of interest safeguards. Thus, with USTR Kantor challenging a recent Canadian 
trade panel for conflict of interest, he is also urging Congress to approve more of the 
same under the WTO; 

o All documents and proceedings are secret. Countries, if they wish, may release their 
own submissions. However, the other nations' documents and all tribunal documents 
are strictly confidential; and 

o There is no outside appeal or review available. 

These problems are made more important in the WTO context by the new power 
given the WTO as an institution. As well, these problems are more serious than in the 
NAFTA because in the WTO, powerful potential "litigants" such as Japan and the European 
Union could use the WTO system, rather than our domestic courts, to review the continued 
vahdity of U.S. policy. 

The WTO allows trade challenges of all domestic laws - federal, state and local - 
that conflict with any of the WTO's substantive trade rules". However, the WTO also 



" As with the existing GATT. the WTO allows challenges against state and local laws. (FA 
Understanding at 22.9.) When a WTO panel rules that a state or local law does not meet the trade 
rules, the federal government "shall take such reasonable measures as may be available to it to 
ensure observance." (Id- at 22.9.) A GATT panel has already interpreted the "reasonable measures- 
standard, which IS present in the existing GATT (1991 Panel report on Canadian challenge of certain 
U.S. Alcohol Taxes and Regulations (Beer II.) ). Under the terms of an adopted GATT case known as 



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allows challenges of some domestic laws that another country considers are "nullifying or 
impairing" any direct or indirect benefit that it expects from the specific trade rules, even if 
there is no violation of a specific WTO rule." Similarly, a law can be challenged if "the 
anainment of any objective [of that Agreement] is being impeded" by that law." The 
vagueness of this provision is alarming in that it could be interpreted to include laws and 
policies that would seem to be free from trade disciplines. 

B. DISPUTE PANELS HAVE NO SAFEGUARDS TO GUARANTEE 
IMPARTIALITY, BALANCE OR PUBLIC ACCESS 

The required qualifications for WTO panelists, such as experience in a country's trade 
delegation or experience as a trade lawyer bringing a trade dispute, will result in panelists 
with a uniformly pro-trade perspective.^ In fact, with the exception of panelists qualified by 
merit of academic expertise in trade, the qualifications will result in panelists with a direct 
professional stake in the existing trade system. 

Moreover, astonishingly, there are no conflict of interest or other rules to even 
guarantee that a panelist does not have a direct economic interest in a decision. The Journal 
of Commerce recently exposed the pecuniary interests of two Canadian panelist in a U.S.- 
Canada Agreement dispute panel (which is similarly constituted".) 

There is also no mechanism to guarantee that such panelists even will be exposed to 
alternative perspectives on environmental or heath or labor rights or human rights issues. This 
is the case because there is no allowance for amicus briefs from interested non-governmental 
groups or other guaranteed means of access for other viewpoints. In fact, the panel is not 
required to get technical or scientific help. The text merely allows panels to do so at their 
choosing. Finally, the text specifically forbids identification of which panelists supported 
which positions and conclusions. This additional layer of secrecy adds to the lack of 
accountability of the WTO decision-makers with their greatly enhanced vast new powers." 



Beer P . the United States must use all powers constitutionally available to force subfederal compliance 
with trade panel rulings. This could include preemptive legislation, litigation and withdrawal of federal 
financial support. 

" WTO Dispute Settlement Understanding at 26.1. 

"Id at 26.1. 

'"Id at 8.1. 

" Journal of Commerce, February 18, 1994. The two panehsts were attorneys whose law firms 
represented Canadian lumber interests directly affected by the outcome of the timber subsidy case 
under dispute. 

^^ WTO Dispute Resolution Understanding, at 17.11 and 14.11. 



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C. TRIBUNAL DECISIONS ARE AUTOMATICALLY APPROVED 

Under current GATT rules, decisions put forward by the three-person dispute panels 
must be approved by consensus by all of the GATT contracting party countries. Thus, each 
country maintains the right, although sometimes politically difficult to exercise, of blocking 
consensus, and thus adoption and implementation of a panel decision. The United States used 
this "emergency brake" to freeze adoption of a GATT ruling against provisions of the U.S. 
Marine Mammal Protection Act, which was successfully challenged at GATT as an illegal 
trade barrier by Mexico in 1991. 

The new WTO dispute resolution rules take away this emergency brake. Under the 
new rules, the decisions of the three-person review panels are automatically adopted 60 
days after completion, unless there is a consensus among all WTO Members to reject the 
ruling, or the losing country files an appeal." Thus, within 60 days over 100 countries, 
including the country that has won the panel decision, must all be persuaded to stop the 
adoption of the panel report. 

When a WTO panel decides that a domestic law does not meet the requirements of the 
trade rules, its report is required to include the "recommendation" that the offending country 
change its law to conform with the trade rules.** Thirty days after the report is adopted, the 
offending country must inform the other countries of its intentions with respect to 
implementing the panel report.'^ Countries are supposed to change their laws immediately. 
If that is impracticable, the countries in the dispute can negotiate or submit to arbitration to 
determine a "reasonable time period" for the losing country to comply with the paflel ruling. 
The text suggests that arbitrators should be guided by a 15 month limit on what is a 
reasonable period to change the offending law." 

D. AUTOMATIC SANCTIONS IF DOMESTIC LAWS ARE NOT CHANGED 

If a country fails to change its law within the set time period, the winning country can 



" (Id at 16.4.) Under the new rules, an appeal can be filed within 60 days after a panel has ruled. 
(Id at 17.) Appeals are limited to issues of law covered in the panel report and legal interpretations 
developed by the panel (Id at 17.6.) Appeals must be decided within 90 days, after which that decision 
would also be automatically adopted unless unanimously rejected within 30 days of its issuance. (Id. at 
17.14.) "An appellate repon shall be adopted by the DSB and unconditionally accepted by the parties 
to the dispute unless the DSB decides by consensus not to adopt..." (DSB refers to the WTO Members 
meeting as the Dispute Settlement Body.) 

'Md. at 19.1. 



"Id at 21.3(c). 



93 



request negotiations to discuss the matter. However, 20 days after the "reasonable time 
period" has expired, the winning country can request trade sanctions against a country that 
has refused to change its law." Such a request to authorize sanctions is automatically 
granted 30 days after the expiration of the set time period, unless there is unanimous 
consensus of all WTO Members to reject the request.'* 

The dispute resolution text states that trade measures, or compensation by the losing 
country, are to be temporary measures when successfully challenged laws are not changed 
within the set time period." Where the "...recommendations to bring a measure into 
conformity with the covered agreements have not been implemented," the WTO "shall 
continue to keep under surveillance the implementation of adopted recommendations or 
ruling...", including cases where there are continuing sanctions or compensation.'"' Thus, a 
country whose law has been found to conflict with the WTO terms is under continuing 
pressure to actually change its law."" 

E. SECRETIVE AND INACCESSIBLE TRIBUNAL 

The secrecy of GATT dispute resolution is largely perpetuated in WTO dispute 
resolution. All panel proceedings are conducted in secret."' Only representatives of an 
involved WTO Member, namely the national government of each member country in a 
dispute, is guaranteed access. If a state law were to be challenged under the WTO, the 
governor or the state attorney general may only observe the Geneva proceedings or have 
access to the case documents at the pleasure of the federal government. Unlike complaints, 



■" Id at 22.2. 

'» Id at 22.6. 

"Id at 22.1 and at 22.8. 

"^ Id. at 22.8. 



■" Under the World Trade Organization, sanctions should initially be considered against parallel 
sectors. For instance, a country that refuses to change a food-related law should be given sanctions in 
food trade. However, under the WTO dispute resolution, countries may put up sanctions against any 
unrelated sector if parallel sanctions are "not practicable or effective." (Id at 22.3(c).) The ability to 
use "cross sectoral" sanctions considerably increases a country's ability to cause economic pain and 
pressure on another country that refuses to change its laws by choosing sanctions in especially 
sensitive or important areas. The "level" of sanctions (the monetary value of them) is to be equal to 
the winning party's economic damage. (Id. at 22.4.) Countries are allowed to challenge the amount of 
sanctions. Such challenges are submitted to binding arbitration, preferably by the panel that decided 
the case. (Id at 22.6.) Countries are required to accept the arbitral decision as final; a second 
arbiu-ation is not allowed. (Id at 22.7.) 

•*- Id. Appendix 3, Working Procedures at 2. "The panel will meet in closed session." 



^o Tno r» . 



94 



briefs and affidavits in the U.S. court system, documents presented to the panel are kept 
confidential."' The extent of the secrecy is emphasized by what is being labeled an important 
improvement in openness: The WTO text allows countries to request a "non-confidential 
summary" of the information contained in official submissions that could be disclosed to the 
public.'" This requirement is not an adequate substitute for disclosure of the submissions 
themselves, because the contents of the summaries need not fully disclose all of the evidence 
and arguments of the actual submissions. There is no right for public comment or 
participation, for instance in the form of amicus briefs. This secrecy flies in the face of the 
U.S. standards of openness and disclosure by which the Congress and courts operate. 



VI. A Corporate Bill of Powers: Getting National Governments Out of "Trade" Policy 

While inevitably domestic legislative prerogatives have been somewhat limited by the 
United State's international obligations, the Uruguay Round represents a revolutionary shift of 
authority over a vast array of policy areas to an unaccountable, foreign bureaucracy. The 
result would be expanded control by multinational corporations over the international 
economy and an increased capacity to undo the most vital health, safety and environmental 
protections won by citizen movements across the globe, or at the least, to keep future 
advances at bay. The WTO would give multinational corporations the lever to hold back or 
weaken central protections of people in the United States by a practical erosion of our 
domestic sovereignty through an external layer of regulatory bureaucracy that pulls standards, 
down, but not up. Look at the behavior of U.S. corporations in the United States as compared 
with their plants in other countries, such as the Mexican Maquildora region. The difference 
can be attributed to what they can get away with by getting away from the rule of law. 

It is no secret that one of the underlying goals of the Uruguay Round was to limit 
each country's ability to control "terms of trade" through domestic legislation, and thus 
strengthen the relative power of international trade rules. "Governments should interfere in the 
conduct of trade as little as possible," said the Director General of GATT and the likely head 
of the WTO, Peter Suthedand in a March 3, 1994 New York City speech criticizing the U.S. 
push to include environmental and social issues in the future Worid Trade Organization 
negotiations."' 

It is only recently that corporations developed the notion of using trade agreements to 
establish autocratic governance over many modestly democratic countries. The world 
community founded GATT after World War II as an institution to peacefully regulate world 
trade. At present, more than 100 nations that engage in over four-fifths of worid trade belong 



"^ Id. at 3 for regular panel repons.Jd at 18.2 for Appellate Reports. 

*" Id at 3. 

*' Reported in the Journal of Commerce, March 4, 1994. 



95 



to it. In its first 40 years of existence, GATT concerned itself primarily with tariffs and 
related matters; periodically, the GATT signatories would meet and negotiate lower taxes on 
imported goods. If the Uruguay Round were approved as written, Kraft, General Motors, 
Merck, Phillip Morris, American Express, Cargill, Dupont, and their foreign allies will have 
succeeded in turning trade negotiations into power plays against nations retaining a 
meaningful sovereign right to protect citizens from harm. Global commerce without 
commensurate global law may be the dream of corporate chief executive officers, but it 
would be a tragedy for the people of the world with its ratcheting downwards of worker, 
consumer and environmental standards.*" The U.S. Congress is one of the only potential 
barriers to this future of concentrated corporate power backed by 'pull down' trade rules. 

VII. The Modern, Global "Race to the Bottom" 

U.S. corporations long ago learned how to pit states against each other in "a race to 
the bottom" -- to provide the most permissive corporate charters, lower wages, pollution 
standards, and taxes. Often it has been the federal government's role to require states to meet 
higher federal standards. Now, through their campaign for "free trade" particularly via the 
Uruguay Round, multinational corporations are directing their efforts to the international 
arena, where desperately poor countries are either pressured or willing to drive conditions 
downward and backward. There is no overarching "lift up" jurisdiction on the world stage. 

It's an old game: when fifty years ago the textile workers of New England demanded 
higher wages and safer worker conditions, the industry moved its factories to the Carolinas 
and Georgia. If California considers enacting environmental standards in order to make it 
safer for people to breathe, business threatens to shut down and move to another state. 

The Uruguay Round is crafted to enable corporations to play this game with much 
more recklessness at the global level, to pit country against country in a race to see who can 
set the lowest wage levels, the lowest environmental standards, the lowest consumer safety 
standards. Notice this downward bias - nations do not violate the GATT rules by pursuing 
too weak consumer, labor (except for slave labor) and environmental standards. They are 
challenged only when these standards are considered too advanced. 

Enactment of the Uruguay Round virtually ensures that any local, state or even 
national effort in the United States to demand that corporations pay their fair share of taxes, 
provide a decent standard of living to their employees or limit their pollution of the air, water 
and land will be met with the refrain, "You can't burden us like that. If you do, we won't be 
able to compete. We'll have to close down and move to a country that offers us a more 



*^or instance, in 1986, when the Uruguay Round began, multinational corporations thrust an 
expanded set of concerns on GATT that went far beyond traditional trade matters. They demanded that 
they be free to invest anywhere in the world with no domestic conditions; that environmental and 
safety standards be "harmonized" (made the same everywhere) -- with the practical result that they be 
dragged down to a lower common denominator level. 



96 



hospitable business climate." The WTO will accelerate this corporate leverage. This sort of 
ultimatum is extremely powerful - communities already devastated by plant closures and a 
declining manufacturing base are desperate not to lose further jobs, and they know all too 
well from experience that multinational corporations find it easy to exit the United States if 
they do not get their unfair way. 

Want a preview of the new world trade order? Check out the U.S.-Mexico border 
region, where hundreds of U.S. companies have opened up shop during the last two decades 
in the special maquila trade zone. When U.S. factories have closed down and moved to 
Mexico, this is usually where they have gone. The lure is simple: a workforce that earns as 
little as five or six dollars a day and does not have the means to defend itself against 
employer aggression because it is effectively denied the right to organize, and is exposed to 
terrible environmental and workplace conditions. 

In many instances, large corporations are already forcing U.S. workers and 
communities to compete against this Dickensian industrialization - but the situation will 
become much worse under the WTO, which will make it much easier and less risky for U.S. 
and other foreign companies to open harsh factories in impoverished developing countries. 
Further, under the GATT rules, a country may not exclude imports on the basis of labor or 
environmental conditions in the country of production (GATT and WTO do allow an 
exception to this rule for slave labor.) Although such "production process" standards affect the 
cost of production, countries with higher standards cannot provide a level playing field for 
local producers who follow domestic laws and incur the related costs. Thus, countries are 
denied the tools to ensure that domestic producers can successfully operate without having to 
relocate to jurisdictions with lower cost standards. 

Worst of all, the corporate-induced race to the bottom is a game that no country or 
community can win. There is always some place in the world that is a little worse off, where 
the living conditions are a little bit more wretched. Look at the electronics industry, where 
dozens of assembly and other factories -- in search of ever lower production costs -- have 
migrated from California to Korea to Malaysia. Many of those businesses are now 
contemplating moving to China, where wages and workplace and environmental standards are 
still lower. The game of countries bidding against each other causes a downward spiral. 

The most important tool countries have to combat serious corporate blackmail is to 
say, "You are not going to be able to sell in this country if you behave in that manner." 
Using this logic in the past, the United States has conditioned trade status on labor and 
human rights for trading partners. Similarly, the United States currently has environmental 
and conservation laws that forbid sale in our market, for instance, of fish caught with driftnets 
or using techniques that kill dolphins, and of wild-caught birds. But the Uruguay Round 
would place at risk the exercise of such national authority to control the domestic market. 
Under the terms of the WTO, that sort of effort to protect national standards would be 
considered a "nontariff trade barrier," and would be proscribed. 



97 



VIII. The Uruguay Round: Headed in the Wrong Direction 

All over the country there is a bubbling up of citizen activity dealing with the 
environment and public health. People want solar energy instead of fossil fuels; they want 
recycling; they want to clean up toxic waste dumps; they want safer, biodegradable, 
environmentally benign materials instead of others that happen to be sold in greater numbers 
worldwide. And if local or state governments can make decisions to help achieve these goals, 
then people can really make a difference. But if existing or proposed local and state standards 
can be chilled by a foreign country's formal accusation (often in collaboration with domestic 
special interests) that the standards are a nontariff trade barrier, then the evolution of health 
and safety standards here and around the world will be stalled. Regulatory breakthroughs do 
not only occur at the national level. Often, a smaller jurisdiction -- a town, city or state -- 
experiments with a standard, other cities and states copy it and, eventually, national 
governments and international governments, lagging behind, follow the local lead. 

This percolating-up process for advancing crucial non-commercial values that shape 
living standards will be stifled by the WTO, with bottom-up democratic impulses replaced by 
pull-down mercantile dictates. It is inevitable that different policy goals will at times conflict, 
for instance goals of maximizing trade and goals of public health and environmental 
protection. However, the decision about which policy goal should take precedence in a 
particular instance should be decided by those who will live with the results. Under the 
Uruguay Round, those decisions are subordinated to commericial trade priorities and are 
largely shifted away from citizen control and domestic democratic institutions to a dispute 
resolution body located in Geneva, Switzerland which operates in secret and without the 
guarantees of due process and citizen participation found in domestic legislatures and courts. 

Moreover, the substantive trade rules interpreted by the dispute resolution body of the 
WTO would exercise a supremacy over other policy goals in almost every instance. This 
grave institutional bias, which subordinates health, safety and other factors to the imperatives 
of commercial trade is the not the way that Congress has legislated over the decades. I 
strongly urge Congress to reject the Uruguay Round agreement in order to revisit its trade 
proposals within a democratic structure that protects our domestic federal and state 
sovereignty, and, to apply President Clinton's words, that "promotes democracy abroad." For 
it is democracy, not autocracy, that is the strongest and fairest engine for sustainable 
economic development. 

It is the duty of this committee and the Congress to assess the broadest implications of 
this agreement on the continued viability of democratic institutions here at home and their 
continued capacity to regulate commerce to suit the needs of their constituents. In two, three 
or four decades, when historians look back on this period during which so much of the 
world's system of self-organization is being reconfigured, they will point to the U.S. 
Congressional debate and consideration of the Uruguay Round as a turning point in the post 
cold war era. Either they will focus on it as a moment in which the Congress resisted the 
destructive GATT and NAFTA programs designed by society's most powerful forces for their 



narrow benefit, or they will view it as the moment in which Congress ceded authority to 
safeguard the interests of this country and its inhabitants to large multinational corporations 
that would gain excessive power from the Uruguay Round which they were so deeply 
involved in shaping. 

Who among you on this Committee will be the prophets? Who among you will be the 
safeguarders? These two roles are different sides of the same coin. Thank you. 



99 



Examples of How the Uruguay Round World Trade Organization Could 
Undermine Democracy, Sovereignty and Congressional Prerogatives 

The Uruguay Round could undermine U.S. and state policies by limiting the goals the 
U.S. may pursue in its standards and by limiting the means the U.S. may use to promote 
those goals. The gravity of the Uruguay Round mandates is compounded because trade 
challenges to all policies will be resolved by trade experts in the secret system described 
above that is stacked against consumer, labor and environmental interests. 

A. The Uruguay Round Limits the Means Employed to Achieve WTO- 
Allowed Policy Goals 

The Uruguay Round imposes significant limitations on the means used to accomplish 
even World Trade Organization-legitimate goals, if such means have trade effects. As a 
general matter, measures must be the "least trade restrictive." So far, this rule has only been 
established in a series of GATT dispute resolution cases. Approval of the Uruguay Round 
text, which specifically contains this requirement in numerous places, would give political 
approval to this policy for the first time. Then, a variety of policy goals that are only 
politically achievable through means that have greater trade impacts would be Worid Trade 
Organization-illegal. 

For instance, fuel efficiency has been a U.S. policy goal. In a current, pending GATT 
challenge, the European Union has challenged the U.S. CAFE standards and gas guzzler tax 
arguing that a carbon tax would be a less trade-restrictive way to promote fuel efficiency. 
However, when President Clinton proposed such a tax in 1993, it proved to be political 
infeasible. Under the existing GATT rules, which themselves need reform to accommodate 
social and environmental policies, the outcome of the EU challenge is uncertain. Under the 
Uruguay Round rules which implicitly adopts the least trade restrictive test, the United States 
would almost certainly lose. Thus, under the least trade restrictive test, an existing law can be 
struck down even though no alternative is available, much less in place. 

Raw log export bans in two Pacific Northwest states and in the federal land 
management rules would face the same fate. Raw log export bans are one of the most trade 
restrictive means to attain the goal of conserving our nation's forests. Yet, after years of 
debate, raw log bans were the only politically feasible approach because they accommodated 
the interest of providing alternative lumber processing jobs to those who would not longer be 
cutting down forests. Laws with such mixed economic and social purposes, of which there are 
many, would likely fall before challenge under the Worid Trade Organization's rules. 

For instance, in this annex, two chapters of the World Trade Organization's 



100 



substantive trade rules concerning standards have been interpreted to demonstrate their 
undermining effect on existing and proposed U.S. legislation. The Uruguay Round's principal 
standards provisions are found in the Agreement on the Application of Sanitary and 
Phytosanitary ("SPS") Measures, which addresses food and agricultural standards" and in 
the Agreement on Technical Barriers to Trade ("TBT"), which covers all product regulation 
other than that addressed in the SPS Agreement."* Both Agreements address a vast expanse 
of domestic regulations, ranging from end-product criteria to labeling and packaging 
requirements to risk assessment methods to testing, certification, inspection, and approval 
procedures. 

1. TECHNICAL STANDARDS 

Technical standards include all non-food standards, such as OSHA specifications, 
product safety and labelling rules, bans on asbestos and other dangerous substances and 
literally any other law that provides standards for products or services. The World Trade 
Organization's rules on technical standards require that the means used to achieve even 
allowable goals in technical standards be the least trade-restrictive alternative. Thus, technical 
regulations may not be "prepared, adopted or applied with a view to or with the effect of 
creating unnecessary obstacles to international trade."'" In addition, technical regulations 
may "not be maintained if the circumstances or objectives giving rise to their adoption no 
longer exist or if the changed circumstances or objectives can be addressed in a less trade- 
restrictive manner.'" 

o Under these provisions, Canada could argue, as it did in an amicus brief, that a 
phaseout of all asbestos should not apply to the asbestos produced in Canada because 
it presents less of a health risk, which can be controlled through use restrictions, than 
the other types at which the phaseout was principally directed. Such a Canadian 
challenge would be expected under the WTO terms. 

o Recycling schemes and packaging requirements may be vulnerable. In past trade 
challenges, the European Court of Justice invalidated a component of a Danish 



■" Sanitary and Phytosanitary Measures include standards to protect human, animal, or plant life or 
health from risks arising from additives, contaminants, toxins, diseases, or pests, where such measures 
may, directly or indirectly, affect international trade (SPS Agreement, Annex, % 1 .) 

"' TBT Agreement 1 1.5; Annex 1, 11 1-3. 

49 (YBT Agreement fl 2.2, 5.1.2.) Technical regulations may not be "more trade-restrictive than 
necessary to fulfill a legitimate objective, taking into account the risks non-fulfillment would create." 
(Id . at 1 2.2.) This sentence is immediately followed by factors that must be taken into account "[i]n 
assessing such risks," thereby envisioning a risk assessment or cost-benefit analysis. Conformity 
assessment procedures may not be more strict or applied more strictly than necessary to give 
confidence that products conform to technical regulations and standards.dd. at f 5.1.2.) 

'° Id. at 1 2.3. 



101 



recycling scheme requiring the use of reusable containers that could be handled by 
facilities in Denmark, and the U.S. complained that Ontario's imposition of higher 
taxes on recyclable beer containers than on reusable ones discriminates against U.S. 
beer, which is sold largely in cans, as compared with Canadian beer, which is sold 
largely in bottles. These schemes were not considered the least trade restrictive 
alternatives, or where considered to put a disproportionate burden on trade for the goal 
they achieved. 

o The Department of Transportation's requirement that trucks use antilock brakes, 
could be a challenge with the argument that anti-jack knife devices would have the 
same effect, even though it takes much longer to stop the truck with them. 

o The U.S. decided to ban asbestos-lined brakes because U.S. workers are exposed to 
the asbestos when they install or repair the brakes. Another country could argue that 
the ban is unnecessary because the workers could use protective clothing and 
ventilation to limit the risk. 

o If Congress passes pending legislation, which now exists in several states, to ban 
toy balls with a diameter less than 1.75 inches for small children, a challenger 
could argue that the measure is unnecessary because of inadequate evidence of harm 
or that hard plastic or wood balls should not be subject to it in fact, Connecticut's law 
to this effect would be exposed to challenge. 

o If OSHA phased out cadmium batteries because the cadmium leaches into ground 
water in landfills, a challenge could be mounted because most substitutes also contain 
heavy metals that would present similar problems. 

2. FOOD SAFETY STANDARDS 

Under the Uruguay Round, food standards may be "applied only to the extent 
necessary to protect human, animal or plant life or health."" In addition, countries must 
ensure that their food safety measures "are not more trade restrictive than required to achieve 
their appropriate level of protection, taking into account technical and economic 
feasibility."" Note that political feasibility is not included as a relevant consideration. 



" SPS Agreement at 1 6. 



" (Id. at i 21.) A footnote provides that "a measure is not more trade restrictive than required 
unless there is another measure, reasonably available taking into account technical and economic 
feasibility, that achieves the appropriate level of protection and is significantly less restrictive to trade." 
(Id. at 1 21 n.3.) The alternative measures need only be technically and economically feasible, 

they do not need to be politically feasible. This distinction is critical, as noted above in the context of 
the pending GATT challenge to the U.S. fuel economy standards and in the case of the raw log export 
bans. 



102 



Under the least trade-restrictive alternative test, any product ban may be called into 
question, since bans are the most trade-restrictive measures available. Thus, a ban could be 
challenged on the ground that permitting small exposures, labeling foods, or washing or other 
handling precautions would meet the level of protection. 

o An EPA ban on pesticide residues on a particular food could be challenged on the 
ground that permitting trace residues would achieve the same level of protection. 

o EPA's coordination policy precludes carcinogenic pesticides on raw commodities, 
where the pesticide concentrates in processed foods. The Delaney Clause prohibits 
residues of the carcinogenic pesticides only in the processed foods, but EPA has 
extended the pesticide ban to raw commodities because it does not know which 
tomatoes will be used to make tomato sauce. A challenger could argue, as industry 
has, that this policy is not "necessary" because FDA could monitor the processed 
foods for the residues instead. 

Bans on dyes, genetically altered produce, or fish with lead levels safe for 
everyone, except pregnant women, children or other vulnerable populations, could be 
challenged on the ground that warnings would suffice. 



o The Circle of Poisons Prevention bill, which, if enacted, would ban the export of 
certain hazardous pesticides in pan to prevent them from being used on foods exported 
back to the U.S. A challenger could argue that the export ban is not necessary because 
permitting the export but monitoring for the residues would achieve the chosen level 
of protection. 

The "taking into account technical and economic feasibility" language may prevent a 
country from using its chosen means because of economic considerations. It might also 
preclude the use of technology-forcing regulations that impose stringent requirements in order 
to force technological improvements, such as EPA's phaseout of uses of the pesticide 
carbofuran, even though substitutes were not available when the phaseout was established, or 
a ban the use of lead solder in food cans five years from now in order to force industry to 
come up with alternatives. 

Aspects of the 1990 Nutritional Labeling and Education Act also might be 
vulnerable to a trade-restrictive alternative challenge. Thus, mandatory labeling designed to 
provide consumers information about carcinogens or potentially harmful additives, such as 
salt, MSG, nitrites, or sulfites, could be challenged on the ground that voluntary labeling 
would suffice or that not all foods need to be covered by mandatory requirements. Indeed, 
both Japan and the European Union have already made claims that the mandatory nutritional 



103 



labeling is an unfair trade barrier." 

1. TECHNICAL STANDARDS 

The Technical Barriers to Trade Agreement allows the legitimacy of a country's 
objectives to be called into question, and also substantially limits the reasons that a country 
may employ to justify not using an international standard. 

Under the Uruguay Round, U.S. technical standards must be based on international 
standards, even where the international standards are not yet completed, but their completion 
is imminent.*^ The only exception is when the international standard "would be an 
ineffective or inappropriate means for the fulfillment of the legitimate objectives pursued, for 
instance because of fundamental climatic or geographical factors or fundamental technological 
problems."" 

Note that the examples are both modified by the word "fundamental" and they are 
objective rather than subjective conditions. Noticeably omitted from the list of exceptions is 
that the international standard provides an insufficient level of protection, a factor specifically 
listed in an analogous provision elsewhere in the TBT Agreement.'' The international 
standards serve as a ceiling, not a floor, curtailing innovative solutions to public health 
problems that are ahead of the international status quo, but not requiring that any solutions be 
put into place. In other words, the Uruguay Round contains no incentives, let alone any 
mandates, that countries, at a minimum, afford the level of protection provided by relevant 
international standards. 

2. FOOD SAFETY STANDARDS 

Under the Uruguay Round, food safety measures: 



" The Uruguay Round also prohibits arbitrary or unjustifiable discrimination between countries 
where identical or similar conditions prevail, and the application of measures in a manner that 
constitutes a "disguised restriction on international trade." (SPS Agreement at % 7.) A narrow 
construction of the latter requirement would simply require that the measure be a matter of public 
record or that it be the result of an open rulemaking or adminisu-ative proceeding. Under such a 
constraction, FDA action levels, which indicate when FDA will enforce pesticide residue and food 
additive standards, may be open to challenge. A broader construction might permit challenges to a 
food safety measure on the ground that its underiying effect is to restrict trade. For example, a ban on 
listeria in cheese, which is only imported, while listeria is not banned in other products, might be 
viewed as a hidden d-ade restriction. 



^ TBT Agreement at fl 2.4, 5.- 

" Id at ? 2.4. 

** Id, at Annex 3, <l F. 



104 



o must be "based on scientific principles;" 

o must "not be maintained without sufficient scientific evidence;" and 

o must be based on a risk assessment, taking into account risk assessment 
techniques developed by relevant international organizations". 

These scientific and risk assessment requirements may jeopardize cutting-edge food 
safety regulation in areas, such as food irradiation, biotechnology, and the use of growth 
hormones in beef production, where the scientific evidence is not yet in, but a country 
wishes to protect its citizens from possible, but uncertain, harm under the precautionary 
principle. 

o Indeed, the United States claimed that a European Community ban on imports of 
hormone-treated beef lacked scientific support, and thus was a disguised restraint on 
trade. 

o Laws such as the Delaney Clause, which prohibits the use of certain carcinogenic 
food and color additives, are at risk because it is a 30-year-old congressional policy 
judgment to protect the public from uncertain risks that is now attacked by industry 
as scientifically outmoded. As a measure setting a zero-risk standard, permitting no 
exposure to certain additives, it is not based on quantitative risk assessment. 

o California's Proposition 65, which requires warnings before exposing the public to 
cancer-causing substances or reproductive toxins, would be threatened because it was 
adopted as a popular referendum not a regulatory determination "based on scientific 
principles" and risk assessment. 



SPS Agreement at 1? 6, 16-17. 



105 



Testimony of Howard D. Samuel 

Executive Director 

Labor/Industry Coalition for International Trade 

before the 

Committee on Small Business 

U.S. House of Representatives 

April 26, 1994 

Thank you, Mr. Chairman. As you know, the Labor/Industry Coalition for International Trade. 
or LICIT, for almost fifteen years has represented a unique coalition of major companies and national 
trade unions vitally interested in the role that trade can play in strengthening the nation's industrial 
capacity and enhancing our standard of living. 

Our concern with the Uruguay Round was first expressed in a study, issued in 1989, and in 
an analysis of the Dunkel Texts issued approximately six months ago. 

Today, we have completed an assessment of the Round. There is no question in our minds that 
the final agreements are an improvement over the Dunkel Texts. But I assume this Committee will 
agree that an evaluation of the Uruguay Round agreement must be based not on a comparison with 
prior drafts, but on how effective the final texts, and the U.S. implementing legislation, will be in 
achieving such U.S. objectives as removing foreign trade barriers, countering foreign trade distorting 
practices, lowering tariffs, and creating multilateral disciplines over services and intellectual property. 

As of this moment, much uncertainty remains, and will remain for some time as to whether 
the overall Round will, on the whole, be better for U.S. industry than the status quo of no agreement 
at all. First, until Congress adopts the implementing legislation for the Round, how U.S. law will be 
affected by these provisions will not in all cases be clear. This much is within our own nation's 
control. However, there is a second unknown: the Agreement's provisions will be interpreted in 
Geneva, not the United States, by the new Worid Trade Organization and by dispute settlement 
panels. How this new process will work, unfortunately, cannot be known until well after the new 
package of Agreements has been signed. 

At the present lime, despite the uncertainties, we believe that current U.S. law provides 
domestic industry with more effective remedies against injurious foreign trade than will exist under 
the new Uruguay Round regime. 

For medium and small business, the loss of current remedies against unfair trade practices 
imposes a particularly harsh burden. Large companies, our major multinationals, are also impacted 
by these practices, but their resources enable them to explore alternate courses of action. No 
company, large or small, is immune, of course; but small business is particularly vuhierable. 



106 



Dumping 
I would like to deal first with the issue of dumping. Recognizing that an effective anti- 
dumping regime is essential to an open trading system as well as to the preservation of the American 
indusuial base. Congress specified in the 1988 Omnibus Trade and Competitiveness Act that a key 
U.S. objective in the Uruguay Round was a strengthening of international rules relating to 
antidumping. 

Unfortunately, countries that dump and subsidize have had an unfavorable effect on the 
Antidumping and Subsidies Codes agreed upon in Geneva last December 15. Nevertheless, the Codes 
provide a number of opportunities to preserve and strengthen our unfair tfade laws. Implementing 
legislation must be drafted to be as strong as the Codes permit. Our chief areas of concern are; 

Sunset: The implementing legislation must clarify that the standards for finding that dumping 
or injury is likely to continue or recur are relatively easy for domestic industries beset by unfair trade 
practices to meet. 

Standing: The industry should be defined to permit standing, consistent with the Code, in the 
way most conducive to permitting U.S. industries faced with injurious unfair trade practices to win 
relief. 

Dumping Calculation Provisions: Antidumping Code provisions on de minimis , start-up costs, 
and averaging constrain the ability of the U.S. Government to fully offset the amount of dumping. 
The Code should be implemented by establishing certain standards which ensure that the amount of 
dumping is fully offset to the extent permissible under the Code and thus ensure that foreign 
companies may not exploit potential loopholes to avoid dumping duties. 



Subsidies 
With respect to the issue of subsidies, the Uruguay Round code is a fundamental departure 
from the current GATT and U.S. unfair trade law. For the first time subsidized goods which cause 
injury will be immune from either GATT complaint or U.S. trade remedies. Among the key 
provisions: 

Standard of Review : Dispute settlement panels will have the power to review our application 
of U.S. unfair trade laws. It is imperative that in doing so the panels respect reasonable factual and 
legal determinations by U.S. agencies. Standard of review language was included in the Antidumping 
Code. It was not explicitly included in the Antidumping Code. It was not explicitly included in the 
Subsidies Code, but was covered in a ministerial declaration by the negotiators. The U.S. 
Government in the Statement of Administrative Action should state that panels must defer to 
reasonable interpretations of U.S. administering agencies on subsidies or the Administration will not 
accept the results of the panel ruling. 

Financial Contribution: The Code defines subsidies in terms of "financial contribution," which 



107 



if narrowly interpreted migiit exempt certain indirect government actions. A clarifying dct'iniiion 
should be included in our implementing legislation. 

Greenlighted Subsidies : The Subsidies Code would greenlight several types of subsidies. Since 
subsidy dollars are fungible, this provision will most likely benefit certain countries which have 
traditionally provided support to individual companies and industries, to the detriment of U.S. 
indusu-ies. The Code provides that this provision will terminate after five years, and Congress in the 
legislation should terminate the provision after five years as well. 

In respect to both antidumping and subsidies, our own statutes must be strengthened to the 
maximum extent feasible-consistent with the new Codes-and provision should be made to 
compensate firms injured by dumping through anti-dumping duty collections, and to firms injured by 
foreign subsidies through countervailing duty collections. 



Section 301 
It is the common understanding of most foreign countries that they have negotiated an 
agreement that neutralizes the ability of the United States to use Section 301 effectively. For this 
reason, we urge that new and effective measures should be devised to provide leverage to open 
foreign markets, and provide a remedy, through Section 301 or other means, against practices which 
are not subject to adequate disciplines under the new international trade rules. 



Dispute Resolution 
For the first time, GATT dispute settlement will be compulsory for G ATT violations and other 
GATT-related issues and will be binding on all parties. For this reason, the dispute settlement process 
should be implemented in a manner which maximizes its effectiveness against foreign unfair trade 
practices. This should include provision of a right of private parties direcUy affected by dispute 
settlement cases to be present throughout the proceedings, to have access to all relevant documents, 
and where appropriate to present documents on their own behalf. There should also be provision for 
an independent review process to judge the fairness and effectiveness of the dispute resolution process 
on a continuing basis. Congress should play a leading role in such a review. 

Neither the results of international negotiations nor the decisions of dispute settlement panels, 
if in conflict with existing U.S. law, should be given effect without special approval through separate 
implementing legislation. 



Anti-Competitive Practices 
LICIT and its sister coalition, the Coalition for Open Trade, has been particularly disturbed 
by the failure of the Uruguay Round to deal with the subject of private anti-competitive practices. 
The problem has been exacerbated by the potential weakening of Section 301. For this reason we 



108 



are giving serious consideration to a proposal which would offer an alternate method of dealing with 
this kind of unfair practice, which is otherwise not subject to international trading discipline. 

The basic problem is that U.S. firms are prohibited from engaging in a variety of practices 
while foreign firms are not -- an imbalance which has led to the erosion or even the destruction of 
some U.S. indusu-ies. Restrictive practices by private firms in Japan are arguably now the principal 
source of friction between the U.S. and Japan, and pose a continuing problem for U.S. firms in 
Europe and other parts of the world as well. 

The GATT does not discipline restrictive business practices. 

The Uruguay Round negotiations largely ignored this issue. 

The U.S. antitrust laws have proven ineffective against foreign restrictive business 
practices. 

Foreign antitrust enforcement has proven ineffectual. 

Bilateral negotiations to eliminate such practices are often frustrated by foreign 
government arguments that the practices are a "private business matter" not properly 
the subject of government action. 

We propose an amendment to clarify that Residential authority exists to impose fines on 
certain restrictive business practices that burden U.S. commerce. The scope of the amendment is 
limited to certain types of highly egregious conduct that would be clearly illegal under the laws of 
the United States as well as those of many foreign countries. The enforcement mechanism, fines 
levied against the U.S. business operations of foreign and domestic enterprises engaging in restrictive 
business practices, is utilized to ensure consistency with U.S. obligations under the GATT. 

The purpose of the provision is to ensure that authority to address anticompetitive foreign 
practices that affect U.S. trade interests is vested in a government department that will take those 
interests fully into account in dealing with the consequences of restrictive foreign conduct. 



Foreign and domestic firms would be subject to this provision to ensure "national treatment" 
under U.S. treaty obligations. As a practical matter, no domestic firm that is in compliance with 
existing U.S. antitrust laws would face any potential liability. 

The authority is vested in the President, rather than any particular agency. It is intended that 
the President would delegate this authority to an appropriate agency (or agencies) for administration 
pursuant to procedures that ensure due process for all parties pursuant to the Administrative Procedure 
Act. 



109 



This provision would not make actionable any conduct that is already actionable under the 
U.S. antitrust laws. In other words, the activity that would be covered by this legislation can already 
be acted against by the U.S. Department of Justice and the Federal Trade Commission. Any activity, 
domestic or foreign, that is currently not actionable under U.S. antitrust statutes would not be affected 
by this legislation. 



Intellectual Property 
Some progress was made in protecting U.S. firms against the theft of intellectual property in 
the Uruguay Round, but the potential protection could be lost through the weakening of our ability 
to use Section 301. Intellectual property protection must be assured through the adoption of an 
effective revision of Section 337 of the 1930 Tariff Act, and by a new Special 301. so that the 
infringement of intellectual property rights can be discouraged and countered. In addition, the 
implementing legislation should contain measures to ensure careful monitoring of countries' 
application of the provisions in the TRIPs Code on compulsory licensing and border measures, and 
to require U.S. action if there is evidence that these measures are being abused. 



Other Issues 
To make better use of the market-opening tools referred to above, provision must be made for 
the ongoing collection of information on the openness of foreign markets. 

Priority attention must be given to solving chronic trade imbalances which stem from foreign 
market closure, anti-competitive practices, subsidies and industrial targeting. 

For key sensitive areas, such as textiles and apparel, and autos and auto parts, trade 
liberalization should be conditioned upon reciprocal market access opportunities aBroad. 



Having won agreement that GATT will give consideration to the worker rights issue, the U.S. 
government should remain firm in its goal of adopting, as a principle of GATT, that the denial of 
worker rights should not be a means for a country or its industries to gain competitive advantage in 
international trade. 



no 



94-13 

STATEMENT OF DR. GREGORY WOODHEAD, TASK FORCE ON TRADE 

AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS 

BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS 

ON THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 

April 26, 1994 



The AFL-CIO believes that the proposed trade agreements resulting from the 
Uruguay Round of Multilateral Trade Negotiations offer little, if anything positive to 
U.S. workers, and in certain respects will directly harm their interests. The agreement 
negotiated under the auspices of the General Agreement on Tariffs and Trade (GATT), 
falls far short of the trade negotiating objectives, and may seriously limit the ability 
of the U.S. to fashion policies and taice actions that will address this country's 
persistent and growing trade deficit. 

Nevertheless, the AFL-CIO will continue to work with the Congress in an effort 
to craft an implementing bill that will strengthen and expand U.S. trade law, minimize 
the damage to other U.S. laws and regulations, and develop collateral legislation that 
will promote job and income security for U.S. workers. 

The overriding issue in discussions of trade and development is not free trade 
versus protection, more trade versus less trade, open markets versus closed markets, 
more investment versus less. Rather, it is how economic ties among nations, each 
with its own set of rules and practices governing production and trade, affect the lives 
of working people. To the extent that these relationships among nations play a role 
in distributing the fruits of economic growth, the AFL-CIO is concerned with who will 
benefit-the tiny number of people on the top rungs of the economic ladder, or the 
vast numbers on the bottom and middle rungs. The issue is not whether the U.S. 
should be engaged in economic activity internationally. Rather, the issue is how to 
be engaged so that it is beneficial to American workers and that such benefits are 
equitably distributed. 

When market forces are left to their own devices we cannot expect them to 
bring sustained, equitable economic growth and social progress. Most of the historic 
achievements of the labor movement, and indeed of the United States as a whole-the 
establishment of the minimum wage, the abolition of child labor, the development or 
workplace health and safety laws of environmental protections, collective bargaining 
itself-are intended to temper and restrain some of the most brutal effects of the 
"free" market. Markets need to be restrained and channeled in certain directions if 
economic activity is to serve the interests of the majority of America's people. 

Regrettably, this view of the world is not reflected in the Uruguay Round 
Agreements. While it is no doubt true that international trade can increase 



Ill 



competition, and that competition can reduce costs, costs can be reduced by either 
increasing productivity or by lowering wages and/or workplace or social standards. 
The failure of the Uruguay Round to address the social side of the production 
equation-worker rights and standards and environmental protection-is a major - 
shortcoming. Absent progress in these areas, pressure to harmonize standards 
downward in order to remain "competitive" will continue to grow. 

This reality, coupled with the apparent view of the U.S. government that trade 
and investment liberalization, under virtually any circumstance will benefit America, 
poses serious problems for American workers. The vast majority of this nation's 
trading partners approach global trade negotiations with the objective of maximizing 
domestic production and employment. U.S. trade policy is fixated on the vision of 
classical economists and that focus has resulted in massive trade deficits, and 
massive worker dislocations. The human and social costs of this policy indicated by 
lost jobs and declining real incomes have been devastating. 

When the Uruguay Round of Trade Negotiations formally began in 1986, the 
U.S. trade deficit had reached the previously unimaginable level of $138 billion. While 
shrinking somewhat over the last few years, the deficit is again growing rapidly and 
exceeded $115 billion for 1993, a 40 percent increase from the 1992 level 
(see Chart 1). The trade deficit has continued to expand in 1994 and the February 
deficit of $13.9 billion was the largest monthly deficit in six years. The magnitude 
and persistence of the U.S. imbalance is both harmful and ultimately unsustainable. 
Between 1986 and 1993, the average weekly manufacturing wage, adjusted for 
inflation, declined 6.3 percent. Unchecked, the trade deficit portends even more 
painful reductions in the living standards of working Americans. 

Central to America's trade problem is the imbalance in manufactured goods 
trade. Eleven years ago, the U.S. enjoyed a trade surplus in this vital sector, while 
1993 saw this deficit grow to more than $115 billion. In fact, between 1981 and 
1993, as the total amount of imports doubled to $581 billion (see Chart 2), 
manufacturing imports surged from 54 percent to 83 percent of all imports 
(see Chart 3). This rapid and massive shift in trade has severely weakened America's 
industrial base, and has had a major negative impact on employment. While total 
employment has grown over the last ten years, that growth has taken place solely in 
the service sector. Employment in manufacturing has declined substantially. Since 
1979, 3.3 million manufacturing jobs have been lost in America, including 170,000 
jobs lost in 1993. According to the International Labor Organization, by 1992 only 
18% of the U.S. workforce was employed in manufacturing as compared to 27% for 
Japan and 29% for Germany. 



112 



Using the Administration's own calculations that every billion dollars of net 
exports creates 20,000 jobs, if trade were to be balanced in 1993, this economy 
would have 2.3 million more jobs than it does today. There is a ripple effect 
associated with jobs lost in manufacturing because each manufacturing job supports 
four other jobs In the economy. And millions of unemployed American workers would 
surely attest to the improvement in living standards that would result from the 
availability of those jobs. 

The persistent U.S. trade deficits have been matched by corresponding bilateral 
trade surpluses of a small number of America's major trading partners. For example, 
Japan's global merchandise trade surplus for 1993 was a record $120 billion. The 
asymmetry of world trade is further highlighted by the fact that the U.S., by itself, 
absorbs more than half of all less developed countries' manufactured exports. These 
persistent patterns of trade clearly indicate that the benefits and costs of the "open 
trading system" are not being borne equally, and that major reforms are urgently 
needed to bring about some measure of equity and balance. 

During the past three years, U.S. investment abroad has grown much faster 
than foreign investment in the U.S. A total of $487 billion of assets abroad were 
owned by U.S. private firms and individuals in 1 993. This growing imbalance in direct 
investment has severe adverse consequences on U.S. merchandise trade and on job 
creation in the U.S. 

The AFL-CIO made negotiating proposals which addressed; trade advantages 
gained by the denial of internationally recognized worker rights, the continuing 
problem of large external imbalances, the strengthening of U.S. trade remedy laws, 
the gross inequities in market access among contracting parties. These negotiating 
proposals were among the objectives legislated by the Congress in its grant of 
negotiating authority to the President. It appears that little progress in these areas has 
been made. Therefore, the AFL-CIO recommends that the implementing bill address 
the following issues: 

Worker Rights 

Regrettably, the Uruguay Round did nothing to address the cruelest and most 
prevalent trade subsidy of all--the suppression of human and worker rights by 
governments seeking a low-wage, low-standard "comparative advantage" on the 
world market. Even proposals to create a process for studying the inclusion of basic, 
internationally-recognized worker rights in GATT have been stalled by those who wish 
to keep the benefits of world trade as the private preserve of the privileged few. 

World trade will not improve living standards significantly unless ordinary 
working people have the right to associate freely, the opportunity to share in 



113 



economic progress and thereby the power to create broad markets for goods and 
services. A strong worker rights clause in GATT is the only practical way of ensuring 
that governments that want to enjoy the benefits of the world trading system, respect 
the rights of their citizens. The Administration's commitment to pushing for a post- 
Uruguay Round discussion of a social dimension in GATT is a step in the right 
direction and we urge it to move decisively toward that goal. 

The opportunity to raise the issue of worker rights and labor standards in the 
Preparatory Committee that establishes the World Trade Organization represents a 
small step toward fulfillment of the AFL-CIO's long-held goal that adherence to basic 
worker rights should be included in the global trading system. Unfortunately, it does 
not go as far as establishing an actual committee to explore the Issue. Thus, 
Ambassador Kantor is exactly right when he says "this is a beginning, not the end." 

The fact is that trade and worker rights are already linked. The burning 
question is whether that linkage will serve working people and their aspirations for a 
better life or facilitate only those who would profit from exploiting them. 

Some have attempted to characterize this issue as a conflict between the 
developed and developing worlds. When it comes to working people themselves, 
nothing could be further from the truth. Protection of worker rights has long been a 
priority of democratic worker organizations in nearly every country-whether or not 
they are highly-industrialized. 

As Ambassador Kantor points out, worker self-organization has played a crucial 
role in prosperity and freedom around the world. The United States and Its allies must 
redouble their efforts to gain support for a formal structure to include worker rights 
on the World Trade Organization's agenda. 

WTO and Dispute Settlement 

The establishment of the World Trade Organization (WTO) to replace the GATT, 
and with it, a binding dispute settlement mechanism, is a major concern of 
the AFL-CIO. While the concept of creating a structure that can enforce agreements 
freely entered Into is not necessarily bad, the ultimate value of such a structure rests 
on the kind of rules it has to administer and the public's confidence that It will 
administer those rules fairly. 

It appears that under this agreement, actions against WTO covered unfair, 
unreasonable, or discriminatory trade and investment practices that are in dispute 
would require the prior authorization of the WTO. That authorization would be given 
by a panel of experts, and Its decision, pending review by a permanent appeals panel, 
would be binding. This is a major change from existing procedures, and has far- 



114 



reaching implications for the operation and implementation of existing U.S. laws. 
Language in the proposed agreement requiring the use of dispute settlement would 
appear to severely restrict the use of Section 301 of the Trade Act without prior WTO 
authorization and would no doubt conflict with provisions like Super 301 or 
Special 301. 

The central problem for the U.S. is the rules that this new body will adjudicate. 
The Uruguay Round agreement has greatly expanded the new WTO's jurisdiction over 
governmental practices, and consequently, the U.S. would be restrained from taking 
unilateral action against anything covered by the agreement. It is important to 
emphasize, that the proposed agreement is far different from previous trade 
agreements because it addresses governmental actions that heretofore had been 
considered purely domestic in nature. Therefore, it may inhibit, if not prevent the 
strengthening of domestic laws and regulations in areas such as consumer and 
environmental protection. 

Even for practices not addressed, like worker rights, competition policy, market 
access for audio-visual goods and services, and some forms of environmental 
protection, this expanded coverage represents a severe limitation on remedies that 
could be employed by the U.S. It is particularly important in this context to develop 
new remedies, and an improved Super 301, to insure the interests of the U.S. are 
protected . 

Further, this structure may reduce the ability of the U.S. to deal with bilateral 
trade problems. For example, the AFL-CIO has been supportive of the 
Administration's efforts to address the growing bilateral trade imbalance that exists 
with Japan. The focus on results, and not process, is long overdue. But since the 
proposed Uruguay Round agreement does not provide for mechanisms to deal with 
external imbalances, the AFL-CIO is concerned that a results oriented agreement with 
Japan would run afoul of the requirements imposed by the WTO. While it is true that 
two countries can agree to anything they want-whether or not it is consistent with 
the WTO-a third country might have grounds to challenge that agreement and have 
it overturned in dispute settlement. 

These problems and solutions to them must be central in the development of 
any implementing bill. Otherwise the ability of the U.S. government to defend the 
interests of workers and domestic procedures will be dramatically weakened. 

Trade Rules (Dumping. Subsidies. Safeguards) 

While U.S. negotiators were able to secure improvements over the Dunkel draft 
in the anti-dumping text, the result still appears to represent a weakening of current 
law. Whether problems can be addressed in the implementing bill is unclear. 



115 



For subsidies, the agreement would mal<e permissible certain regional, research, 
and environmental subsidies-even if they harm U.S. industry--that under current laws 
are countervailable. While these types of governmental support are appropriate, it has 
consistently stated that the U.S. must retain the right to impose offsetting duties 
when these programs injure American workers. It is clear that other countries are far 
more likely to utilize such subsidies than is the U.S. At the very least, the 
Administration must develop programs to insure equity in this area. 

The failure to conclude an enforceable multilateral steel agreement, particularly 
in light of the Administration's offer of zero steel tariffs, is disturbing. The exclusion 
of civil aircraft from certain disciplines provided by the subsidies agreement is also 
troubling. It is incumbent upon the Administration to proceed rapidly to insure that 
U.S. production of civil aircraft and steel products is no longer disadvantaged by the 
governmental practices of this country's trading partners. 

Concerning safeguards, the agreement rejects the application of selective 
measures, which the AFL-CIO has long thought necessary to address the complexities 
present in the international economy. Indeed, it appears that safeguards will be much 
more difficult to effectively implement, thus further reducing control over our 
economy. 

The agreement requires the complete phase out of all "grey area measures", but 
allows each contracting party one exception. The European Union has used this 
exception to maintain restrictions on imports of autos and trucks from Japan until the 
year 2000. Thus far, no exception has been taken by the U.S. and a comparable 
derogation for this country is necessary. The AFL-CIO is also concerned how this 
chapter will effect existing restraints on products like machine tools, or the U.S. -Japan 
semiconductor agreement, as well as actions that may be needed in the future. 

Textiles and Apparel 

The textiles and apparel agreement reached in the Uruguay Round negotiations 
is a severe threat to the more than 1.7 million workers directly employed by those 
industries and to additional hundreds of thousands of workers in supplying Industries. 
What the Administration says it secured for the industry and its workforce with one 
hand, it more than gave away with the other. 

U.S. trade negotiators rejected the more than thirty year recognition by 
successive Administrations that apparel and textiles are import sensitive. They 
followed the pattern laid down by the prior Administration by actively pushing for an 
end to the Multifiber Arrangement. Even though MFA was inadequately used in the 
last decade, it provided some job protection for the workers employed in the U.S. 
industry. 

The Administration argued that reciprocal market opening by supplying nations 
would more than compensate for job losses resulting from further opening of the U.S. 
market. This, in turn, was tied to binding tariff cuts by exporting nations and 



116 



agreement to end non-tariff barriers and not institute new ones. The deficiencies of 
this position are obvious. 

Even if supplying countries fully complied, only a few have a large enough 
middle class capable of purchasing U.S. products, including apparel. There was no 
recognition of the need to raise incomes in supplying countries so that their people 
might be able to buy reasonable amounts of U.S. -made products. Tariff and non-ta. iff 
barriers are clearly not the only factor in limiting apparel exports to these countries' 
markets. More striking, the agreement allows exporting countries up to ten years to 
comply with tariff cuts and other supposed market opening actions, while they 
immediately benefit from quota reductions by the U.S. No exporting countries, other 
than those already pursuing open domestic market policies, have made significant 
market opening commitments. No penalties or incentives were negotiated to induce 
countries to reciprocally open their markets. Even basic equity has not been achieved . 

This agreement clearly means sharp increases in unemployment among the 
more than two million workers in apparel, textiles and supporting industries in the 
early years after the agreement goes into effect. There are no effective alternative 
Administration employment plans in sight. Here, the price for "liberalized trade" will 
be paid by those who can least afford it. 

Funding 

The AFL-CIO is concerned over how the proposed tariff reductions in this 
agreement will be paid for-estimated by the Administration to be nearly $14 billion 
in the first 5 years. Our country cannot afford reductions in needed social programs. 
Congress should carefully consider changing the foreign tax credit to a tax deduction 
as the most equitable funding instrument. 

Other Issues 

* The AFL-CIO is disappointed in the widespread grant of special and 
differential treatment for certain contracting parties that is found throughout the 
agreement-including chapters dealing with Subsidies, Anti-dumping, Safeguards, 
Services, TRIPS, and TRIMS. Equity and reciprocity remain an unfulfilled goal. 

♦ The AFL-CIO is concerned that the chapters dealing with standards will 
create pressure to harmonize downward the critical protections afforded by 
production, consumer, and environmental laws and regulations. The agreement 
appears to cover "all measures. . . which may. . . indirectly affect international trade. 

This extends the reach of the WTO to virtually anywhere it wants to go, and makes 
the inadequacy of its rules that much more disturbing. 

• The failure to achieve any measure of fairness and reciprocity in the trade 
of audio-visual goods and services is a major shortcoming. Because of European 
Union's quotas, subsidies and levies, the film industry and its half million workers are 
being robbed of revenue and compensation, and threatened with displacement from 
a major market. Countervailing measures must be devised before this industry is 



117 



weakened by a flight of investment capital into European rather than U.S. based 
production. 

* The Services text raises many questions about the continued ability of 
the U.S. to appropriately regulate economic activity. The AFL-CIO is particularly 
disturbed over the inclusion of immigration matters, and aircraft repair and 
maintenance services. 

* The expansion of the Government Procurement Code to include 
construction and the provision of services, as well as the commitment to extend 
coverage to state and local governments, is ill advised. The U.S. has derived little 
benefit from the existing arrangement, and its expansion will simply compound the 
damage. 

* The failure to address the inequitable rules concerning indirect and direct 
taxation will continue to disadvantage U.S. producers. 



CONCLUSION 

The AFL-CIO is greatly disappointed in the outcome of the Uruguay Round 
negotiations. U.S. sacrifices, particularly for textile and apparel workers, loom large, 
while opportunities to bring equity and fairness to the international trading system 
have been sidetracked or lost. The U.S. has apparently decided to continue its 
outdated role as the guarantor of the trading system by accepting disadvantageous 
and nonreciprocal treatment. The massive and continuing trade deficits of the past 
decade, and their human cost, have been ignored. The AFL-CIO will make every effort 
to address these problems in implementing and collateral legislation to promote the 
interests of working Americans. 

Future trade negotiations and national action should be directed at the goal of 
achieving greater balance in trade on a sectoral level in order to preserve America's 
vital industrial base. Reliance on trade liberalization alone will not achieve this goal. 
While commerce today is indeed global, social protection and regulation-factors that 
are necessary to humanize the market and to help promote equitable distribution of 
its benefits-remain the responsibility of national governments. This conflict needs to 
be resolved if trade is to expand and benefit the greatest number of people. 



118 













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121 



Testimony to the House Committee on Small Business 

Ambassador Rufus Verxa 

Deputy U.S. Trade Representative 

.April 26. 1994 

THE URUGUAY ROUND: 
GROWTH FOR THE WORLD, JOBS FOR THE U.S. 



Introduction 

Mr. Chairman, thank you very much. It is a pleasure to be here today to discuss with you 
the Uruguay Round agreement, 'vhich sets the stage for a more competitive and prosperous 
nation in the coming years and mto the next century. I look forward to working with you 
this spring as we prepare the legislation that will implement the Round, which I hope the 
Congress will approve. 

Mr. Chairman, on December 15. 1993. 117 countries concluded a major agreement to reduce 
barriers blocking expons to world markets (in agriculmre. manufactured goods, and services) 
as well as to create fairer, more comprehensive, more effective, and more enforceable trade 
rules. In order to assure the efficient and balanced implementation of the agreements 
reached, they also created a new World Trade Organization (WTO). On April 15, we joined 
with other participants in the Uruguay Round in the formal signing of the agreement in 
Marrakesh, Morocco. 

The Uruguay Round trade agreement is the largest, most comprehensive trade agreement in 
history. The existing GATT s>stem was incomplete: it was not completely reliable; and it 
was not serving U.S. interests well. The new agreements open up major areas of trade and 
provide a dispute settlement system which will allow the U.S. to ensure that other countries 
play by the rules. 

The successful conclusion of the Uruguay Round negotiations was an imponant pan of the 
President's strategy for strengthemng the domestic economy. Barely a year ago. President 
Clinton entered office, faced with daunting challenges in his effort to restore the .American 
Dream. 

The economy was stagnant. Unemployment was high, and confidence was down. In just 
one year, we have mmed a comer. Our economy is growing and millions of jobs have been 
created. People are getting back to work. 

But these are just the first steps in preparing our nation for the 21st century. The President 
is addressing the long-term issues facing our economy. 



122 



All of the elements of the President's economic strategy - reducing the deficit, reforming 
education, the President's re-employment program, and health care -- are geared towards 
solvins these problems, creating jobs and making our country more prosperous for our 
children. All of the parts work in tandem, each reinforcing the other. 

An essential element in this strategy is to expand and open foreign markets. Expanding trade 
IS critical to our ability to compete in the global economy and create high-wage jobs. That is 
why the President focused so much attention in 1993 on the Uruguay Round, the North 
American Free Trade Agreement, the Japan Framework, and the Asia Pacific Economic 
Cooperation conference. 

The U.S. economy is now an integral element of the global economy. Over a quarter of the 
U.S. economy is dependent on trade. Where we once 'oought. sold and produced mostly at 
home, we now participate in the global marketplace. By expanding our sales abroad, we 
create new jobs at home and we expand our own economy 

The United States is positioned economically, culuirally and geographically to reap the 
benefits of the global economy. 

Economically, because our workers are the most productive in the world, and our economy 
is increasingly geared towards trade. 

Culturally, because of our tradition of diversity, freedom and tolerance will continue to 
anract the best and the brightest from around the world ensuring that we will never stagnate 
as a people. 

Geographically, because we are at the center of a nexus between our historic trading partners 
in Europe and Japan, and the new dynamic economies in Latin America and Asia. 

Our trade policy is guided by a simple credo. We want to expand oppormmties for the 
global economy, but insist on a similar responsibility from other countries. Trade is a two 
way street. After World War II, when the American economy dominated the world, we 
opened ourselves up, to help other countries rebuild. It was one of the wisest steps this 
country ever took, but now we cannot have a one way trade policy. The American people 
won't support it and the Administration won't stand for it. 

For other nations to enjoy the great oppormmties here in the U.S. market, they must accept 
the responsibility of opening their own market to U.S. products and services. Ultimately, it 
is in their own self interest to do so. because trade fosters economic growth and create jobs. 

The Uruffuav Round ensures American workers are trading on a two-way street; that they 
benefit from' this new globalized economy, that they can sell their products and services 
abroad; and that they can compete on a level playing tield. 



123 



President Clinton led the effon to reinvigorate the Uruguay Round and to break the gridlock, 
which had stalled the negotiations despite seven years of preparation and another seven years 
of negotiations. 

We did not accomplish everything we wanted to in the Uruguay Round. But. the final result 
is ver\' positive for U.S. producers and compames. !t helps us to bolster the competitiveness 
of key U.S. industries, to create jobs, to foster economic growth, to raise our standard of 
living and to combat unfair foreign trade practices. The agreement will give the global 
economy a major boost, as the reductions in trade bamers create new export opportunities, 
and as the new rules give businesses greater confidence that export markets will remain open 
and that competition in foreign markets will be fair. 

More importantly, the final Uruguay Round agreement plays to the strengths of the U.S. 
economy, opening world markets where we are most competitive. From agriculmre to high- 
tech electronics, to pharmaceuticals and computer software, to business services, the United 
States is uniquely positioned to benefit from the strengthened rules of a Uruguay Round 
agreement that will apply to all of our trading partners. 

The Uruguay Round 

The Uruguay Round is the right agreement at the right time for the United States. It will 
create hundreds of thousands of high-wage, high-skill jobs here at home. Economists 
estimate that the increased trade will pump between $100 and S200 billion into the U.S. 
economy every year after the Round is fully implemented. A study by DRI/McGraw Hill 
estimated that the net U.S. employment gain (over and above normal growth of employment 
in the economy) will be 1.4 million jobs by the tenth year after implementation. 

This historic agreement will: 

• cut foreign tariffs on manufacmred products by over one third, the largest reduction 
in history; 

• protect the intellectual property of U.S. entrepreneurs in industries such as 
pharmaceuticals, entertainment and software from pkacy in world markets: 

• ensure open foreign markets for U.S. exporters of services such as accounting, 
advertising, computer services, tourism, engiDeering and construction; 

• greatly expand export opportunities for U.S. agriculmral products by reducing use of 
export subsidies and by limiting the ability of foreign governments to block exports 
through tariffs, quotas, subsidies, and a vanety of other domestic policies and 
regulations; 

• ensure that developing countries live by the same trade rules as developed countries 
and that there will be no free riders: 



124 



• establish an effective set of rules for the prompt settlement of disputes, thus 
eliminating shortcomings in the current system that allowed countries to drag out the 
process and to block judgments they did nci like; 

• create a new World Trade Organization (V/TO) to implement the agreements reached; 
and 

• open a dialogue on trade and environment. 
This agreement will not 

• impair the effective enforcement of U.S. laws: 

• limit the ability of the United States to sei its own environmental or health standards; 
or 

• erode the sovereignty of the United States. 

While the world has benefitted enormously from the reduction of trade barriers and 
expansion of trade made possible by the GATT, the GATT rules were increasingly out of 
step with the real world. They did not cover many areas of trade such as intellecmal 
property and services; they did not provide meaningful rules for imponant aspects of trade 
such as agriculture; and they did not bring about the prompt settlement of disputes. The old 
GATT rules also created unequal obligations among different countries, despite the fact that 
many of the countries that were allowed to keep their markets relatively closed were among 
the greatest beneficiaries of the system. 

The WTO will require that all members take pan in all major agreements of the Round, 
eliminating the free-rider problem. From agreements on import licensing to antidumping, all 
members of the WTO. will belong to all of the major international agreements. 

The WTO will also require developing countries -- an increasingly imponant area of U.S. 
trade -- to follow the same rules as everyone else after a transition period. They will no 
longer enjoy the fruits of trade, without accepting responsibility and opemng their own 
markets. The WTO will have a strengthened dispute settlement system, but will allow us to 
maintain our trade laws and sovereignty. 

The WTO plays to the strengths of our economy. For example; 

Market Access. The WTO will reduce industrial tariffs by over one third. On expons from 
the U.S. and the European Community the reduction is over 50 percent. In an economy 
increasingly reliant on trade opening markets abroad is absolutely essential to our ability to 
create jobs and foster economic growth here at home. Our nation' s workers are the most 



125 



productive in the world and reduced tariffs will enable these workers to compete on a more 
level playing field. 

Agriculture. U.S. fanners are the envy of the world, but too often they were not able to 
sell the products of their hard labor abroad, because the old GATT rules did not effectively 
limit agricultural trade barriers. Many countries have icept our fanners out of global markets 
by limiting impons and subsidizing expons. These same policies have raised prices for 
consumers around the world. 

The Uruguay Round agreements will reform policies .hat diston the world agricultural 
market and international trade in farm products. By curbing policies that diston trade, in 
panicular expon subsidies, the World Trade Organization will open up new trade 
opportunities for efficient and competitive agnculturai producers like the United States. 

Services. The WTO will extend fair trade rales to a sector that encompasses 60% of our 
economy and 70% of our jobs: services. Uruguay Round panicipants agreed to new rules 
affecting around eighty areas of the economy such as advenising, law. accounting, 
information and computer services, environmental services, engineering and tourism. When 
a company makes a product, it needs financing, advertising, insurance, computer software, 
and so fonh. Competition for these services is now global. We lead the world in this sector 
with nearly $180 billion in exports annually. The WTO will implement new rules on trade 
in services, which will ensure our compames and workers can compete fairly in the global 
market. While in cenain key areas, such as telecominunications and financial services, the 
U.S. did not obtain the kind of market access commitments we were seeking, we kept our 
leverage by refusing to grant MFN treatment to our trading partners, and continued 
negotiations. 

Intellectual Property. Creativity and innovation are two Of America's greatest strengths. 
American films, music, software and medical advances sre prized around the globe. The 
jobs of thousands of workers here in this country are dependent on the ability to sell these 
products abroad. Royalties from patents, copynghls. ar.d trademarks are a growing source 
of foreign earnings to the U.S. economy. 

The World Trade Organization will administer international rules to protect Americans from 
the global counterfeiting of their creations and irinovanons. These are the areas which 
represent some of the most important U.S. industries of the fumre. Stemming the tide of 
counterfeiting works to protect U.S. compames and workers, particularly as U.S. expons of 
intellecmal property goods increase annually. 

For example, our semiconductor industry is z iriv;::g force for U.S. technology advances 
and competitiveness. These products affect nearly ev;'7 aspect of our lives and are 
incorporated in many of the goods traded imemaiic-naliy; The TRIPS agreement is the first 
international agreement that places stringent IL-rits on liie grant of patent compulsory licenses 



TO -rr\*i r\ 



126 



for this critical technology. Under TRIPs. this industry's patents and layout designs can not 
be used for commercial purposes without the. permission of the patent or design owner. 

In shon. the Umguay Round agreements set the stage for free and fair trade in the world, 
and global prosperity and pannership at the end cf this tentury and into the next. 



DISPUTE SETTLEMENT 

The Dispute Settlement Understanding (DSU) creates nev/ procedures for settlement of 
disputes arising under any of the Uruguay Round agreements. The new system is a 
significant improvement on the existing practice. In shon. it will work and it will work fast. 

The process will be subject to strict time limits fc; each step. There is a guaranteed right to 
a panel. Panel repons will be adopted unless there i:; r. consensus to reject the report and a 
country can request appellate review of the legal aspects of a report. The dispute settlement 
process can be completed within 16 months from the request for consultations even if there is 
an appeal. Public access to information about disputes is also increased. 

After a panel repon is adopted, there will be time limits on when a Member must bring its 
laws, regulations or practice into conformity with panel rulings and recommendations, and 
there will be authorization of retaliation in the event that a Member has not brought its laws 
into conformity with its obligations within that set period' of time. 

The automatic nature of the new procedures will vastly improve the enforcement of the 
substantive provisions in each of the agreements. Members will not be able to block the 
adoption of panel reports. Members will have loimplement obligations promptly and the 
United States will be able to take trade action if Members fail to act or obtain compensation. 
Trade action can consist of increases in bound tariffs or other actions and increases in tariffs 
may be authorized even if there is a violation of the TRIPS or Services agreements. 

The DSU includes improvements in providing access to information in the dispute settlement 
process. Parties to a dispute must provide non-confidential summaries of their panel 
submissions that can be given to the public. In addition, a Member can disclose its 
submissions and positions to the public at any time that it chooses. Panels are also expressly 
authorized to form expert review groups to provide advice on scientific or other technical 
issues of fact which should improve the quality of decisions. 



THE SUBSIDIES AGREEMENT AND RESEARCH AND DEVELOPMENT 
SUBSIDIES 

The Subsidies Agreement Provides the Strictest Subsidies Discipline Ever 



127 



The Subsidies Agreement establishes a three-class framework for the categorization of 
subsidies and subsidy remedies: 

(1) the "red light" category for prohibited subsidies; 

(2) the "vellow light" category for actionable subsidies which are subject to 
dispute settlement under the WTO i:i Geneva and countervailable umlaterally 
under domestic laws if they cause adverse trade effects: and 

(3) the "2reen liaht" category for protected subsidies which are non-actionable and 
non-c'ountervailable if they ire strucmred according to criteria intended to limit 
their potential for distortion. 

The strict new disciplines and effective new dispute settlement system of the Subsidy 
Agreement will applv to all 117 members of the World Trade Organization. This is a vast 
improvement on the Tokyo Round Subsidies Code, which has only 27 signatories. 

The strenathening of multilateral disciplines and ciarification cf terms, combined with 
speedier and bindine dispute settlement, will make'hiuiiilateral subsidy remedies sigmficantly 
more "user-friendlv" than in the past. This' will help U.S. industries that must increasingly 
rely on global markets, as well as the U.S. market, to maintain their competitiveness. 

The R&D Provision Will Not Be a Loophole 

Other countries will not be able to use the R&D prevision to provide production subsidies in 
the guise of research assistance. The Subsidies Agreement establishes clear rules and strong 
disciplines designed to avoid the potential ;hat goveirjr.ent assistance to R&D will 
sigmficantly harm U.S. commercial interests. The criteria for entitlement to claim green 
light coverage are clear and limiting. Assistance may cover only: 

(1) those personnel and consuiancy cccts.'and associated overhead) exclusively 
relating to permissible R&D: and 

(2) the cost of instruments, equipmen;. buildings and land (a) which relate 
exclusivelv to permissible R&D and (b> which can never be used for 
commercial activity. 

The prescribed wav to secure areen light status is to earn the approval of the Subsidies 
Committee after it'reviews the^'subsidy notifica.ljn to determine if the criteria for green light 
stams are met. To do this, a country must notlf, the program for which it seeks such status, 
providing whatever iriormation Members of the Committee' believe necessary. I can assure 
you that this Administration intends to scitit:.-iize very carsfully all requests by other 
countries for green light status. (A countp,' may choose not to notify programs that meet the 
green light criteria. If a program that is not notified is later challenged in a countervailing 



128 

duty action or WTO dispute settlement in Geneva, it still will be immune from sanction if it 
is found to conform with the green light criteria i. 

Even if the Committee grants green light status to a program, it can be stripped whenever it 
is established that a particular R&D program has resulted in production which causes serious 
adverse effects to the competing industry of another W:,rld Trade Organization member. In 
addition, the Agreement requires a review of the R&D provision after 18 months with a view 
to making all necessary modifications to improve the operation of the provision. This will 
give us an opportumty to correct any deficiencies that have come to light. 

The 1991 Draft Final Act Text on Subsidies Would Not Have Provided Green Light Safe 
Harbor Protection to Important Existing U.S . R&D Programs 

The United States has been, and continues to be. the greatest supporter of industrial research 
in the world. In 1991, for example (the most recent year for which comparative data are 
available), the U.S. spent one-third more on R&D than Japan, the former West Germany, the 
Umted Kingdom and France combined. Where one looks solely at non-defense R&D 
spending, that of the U.S. still exceeded that of Japan. German, and the United Kingdom 
combined. 

Over the last several years these programs, for which there is a long history of bipartisan 
support, have contributed to the promotion of America's competitiveness. 

The text of the 1991 Uruguay Round Draft Final Act on subsidies would not have provided 
so-called "green light" safe harbor protection from countervailing duty investigations or 
GATT dispute settlement proceedings for important existing U.S. R&D programs, such as; 

the Advanced Technology Program at NIST (FY94 funding is S200 million i; 

o the Technology Reinvestment Project (FY94 funding is 5554 million) and other cost- 

shared dual use programs of the Defense Depanment's Advanced Research Projects 
Agency (ARPA): and 

o Cooperative Research and Development Agreements (CRADA's) in several agencies, 

notably the Technology Transfer Initiative of the Department of Energy (FY94 
funding in DOE for CRADA's is $225 million). 

Together, these programs support and create thousands of jobs across the country. They 
enhance our abilitv to stay on the leading edge of technology- a step ahead of our 
competition. Without the assurance of freedom from countervailing duty actions or dispute 
settlement in Geneva, many of our industries would not be willing to engage in cooperative 
research programs with the Government. This would frustrate development of the 
technologies of tomorrow and stifle competitiveness. We :::s a country would be the loser. 



129 



The Final Text of the Subsidies Agreement Reflects the Structure of Existing U.S. 
Technology Programs 

In response to the urgent concerns of our science and technology community and Members of 
Congress from both panics, we sought incremental changes to the 1991 Uruguay Round 
Draft Final Act to increase our ability to protect government-sponsored research programs. 
We succeeded. The changes made to the Subsidies Agreement's provisions governing R&D 
(which we drafted) protect the nature and level o." ongoing U.S. Government assistance in 
R&D activities. These changes were made in order to provide greater certainty that existing 
U.S. technology programs and the firms which participate in them would not be subjected to 
unwarranted trade harassment by our trading partners. V.'hat we achieved was the reversal of 
a simation in which only foreign R&D programs wo-kl have been protected by new subsidy 
rules. 

Let me repeat, because it is very important-- the final R&D provisions protect the type of 
technology programs the U.S. currently has. v^hile excluding the type of development and 
production assistance which other countries typically gram. U.S. suppon of technologies 
relevant to competitive industrial performance and economic growth is mostly in the form of 
R&D funding. Other countries customarily use a whole range of technology policies in 
support of industry For example. Japan and EU membir states (e.g.. France and Germany) 
have used government procurement quite extensively to support selected industrial sectors. 
Very large success-dependent loans have been the principle subsidy mechanism for Airbus. 
Other typical forms of foreign industrial support include quasi-public leasing companies that 
buy high tech equipment from domestic manufacmrers and lease it at below-market rates to 
domestic users. (Japan has several such systems). 

Only two operative changes were made to the 1991 Uruguay Round Draft Final Act: 

(1) The cut-off for activity which can be supported by the government within the green 
light safe harbor was expanded slightly- going from immediately before creation of 
any prototype to allowing involvement in the creation of the first non-commercial 
prototype; and 

(2) the permissible level of government assistance was increased from 50% of basic 
industrial research to 75% and from 25% of applied research to 50% of what is now. 
called "pre-competitive development activity" (Le^, up to the first non-commercial 
prototype). 

The protected levels of government assistance v.'ere not selected at random. Rather, they 
reflect the level of assistance provided in U.S. programs. This also is true of the choice of 
the first non-commercial protoD/pe as the cut-off for the green light safe harbor. This cut-off 
will ensure that we will be able to continue to provide the type of R&D support which we 
already provide while ensuring that other countries cannot' provide development or production 
subsidies free from countervailing duty act.ons or dispute scrtlement in Geneva. 



130 



I believe we struck the appropriate balance betwsen strict subsidies discipline and protecting 
the cooperative government-industry partnerships which have existed for years in the United 
States. The Subsidies Agreement does not promote competitive subsidization. Rather than 
stimulating higher levels of subsidization, it provides clearer and improved rules of the road 
to prohibit or discipline subsidies. 

Conclusion 

Mr. Chairman. Congress will be considering the Uruguay Round implementing legislation at 
an auspicious time for America. The U.S. economy is expanding; investment is increasmg; 
jobs are being created; and optimism about the prospects for our economy is soaring. This 
economic expansion reflects the fact that this country is moving in the right direction. The 
policies of the Clinton Administration, starting v;ith eur budget plan; the adjustments made 
over the last several years by our workers and companies - all of our efforts make us as a 
nation stronger and more competitive. 

In setting the negotiating objectives for the Uruguay Round. Congress clearly signalled its 
belief that strengthening the multilateral rules of the GATT would make America more 
competitive in world markets. We succeeded. We met those objectives; and I am convinced 
that the new multilateral rules agreed to in the Uruguay Rouna will work together with our 
ongoing effons to increase regional cooperation. America is uniquely positioned to benefit 
from expanding trade -- in this hemisphere and in ±e world. The Uruguay Round builds on 
our strengths. It will benefit us. and the world economy as a whole. 



131 



1015 15lh Stfeel, N,W . Suite 975 
Washington. C 20005-2605 
Teleplione (2021 371-1316 
Fax: (202) 371-8249 




United States Council for 
International Business 



Serving American Business as U S Affilii 



The International Chamber ol Commerce 

The International Organisalioii ol Employers 

The Business and Industry Advisory Committee to the OECD 

The ATA Carnet System 



April 26, 1994 



The Honorable John LaFalce 
Chairman, Committee on Small Business 
U.S. House of Representatives 
2361 Raybum HOB 
Washington, DC 20515-6315 

Dear Mr. Chairman: 

During today's hearing on the Uruguay Round, you invited me to submit to you 
the recommendations which the U.S. Council for International Business has made to the 
U.S. government regarding the criteria which GATTAVTO dispute settlement panels 
should be required to use in reaching a decision as to whether a particular national 
product standard was unnecessarily trade restrictive under the rules which would apply in 
the new SPS and TBT chapters concluded in the Uruguay Round. 

I enclose a copy of the policy statement adopted by the U.S. Council on May 1, 
1992 which details the criteria which we recommend be applied and the procedures 
concerning dispute settlement. As I stated at today's hearing, our recommendation is 
derived from the criteria which U.S. courts use in deciding whether a state standard, 
which is more rigorous that those in effect in the rest of the U.S., is compatible with the 
Commerce clause of the constitution. Briefly, the criteria as we have formulated them 



1) the effects on trade are only incidental; 

2) the burden imposed on imports is not excessive in relation to the putative 
environmental benefits; 

3) the legitimate environmental interest could not be promoted by a measure 
or program with a lesser impact on trade. 

We are not, of course, wedded to this particular language and are open to 
suggestions which preserve the essential features of the Supreme Court's criteria. 



132 



I take the liberty of also forwarding a copy of our recommendations to the USTR 
on the preparation of the environmental review of the Uruguay Round, which 
summarizes the other position we have taken on the relationship of trade and 
environmental pohcies to GATT rules and what we believe must be done by the WTO 
to build on the outcome of the Round. I would be happy to answer any questions you 
or your staff may have on these issues and our recommendations, or to provide 
additional material upon request. 

Thank you for the opportunity you gave me to express our views on the 
importance of early implementation of the Uruguay Round results at today's hearing. 

Sincerely, 

Robert J. Morris 
Senior Vice President 



133 



L.3 



SX^EMENT 

of the 

L^MTED SX^ES COL-XCIL 

FOR LNXEK\imONAL BUSINXSS 



Aa lategratad Accroach tc Eavircnment aid 
Trade Issues and the GATT 



The Honcrible Carla A. Hills 

United States Trade Representative 

Office of tie O.S. Trade Representative 



The Honcraile William K. Re- 
I Administrator 

I Environmental Protection Agency 

i 



May 1, 1992 



LNITED iTATH> COLNCiL FOR iNTER-NATION.U BLilN: 
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sr.vir=rjaen-al 
i-vircr-ner.-") . Seme c: 
scme'ccuid be i.-cluded in a sy:c=s£s: 
P.cu-d a.-d c-:-ers shcuid have hign p: 



Clarify cr i=?r=ve '^^ =p^:r:-;2!:,::;;:^^'':i''i^eM^I 



GATT , e . c 



'.crsasi.-.c tl-.e -ra-sparsr.cy cr 



: perm- pa.-.e.s 
; cf t:-e prccs 



disru-s panel prrces. _ _^ ^^^ ,- e-^=- 



ccsmen- iercre "ne 
Csn-trac-inc ?ar-ie£ 



:al rapcrz i£ £-^3-.-=^ — -- 

;r adcczicn. 



T-e U.S. Ccuncil reaffir:as 1-3 =e„a p^-^ — - ^-'— 
standards cr murual ^-;=f :;:r=\=;. -"I^riric.a zrade 

recruiresen-s are -ne ce£--a_-e c.a.s .- r- ,--^- = 1, 

across na-.icr.al ccrders . ,H='--«''=- ',""::-- .-l-t::-- 

r=cicr.al and Iccal ccr.diricns may -s^= " " 

szi-da-ds. T^-is =a?er addresses s-^cn wase.. 



i.creenen- -r ens-^r= ■ 

_ r.i:a-i = n crjzandarzs jr 

d raaain neu" " 
,er, sucn Iccal s.a.-.da 



Clarifv rne S-a.ncar 

no f creed dcwr.vard r.ar:ac 

GATT rec'-ireme.-ii: fcr 

s-andards. (The GAIT sncu__ __. ,.,.^,-.= shcu. 



irea^a unr.ecessary "ace =arrie_._- _ ^.^^^^.^e 

Favcred-^Ja-icn (MTN) pri.ncip.es. 



.\cccc exp-ici. 

a.-c. unnecessary trs 

s-andards cisc'-nas. 



135 



C"2-ifv t:-e cis-i.-cticn cetveen ^r.e scier.ri.ic 
^ Z^- -'' 'ji3,c-/ c: rhe srancard cr ragv:l2-:: = - a.-.d t:.-e 
decree cf'risk accectaile tc car-i=--lar parties. 
Crde- t:-is clarificaticr, the ciscu.a ca.-.e. sr.cu.: 
■-e --s---c-sd -c -^dcs t.-e scie.-.-i:ic rasis f = r 
z-b'VIs^ addressed, "C" -::e level cr risk -..a- 
each ccur.-ry Relieves is a?cr=cri2-a .: i.s cv- 
si-ruati=n. 

I-. c^5=utas invclvinc scientific cr rsc.-r.ical 
issues', the dispute settlement panel s.-cu^d fce 
recuired t= seek exper" scientific acvice. 



The miniauji criwS 



tha- the dispu-e pane- 



use in reaching a judcaen- ancu" tne s..--.._^-^-c 
basis for a standard cr requirenenc ccc.c ce 
phrased alcnc the follcwmg lines: 

Tn reachinc its judgment ahcut the scien-ific 
fcksis cf the standard cr technical req-^ireaen., 
the panel shall ccnsider the ^^^^^ZzV^tir^^., 
dara and Icncwledge in tne field, t..e _-=as-_--- -.- 
cf the standard and experience gamec m .— 
a=Dlica-icn cf the standard in cues-icn anc ___^ 
stkndards in effect in other countries usee -w. 
siaiilar purposes. 

The agreement should also require _tha-, whenever 
possible, the standard promulgatec (••ne-ne. 
national or internationally agreec) sna.. -e _ 
expressed in terns of objective crirari2_a..c c. 
the performance desired. The pane, sncu— __e 
recuired tc maxe a judgaienn abcuz vne—er -_.e^ 
national standard at issue aeets tnis cr 

In reachi.nc i.s decision on whether a =ar-icular 
standard is unnecessarily trade ^r^" -': "^ .'^\^, 
disoute se"lement panel shculd cetapme _ -herhe. 
the" standard neets the following cri.ari-. -^._^^ 
the effec-s en trade are oniy inciden^a-, {-> -- 
burden iaccsed on imports is not e.xcessive -.n^ 
relation to the putative e.nviromne.nta. ^l"^---' 
(3) the legitimate environme.ntal intaras^ c-u- 
net be promoted by a measure or program ----- 
lesser impac- on trade. 



"se comparable concepts 



:ceC'J 



^anitar- 



•tosanitary agreement. 



Continue to make subsidies granted re 
purposes actionable under GATT rules. 



Enc=urace zr.& i.-.crsassi uss c: r.u ^----- 

er.vircnaer.tal acrae.Tier.z3 r= avcia^ trace cispures 

ur.ila.arai recuireae.-.'s . 



•esc-vs ccrer.-ia- c; 



ce-vss.-. ..-.a --.-.. . a.-.c 



xul-ila-aral e.'-.vircr..Tier.ta_ acrser.e.-. -s , s 
e.-cplsri.-c axe.-.dzier.t cf .-_r~:.cle Xrc cr va: 
.irzicle x:0". 



137 



T^.e "J.S. Ccu.-.cil f;r I.-.zarr.aticr.al =-^si.-es3 ce.isv=s -;-a- 
z-s C-ATT's 3iajcr c=.'-.-rii:'--icr. ": sus-air.aile dsvslcc=s.-.- car. be 
achieved cy si:rar.c-.-er.i-c i-s aiili""/ tc ac~ as a 3ul-:.la~aral 
ciscipli.-.e thar alicvs a.-.d er.ccuraces na.icnal inpls^e.-.^a-icr. c: 
er.vircnaer.-al policies ir. vays Z~.az cc r.c- create ur.r.ecassary 
sccncmic disrcr-icr.s . M-l"ilateral acreeaer.-s recused cr. 
specific global er.virorjsental issues are tr.e accrocriaze vay ro 
f emulate global enviranaental policies, ratiier tjian GATT. GATT 
does play a role, however, in enforcing disciplines en trade 
aczicn taXen en environaental protection grounds vhen that action 
is not provided for in multilateral environmental acrssnents and 
vhen it violates a requirement of GATT. Because of this, 
clarifications and adjustments are appropriate to strengthen the 
GAIT'S contribution to a balanced approach to trade and 
environmental concerns. Seme important steps in this direction 
can be taken immediately, some can be achieved if certain result- 
are part of a successful outcome for the Urug'uay Round 
negotiations, others should have high priority for pcst-?.ound 
attention. 

The U.S. Council has recognized (in its March 1951 
statement) that economic growth a.-.d envirorjnental protection must 
be treated as mutually reinforci.ng elements of glcbal policies. 
Neither is sustai.nable without the other. Further, the Council 
has endorsed the concept of sustai.nable develcpme.nt as elaicratsd 
in the International Chamber of Commerce's Business Charter for 
Sustainable Development. .As defi.ned in the Charter, sustainable 
develcpme.nt "involves meeti.ng the needs of the present without 
compromising the ability of future generations to meet their own 
needs." Only a coordinated and balanced approach to economic 
growth and environme.ntal concerns will produce sustainable 
development. 

Clearly cne major pillar of sustainable development is an 
open trading and investment system. The progressive 
liberalization of international trade and i.nvestme.nt has providec: 
a major stimulus to global econcmic growth, including develoci.ng 
countries that have moved toward mar.'tet-crie.ntad pclicies. The 
success of these policies has created today's global aarxacplace. 
Open trade not only contributes to sustainable development by 
increasing econcmic growth but also facilitates the adoption of 
needed environmental protection by providing access to goods a.nd 
technologies that are environme.ntally adva.ncad, a.-.d by minimi2i-"i? 
waste through trade in recovered material for recycling. 
Sustai.nable development m t.-.e future therefore will zscsr.c on 
governments adopting environmental policies tnat dc r.ot 
unnecessarily impede trade and investment flows, a.-.c that are 
consistent with efforts to liberalize and e.xpand trade ^r.d 
investment . 



138 



The GATT has fcesn the li.-.chpir. cf the lultiiatsral tradi.-c 
systea si-ce 1S43. It has achieved very sicr.if icar.t recucticns 
cf cverall tariffs a.-.d ether barriers t= trade in sever, rcur.ds" c 
--ade r.ecctiaticns si.-.ca 155C, vhich have fceer. acc=aca.-.ied hv a 
rapid e:cpar.sicr. cf trade a.-.d 'the greatest i.-crsase i.-. the 
sta.-.card cf livir.c cf aia.-L:<i.td ir. histcry.' 

Curinc this pericc cf achieve.'ae.nt the GAIT trade systani 
cceratsd largely en a separata track frcm efferts tc address 
i.tterr.aticnal envircnme.ital issues. Since the latter part cf 
ISSO there has been a grcwing attention tc the intaracticn cf 
trade and environmental policies and, in the context cf the 
Lr-act:ay Round and NAJTA negotiations and the GATT Panel ruling c; 
Tuna/Dclphins, mounting public concern abcut the compatibility o: 
^ie GATT trade system and environmental protection policies. 

We believe that the open tradi.ng system supported by GATT i; 
already maJcinc a strong contribution to sustai.nable development 
in ways that are not widely appreciated. In cur view the GATT's 
contribution ca.n be substantially strengthened with 
c-a-if ications and minor adjustments, recognizing that such 
chances cannot resolve all the trade and environment issues. The 
f-ondame.ntal cause of many of these concerns is the lack cf 
consensus amcng nations en e.nvironme.ntal priorities, which is 
problematic fcr any intarnaticnal organization. 

_ A successful conclusion of the Uruguay Round alcnc the lines 
of the Dunkel tex^ would provide a major boost to sustainable 
development. It would stimulate economic growth, which provides 
the social and material basis fcr improved e.nvironmental 
protection, and it wculd increase the efficient use of resources 
in the world economy. The environmental gains that might be 
expected by reduci.ng government interve.ntion in agriculfural 
trade and production are a particular example. 

One of the major positive elements cf a successful Round 
will be to have all countries participati.ng in a new Multilateral 
Trade Organization (MTO) under an agreed set of impartial rules 
for trade and commercial activity, enforced t.hrough an a.-<panded 
and reformed dispute settlement process which the U.S. Council 
has advocated since the negotiations were first propcsad. 

The following section of the paper discusses some of the key 
trade and e.nvironme.nt issues and makes specific suggestions for 
strengthening the GATT's contribution to" sustainable development. 

ISSUE: How to Have Adequate National Standards that Do Not 
Unnecessarily lapede Trade 

We agree with the view that currant GATT rules essentially 
place no constraints on national policies to prevent 



139 



er.vircnmental caaace frcn dcmes'ir prccucticn ac-ivities cr fr:r. 
the ccnsuacticn cf dcnes-ically prcducad cr iji?cr-ad =r:cuc-s. 
Descite the lack cf explicit referer.cs t= er.virc.-jne.-.tal 
=r=tec-icn ir. GAIT .ir-icls XX cr. excepticr.s , t.-.s la.-.c-aage cf -his 
article is sc br:ad t-at i. is diffic-lt tc c.-.alls-ca excsp-ir-s 
taken fcr er.vircr..T.e.-t = l curpcsas. Ir. fac-, ccaeszic 
er.vircnae.-.tal rac^-laticr.s have rarely beer, challs.iced, cut ve 
believe pr=se.-:t C-ATT rules are r.ct strcr.c e.-.cuch tc prave.-.t accsa 
cf national e.-.vircnaer.-al reg-alaticns fcr trade prctacticn 
purposes . 

Staadarda Diaoute Sgttleaest: laoroved Crit eria fcr Sound 
Science aad Unaecesaarv Trade Rea traiat 

One way to helc prevent such abuses relates tc vcr.k cnccir.c 
in the Uruguay Rcund." The GATT Standards Cede (.\gresaent en 
Technical Barriers tc Trade) calls upon signatories tc use 
internationally agreed standards cr technical rsquiraaents ir. 
preference to national standards as a means cf minini-inc 
unnecessary barriers to trade. It does, however, e.-cplici-ly 
mention environme.ntal protection among possible reasons vhy a 
country may be justified in imposing a national standarc t.-at .-as 
some trade-restricting effects. If a national standarc is 
adopted for that reason, i- may be chaile.nged by other Code 
meabers on the orounds that it unnecessarily inhibits trade. The 
Standards Code, 'which was negotiated in the Tokyo Rou.-.d has about 
40 members and applies only to products, net tc processing and 
production methods (PFM's) . 

The Dunkel Draft of Uruguay Hound results would ma:<e this 
agreement binding on all members cf t.he GATT's MTC system. The 
discipline could'include a review by technical e.xperts of tha_ 
scientific legitimacy of the risks that standards cr -achnical 
requireme.nts (ind'Jdi"? those FFM's i.nta.nded to ra.nder a prccuc. 
"fit for use") are designed to meet. 

The U.S. Council believes that, either befcre the draf- is 
made final, (or in any case after it is implemented) it shculc be 
improved to strengthen its commitaenc tc sound science and to 
open trade by providing mere specific criteria along the 
following lines. The same criteria and comparable procedures 
should be used in both the Standards and Sahitary/?hv-osanitary 
agreements . 

RSCOKXrorPATI ONS 

1. In the rules for dispute panels deali.-.g wi" 
envircnaental issues, panels should be mstruc-sd tc --dge tne 
scientific basis for t.--.e risk addressed, net che level cf risk 
which each country believes is appropriate to its own situation. 



140 



2. In disputes i.-.vclvir.c scisr.t.fic cr tsc.-.-ical issues 
the dispute settleaent par.el shculd sss'k expert advice ir. 
ccr.sultaticn with the parties t= the dispute. 'The pa-el aav, 
vher. it deess it appropriate, establish ar. adviscry' tsc.-.-^=ii 
experts group or consult t.te international crgani^azions vith 
such e;<pertise. In any case, w'r.sr. the adequacy or the scientizio 
oasis for a particular standard is in dispute, the panel shculd" 
oe required to seek expert scientific advice. 

3 . In addition to seeking the advice cf such experts or 
organizations as the panel deems necessary, the panel shculd have 
the discretion to offer opportunities for interested r.cn- 
gcvernaental parties (e.g., business or e.nvirorjnental experts) to 
present their vievs on the issue. To facilitate this, the panel 
should puhlish early in the dispute settlement process, in 
agreeaent with the parties, a suaimary of the issue under dispute 
including a statement ahcut whether the scientific casis of the 
standard is in dispute. 

4. When the scientific basis of the standard is in 
dispute, the panel shculd be required to consider certain 
specific criteria in reaching a 'judgment about the scientific 
basis for the standard or requirement. The miniaua criteria 
shculd be phrased along the follcwinc lines: 

In reaching its judgment about the scientific basis of the 
standard or technical raquirame.nt, the panel shall consider the 
latest scientific data and knowledge in the field, the 
feasibility of the standard and experie.nce gained in tne 
application of the standard in question and standards in effect 
in other countries used for similar purposes. 

In addition, governments shculd examine the racotmendaticns 
and tach-nical guidelines developed in the OECID e.xperts group on 
chemicals to determine the e.xte.nt to which such i.if ortaticn could 
also be relevant for assisting the panel in reaching a judgment 
about the scientific basis cf the standard. 

5. The revised G.^TT agreeme.nt shculd also req-uira that, 
whenever possible, the standard promulgatsd (whether -aticnal cr 
internationally agreed) shall be" expressed in terms cf objective 
criteria and of the performance desired. The panel shculd be 
required to make a judgment about whether the national standard 
at issue meets this criterion. 



5. Regarding cases m whicn a country or sub-national 
authority has set a sta.-.dari vnich requires' higner levels of 
performance than those agreed for a r.a'tional standard or a 
harmonized international standard, tne revised C-.\rT agree.Tien: 
shculd clearly state that it does net require adoption of lo^ 
standards, for example by preemption of a local standard by 



141 



fader=l au-hc-i-iss . (T.'-.e GAIT sr.culd ranai.-. r.S'. 
=ree::=-i:r.. ) Hcvevsr, sue.-, s-a.-.cards yculd is =•. 
2cr=eie.--'s r=cr-ira=6.--= cr a - ---^"^---_;__f ^:^:;; 



= 3 c.-a--2.'-.ce£ 






'--.-ec=s3ar-j.y zrace rss-ric-. 

sr.culd ce guided by c-.e rcllcvi.-c cri-aria: 

(i; the effac-s en trade ara cr.lv i.-.cider.tal (i.a., 
a.-cillary; ; 

(2) the burde.". I3=csed cr. i3Ccr-3 is .".c- sxcassive i.- 
relaticr. t= the cu-ative be.-.eficial e.-vircn^s.-.ta.^ ^^ 
effects, as detarained by a bala.-.ci.-.c cr i.-.tarasts i.-. 
each case; 

(3) the lecitiaata public i.itsrast served by t^e star.cara 
ccuid net be tremctsd by a leasure cr crc-.ar vit.t 
lesser ioipact cr. trade. 

rzt shculd be r.ctad t.-ai these are the tests v.-ic.t ".S. 
ecurts have detartii.ted shculd be aet tc =a.<= a stats-i-pcsc 
standard at a level higher tha.t a facera. sta.-.cart va__c^^ 

ur.der the Ccmmerca Clause cf the L'.S. Ccr.stitutic.-.. --.-- 
r.ct unraascnable that a similar test shculd b6_ap=.i=c .r. ^ 
juccir.g the trade rastrictive.".ess cr a r.atic.-.a_ star.car- c. 

3. .ir. cFCcrtu.-.ity fcr i.-.tarestad -^'^-^"^^"^l^J^z 
tc ecnment en the fir.al rapcrt cf the par.e_ a-ter^ its 3-r3_- 
t= the parties tc the disputa shculd be prcvided bercra^t.te 
rapcrt is suhmittad tc the Ccntracti.-.g Parties fcr acccticn . 

ISSTTZ: Savircnmental Protacticn aid Unfair Trade C=a=ecit-cn 

Bavirsaaental Sutaidiea 

The 1S7 2 CcCZ: C-uidi.-.c rri.tciplas establisr. t.-.at r.-.e ?c--ut = 
Pays Principle (?F?) is tc be used fcr allccati.-.c zr.s ccst^w. 
pclluticn preventicn a.-.d ccr.trcl leasuras "tc a.-.cc'uraga^ra---.^ - 

use cf scarce envircrane.'-.tal rescurces a.id tc avcic ciatcr 

i.-.tarr.atior.al trade a.nd i.-:vest3e.".t . " 



le ??? is t.-.e 3a: 



rjser 



:st c: ccccs a.-.c sa: 



??? by prave.".ti.-.c t.-.e 3ar:<at mec.-.ar.-sn'. :rcT. i.-ccrccrat.-c ^^ ^^ 

e.-vircrjnental prctacticr. ccsts . iucs.d-ss s.-.culc cc.-.t-r.ue --^^^_^ 

"acticr.able" under a.n lacrcved C-.i.rT 5ucsiiias Cede :: t.~.ay -aua 
injury to other parties. 



78-702 0-94 -6 



142 



Kcwever, the ccllu-ar cays prir.ciple s'r.cul-i be appliec sc 
that: it diss net creata additlcnal cistcr-icr.s i.-. intarr.ationa' 
trade and investment. Fcr example, envircnaental aeasurss, 
-specially liability seas.res, shculd ce fcr-vard l:c;<inc -c the 
?--2tsst ex-sr.d pcssiile. The larrer and crrader-cased 'penalV ' =2 
en-ailed in the legal cr.-.cspts cf ^cinz and several liailli-v '^-I 
acre apcrcpriataly applied t: deter fu-ure environmental daaace" " 
t-"s-r apclicaticn retroactively tr remedy existing damage shifts 
resources avay frcm rescluticn cf the environmental croilem and 
allccates them to transactions costs, chiefly litigation. 

RSCOMMSyPATIONS 

1- Government subsidies to enterprises for environmental 

purpcses, which are sectorally cr regionally specific, and which 

cause injury to other carties, should remain act.ionaole under 
GATT rales. 

2. The use of aid by a government to suisidize 
e.nvircnmental clean up cr new environmental investment in its cwn 
country should be disting-iished from aid provided through 
bilateral or multilateral programs (e.g., the Global 
Invironmental Facility) cr frcm arrangements in international 
agreements (such as in the Momireal Protocol) to provide special 
financial or technical assistance to developing countries to help 
them achieve the objectives of the agreement (includi.ng, if 
applicable, investae.nt in new equipme.nt) . Such international aid 
IS clearly a legitimate instr-ument by which develcced countries 
assist developing countries to achieve agreed objectives and are 
not considered subsidies. Such aid, of course, should be 
provided through normal budgetary a.nd appropriaticn processes, 
not through the prccaeds cf a scecial lew en foreicn investment 
or imcorts. 



Competitive T mpact of Varied Levels of Eavironmental Protection 

Recently there have zeer. proposals in Congress and elsewher 
that countries should be able to impose countervailinc duties if 
they conclude that the environmental regulations cf ether 
countries are less stri.nce.nt than their own, or which are 
other-vise supposed to be conferri.nc an unfair comcetitive 
advantage equivalent to a subsidy.' 

Without denying tnat differences in standards (or their 
enrcrceaent) can have adverse competitive effects in oertain 
(probably a limited number o: sec.ors. it -culd =e a tistake to 
^^■<~ suc.n diffare.ncss oer sa ccuntarvailabla (witn cr vit.^.cut a 
shcwi.ng cf injury) . Oifrarsnces m standards may often be 
justified on the grounds o: "anvironmentai comparative 
advantage," or because 0: differences among countries in 



143 



cclitical decisions aicu. sa.-.agir.c e.-.vircr.aer.za. risxs. The 
ccmpe-i-ive advar.-aces wr.icr. ccc-r f = r thcsa rsascr.s s.-.culd he 
acre ccur.rarvailarls t.-a- a.-.-. 



>r lecitiaata sc 



:ni:ara~ive advar.racs cr aonesr: 



.ca_ era: 



Thsra is an al.-acs" sr.dless l-sr cr cir: 
pcliciss, incl-^di.-.c tax, educaticr. a.-.d laircr =c. 
aicr.z =e claimed Zz have ccaceti' 
thesa differer.- cclicy areas as a cas.s 

' unilatara-.y t= laccse 



..-np-icaticr.s. .: racccr.i; 

■:r ccur.zarvaili.-.c ac-; 

cr t= ?er:ait each Ccntrac-ing 



sceciai duties against whatever it objects t= aacng ct.-.er _ 
nations' environmental policies would te a recipe .or trace cnacs 
and ecsncmic slowdown. 

If such crocosals were adcptad (either unilatara.ly _cr^ even 
in international' sector agreements) there wculc ce _-:raicaoie 
(perhacs insuperable) problems of assigning cuantiiias.e amcun^^ 
to the alleged differences in standards. Even i. t.-at_ proc-em^ 
could be overcome, differe.nt countarvailing cuties vcu.c have ^c 
be assicned to different products, either by sector cr across ^-s 
beard i.-. the most extreme case, resulting m an extr=ne-y ccmp_e.. 
matrix of charges by country and products. ^A-=r.c witn "^.^^ 
potential for rstaliaticn against unilaterally impcsec cuties, 
such practices wculd be significant barriers to mtarnaticna. 
trade". 

Finallv, the practical imract of differences m 
environme.ntal policies may not be as significant as some suggest. 
There is succort for this view among the stucies citac m ..--e _ 
U.S. review' of C.S. -Mexico e.nvironmental issues, ynion conc.uce 
that cclluticn abatement costs as a share of total operati.ng 
costs are saall, averaging cnlv a little over one percent --r a-- 
industriss, with 3 6 cercent of all industries showi.-.g costs unce. 
tvc peroa.nt. However, the costs for industries m sone sectors 
are much higher: (e.g., primary copper, petrola'^ rarini.-.g^^^ 
steel, various metal wcrJci-tg industries, etc.). To tne extan^ 
thesa ara judced to be problems requiring trade restrictive 
action (e.g., 'to facilitata structural adjustme.nt) otner 
instruments should be used (e.g., GATT Article X-X) . 



RSCOMKESDAT I QMS 

1. The U.S. should reject efforts, whether in domestic la', 
or any new C-ATT systam, to include authority for oountarval-l-^g 
duties to be imposed on products imported from countrias^----- 
allecedlv lower environmental standards vnicn ara tnc--c.-:t -- 
craata a.-, artificial competitive advantage over ^oonestio^ 
i.ndustry. if scecific products fail to meet C.i. crocuct _ . _^ 

standards, they" should be excluded under the procaduras out 

above for standards, not countervailed. 



144 



ISSUE: The Ose of Trade Measures to Enforce Ssvironaeatai 
Protection 

=r.:zrzL-c er.vir^mer.-Hl 3eas-^r=s, ar.c cruld, ir. sc-e rasas, pu- 
ccxss-ic prccucars at a disacvar.taca . Zr. cur s;<rsris-cs trads 
aeasures r.ave prcvsd tc ce ir.ef f ec-ive ar.d ccstly vr.sr. applied 
extraterritcriallv z: achisvs r.cr.-trade ccjectivss. Siriilar 
rasults ara likaly i.-. the aattar c: er.vircrjne.-.-al er.r:rta=e-t, 
which invclves iaccrtar.r naticnal sccial pricrities a.-.d 
ccr.sideraticns cf equity. We believe it is necessary tc sicplcre 
alternatives such as apcrccriats dcsestic reg-^laticr.s a.-.d, 
especially, multilateral agreements. 

Onilataral nae of Trade Measures 

Unilateral attempts tc iaccsa er.vircnaental sta.-.dards ieycr.d 
naticnal herders using trade measures are particularly sericus 
threats tc the trading system. Such attempts viclate scvereign 
rights tc determine dcmestic regulaticns (vhich ara rsspectad hy 
the GATT) and are therefore mcst likely tc fce resistad and 
challenged in the GAIT. The chief impact cf such actions vill he 
tc ercde GATT disciplines, tc maJca trade less efficient and 
eccncmic grcwth slower, theraiy undermining the eccnctic 
ccmpcnents cf sustainahle develccment. They ara alsc likely tc 
be less effective than a multilateral agreement in achieving the 
environmental objective they were designed tc prcmcta. 

For these reasons it is important that the GATT ccntinue tc 
proscribe such extraterritorial application cf unilateral trade 
measures. As a matter of princip'la, trade sanctions t; enfcrca 
environmental objectives should be avcided. Vhera thay prcva 
unavoidable, their use must be ccnsaguent tc multilateral 
agreements and subject to GATT rules, especially regarding 
transparency, national treatment and ncn— discrimmatir.-. . 

The best way to address the absence cf adequate 
intarnaticnal standards cf environmental protection is through 
multilateral negotiations, increased popular educaticr. rf the 
issues, and achievement of higher living standards in the lass- 
developed wcrld to bring a convergence of priorities on 
e.nvironmental protection. The latter effort is critically 
dependa.nt en maintai.ii.ng a strong ope.n trading system. 

If countries, r.evert.-.elass , believe tnat u.-.ilater^l 
application cf extratamtmal trade rseasuras is .-.ecassary . tney 
may of course taka sucn acticr.s despite GATT rules, v.- -in r..ay 
require tnem to pay compansation or result m -itncrav-. trace 
concessions. This type c: discipli.ne will limit axtraterritcr la- 
application of unilateral measures to those that usefully address 
situations of the highest environmental priority. 

11 



145 



Th.9 GATT and Multilateral gnvir amaental Acreeaenta vit^ T-rad^ 
Proviaiona 

-.-cse cf s:<is-i.-c lecally-ii.-.ci.-c niul-ila -aral 2cr=s-s.-.-= z- -.-.a 
ar.vircr.T.s.-.- rr.a-'r.ave -race sar.c-icr.s shculc: ce c.arir-sc -c 

I-craased usa cf iiult-ia-aral acraener.-3 car. avc.; --s 
=r=i:lsai cf ex-ratarritcrial apclica-icr.s cf ur.:.la-sra- 
racuiranents and shculc ie er.ccuraced. The rela-icnsnip cf --a 
C-ATT vith trade sar.cticr.s, if any, in such acrsanen.s sr.culc ce 
defined during the necctiiaticn crccass. 

Cne cpticn is to explcra usa cf the waiver prcvisic-.s cf 
C-ATT Ar-icie XZC/ , paragraph =. Frasuaahly a multilataral 
acraanenr cf sufficient sccce would have the supper" c: "e 
necessary two-thirds majority. 

A second option is to seek a decision by the C=r.::rac--.-g 
rar-ies to expand the language cf suc-caragraph (h; c: .^^-ic.a .i.C 
tc per^i- a general excap-icn fcr measures under^axan ir. 
oursuance cf obligations under an in-cargcvernme.-.-al acrsanen. 
which conforms tc criteria adcp-ad by the Ccn—ac-inc ?=r-ias anc 
which is not disaccrcved bv rhem. 



RSCCtOCEyPATION 

The U.S. Council could agrae with any of these aey.cds a 
long as the result is greater clarity and certa:.n-y. .r a 
modification of Article .x:< (h) is used, it shculd be acccntpa." 
bv a sat cf criteria for such agraemenrs . In addition tc tns 
basic requirement tc respec- ccher GATT principles [s.:.. y..-y 
National Treatment, etc.), such criteria shculd speciry -.-a" 
envircmnenral agreements shculd include principles sue- as z- 
pcllutar pays, scund science and prcpcrticnality be'zwea.- 
cbjectives sought and the trade measures employed. 



146 




United States Council for 
International Business 



The International CnamDer of Commerce 
The International Organisation of Employers 
Tne Business and InOustry Advisory Committi 
The ATA Camel System 



March 3, 1994 



Ms. Carolyn Frank 

Executive Secretary 

Trade Policy Staff Committee 

Office of the U.S. Trade Representative 

Room 414 

600 17th Street, NW 

Washington, DC 20506 

Dear Ms. Frank: 

In response to the notice in the Federal Register inviting comments for the 
preparation of the environmental review of the Uruguay Round. I forward the enclosed 
comments on behalf of the United States Council for International Business. The U.S. 
Council represents American business in several international organizations, including 
the International Chamber of Commerce. As such, it represents U.S. business positions 
in the main intergovernmental bodies (e.g., the UN and its speciahzed or affihated 
agencies, including GATT). The Council addresses a broad range of pohcy issues with 
the objective of promoting an open system of world trade, finance and investment in 
which business can flourish and contribute to economic growth, human welfare and 
protection of the environment. 

Sincerely. 




]7feV 



Robert J. Morris 
Senior Vice President 



Enclosure 



147 



SUBJECT: Comments on the Uruguay Round Agreement and Environmental Issues 



The United States Council for International Business submits the foUowing 
comments for use in draftmg the environmental review of the Uruguay Round 
aareement. Though calling attention, as these comments do. to aspects of the negotiated 
results which are of concern to our members and which we believe should be the focus 
of further GATT work in the months ahead, the U.S. Council wishes to reaffirm its 
endorsement of the Uruguay Round agreement as a whole and its strong support for the 
earhest possible Congressional action to implement its results. None of the following 
reservations would justify rejection of the agreement as negotiated. 

I Provisions of the Uruguay Round Agreement with a Potentia l Impact on 

Environmental Issues 

A. SPS and TBT Sections 

These texts help to clarify the criteria governing the development and 
implementation of both national and international product standards and technical 
resulations, including those which are deemed necessary for health, safety or 
environmental reasons. However, we remain concerned about two general issues: 

1) Differences in criteria between the SPS and TBT texts, and the 
uncertainty about which products are subject to which treatment and 

2) the problems which this lack of coherence and clarity may pose for 
the settlement of disputes which may well arise in the future. 

As regards the problem of consistency, we approve the inclusion in the SPS 
text of the requiremient that measures be based on scientific evidence and are not 
maintained without sufficient evidence. However, the TBT text contains virtually no 
reference to the need for standards to be based on such evidence beyond making 
"available scientific and technical information" a "consideration" in national risk 
assessments. 

A second significant difference between the two texts concerns the 
requirement that standards not be more trade restrictive than necessary. The first 
problem is that the SPS text states that standards shall be no more restrictive than 
required "to achieve their appropriate level of protection" while the TBT text says they 
shall not be more restrictive than necessary "to fulfil a legitimate objective." which is 
defined to include protection of health or safety "or the enuronment." The second 
problem is that the SPS te.xt contains fairly specific criteria for determining whether a 
measure is more restrictive than required, while there are no comparable criteria 
applicable to standards subject to the TBT text. 

It is, frankly, not clear to us what the exact effects of the differences in these texts 
will have on specific environmental protection objectives. However, we are concerned 
that the difference and the different criteria might well have adverse consequences for 



148 



some U.S. exports. For example, some of our members are concerned that the SPS 
criteria (in the footnote to paragraph 21) may be too lenient in that the available 
alternative measure must be shown to be "significantly" less trade restrictive, a criterion 
which mav eventually be impossible to define with any consistency in future dispute 
settlement cases. 

Because of these problems, we recommend that the GATT Contracting 
Parties work to clarify both the general product categories which will be subject to the 
SPS and which to the TBT criteria, and to clarify further the criteria which should be 
applied by panels which are convened to deal with future disputes which will arise in this 
area. As regards such criteria, the U.S. Council has made specific recommendations in 
its policy statement on an Integrated Approach to Environment and Trade Issues and 
the GATT, dated May 1, 1992 which we believe should be applicable to products subject 
to either the SPS or TBT provisions, and which we further believe remain relevant for 
future GATT work. 

B. Environmental Subsidies 

The U.S. Council shares the concern of the Advisory Committee on Trade 
PoUcv and Negotiations in its report to the Congress on the Uruguay Round results 
about the provision inserted into the new Subsidies text which "green lights" subsidies 
granted for certain environmental purposes. We believe this provision may well result in 
serious competitive problems for American producers, whether from imports or in 
competition with subsidized products in foreign markets. Further, we question whether 
this provision is even good environmental poUcy: it is in conflict with the Polluter Pays 
Principle and it distorts the objective of internahzation of the costs of environmental 
protection. Finally, we fear that certain of the conditions set out in the text (e.g.. that 
the subsidy not cover any manufacturing cost savings which may be achieved from the 
subsidized investment) may well prove unworkable or unenforceable, leading to 
increased resort to non-countervailable subsidies using environmental protection as a 
convenient excuse for gaining an unfair competitive advantage. 

The U.S. Council therefore recommends that the U.S. government maintain very 
close monitoring of the extent to which our trading partners are using this new 
arrangement to provide subsidies to their enterprises. The government should use every 
available opportunity in GATT to challenge such countries to show that their subsidies 
do not cover manufacturing cost savings and meet the other conditions set forth in the 
SCM text. If it develops that other important U.S. trading partners (and .Mexico and 
Canada in particular as our NAFTA partners) are making use of this provision in such a 
way as to threaten injury to U.S. producers, the U.S. government should, as a minimum, 
institute a program of counter-subsidy (e.g., an investment tax credit) to redress the 
conditions of fair competition. Finally, the U.S. government should make it clear that it 
will vote against renewal of this provision when it comes up for review in five years if it 
develops that others are making such extensive use of it as to threaten injury to U.S. 
producers. 



149 



II. U.S. Plans For Future Work on Trade and the Environinent 

The U.S. Council strongly endorses the need for a substantive GATT work 
program on trade and the environment. We believe the program should focus primarily 
on those issues and problems where the need for clarification, expansion or reaffirmation 
of GATT rules is most necessary. The U.S. Council also endorses the proposal that a 
permanent GATT Committee on Trade and the Environment be created to facilitate 
execution of the work program. 

Attached is a list of subjects and issue areas which we recommend be 
addressed on a priority basis. In approaching this work program, we would like to take 
this opportunitv to call attention to previous U.S. Council poUcy statements which 
address several of these issues and contain our recommendations for how they should be 
resolved. 

1) Statement on An Integrated Approach to Trade and Environment 
Issues of March 27. 1991 , which sets out the basic principles which we recommended 
guide government poUcy in addressing the interrelationships of the two policy areas. 

2) Statement on an Integrated Approach to Environment and Trade 
Issues and the GATT. of May 1. 1992 . which transformed several of the principles 
developed in the earher statement into specific recommendations for clarification or 
elaboration of GATT rules or procedures. Most of those recommendations focused on 
the need for clear criteria which GATT dispute settlement panels should use in judging 
the scientific basis of product standards and in reaching a judgment about whether a 
particular standard was unnecessarily trade restrictive. As noted in our comments above 
on the SPS and TBT texts, we believe the requirement for clarification has not been 
adequately satisfied by the Uruguay Round agreement and should therefore be the 
subject of further action under the work program. 

3) Statement on International Environmental Agreements and the Use 
of Trade Measures to Achieve Their Objectives, of December 15. 1993 , which carries the 
U.S. Council's analysis and recommendations beyond those for product standards into 
the area of processing and production method (PPM) requirements. It is anchored in 
the principle (expressed in the earher statements) that application of trade measures to 
enforce PPM requirements should be through the negotiation of international 
environmental agreements addressed to specific PPMs. This statement contains detailed 
recommendations about how such future agreements with trade measures can be made 
compatible with GATT rules while reenforcing necessary GATT discipline and 
preserving the rights of non-participants. 

We again recommend these statements as the basis for the U.S. approach to these 
issues in the work program to be undertaken pursuant to the Uruguay Round decision 
of December 15. Copies of these statements were sent to the concerned government 
agencies at the time they were issued and are available on request to the Washington 
office of the United States Council for International Business. 



150 



Possible Elements of GATT Work Progrvm on Tr.\de \>ti ENAiRON^vfENT 



From Current Agenda : 

1) The use of trade measures in future internanonal eaMronmental 
agreements (lEA's) and GATT rules. 

2) The adequacv of GATT rules as they relate to packaging and labellina 
requirements. 



1) Possible new disciplines concerning the unilateral use of trade measures to 
enforce national PPM preferences. 

2) Criteria for the settlement of disputes concerning the trade effects of 
differing national product standards, including the role of sound science. 

3) .Monitor effects of exemption of certain en\ironmenial subsidies from the 
new agreement on subsidies and prepare a reconmiendaticn tor the 
Ministerial Conference by 2000. 

4) Trade implications of the use of various economic mstnime^-LS to achieve 
environmental objectives (e.g. energy ta.xes and associated border ta.x 
adjustment: the use of compensatory levies on imports of products from 
countries with lower levels of environmental protection) and the adequacy 
of GATT rules in these areas. 



151 



OIBSON, taUNN & CRUTCHCA 

kAWVCnt 

ie>« egNxciricur •vkuc h.w 

wa«hinoton. oc teesa-tjoa 

((Of! •>»'•••• 



April 11, 1994 



(202) 955-6508 



Josepti H. Price 



Q^ 



RE: uit.p-tc Settlemeht Procedure in th« Final Act of 
the Uruguay Round of CATT 



This BeaoranduB daaorlb«t th« dispute settleBent 
aechaniea in the D«ue«toar IB, 199 J version of the final Act 
Embodying the Results of the Uruguay Round of Kultilateral 
Trade Negotiations (the "Final Act"). Ths participating 
gevernBentB are scheduled to sign the Final Act, as aedified 
in negotiations after Deoeaber IS, at a Ministerial nesting in 
Karrakeeb, Mo^occ , later tbis aonth. 

ThA Uruguay Round would oraate a body called the 
World Trade Organixation ("WTO") to repleoe the QATT. The 
WTO's authority would be considerably stronger than OATT's. 
The goal is to strengthen the relative power of international 
trade rulee, shifting control ever these froo each 



152 



April XI, 1994 



participating country to tha wro. For axanplfi, undar tha 
axintiny GATT, any changa to intarnational trada ruiee could 
be isada only by cenaanaua, and a country that oppoaad carta in 
previa ions would not bo bound by tham. Undar tha WTO, rulaa 
could be changed and nada binding on all Hembars by a two- 
thirds or threa-fouxtha vote, depending on whether the changa 
was daanad to altar tha rights and obligations et Mambara. 

The dispute resolution precaduraa undar the WTO 
would essentially reverse the prior procedures with respect to 
approval of sanctions against a Member. Tha procedures for 
consultation among parties and for tha development of a panel 
report regarding a dispute are similar to CATT's, but under 
current GATT practice, dacisions by dispute panels must be 
approved by a consensus of all tha GATT contracting parties. 
Thus, each country ratains tb« power to blocK adoption and 
implementation of a panel decision, as the United States did 
in X991 with respect to a GATT ruling obtained by Mexico 
against previsions of the U.S. Marina Mammal Protection Act. 

Under tha wro, on the other hand, a "negative 
consensus" approach is followed. Thus, a panel or appellate 
decision ie automatically accepted within a specified period 
of time unless the Members reach a consensus to unanimously 
oppose It. The same le true with respect to a request for 
sanctions by the Member that initiated the dispute resolution 
procedures if tha Member affected by the deeiaion dees not 
change its domestic law or policy as rscommended by tha panel 
or appellate body. 

DXfooifzoir 

|st*]»listaBent of the Vorld Trade Orgaaiietiea 

The December IS version of the rlnal Aet Includes an 
"Agreement Establishing the Nultileteral Trade Organisation." 
The name of this body, which will be c legal entity providing 
tha institutional framaworJt for the oonduot of trade relatione 
among Member countries, has been subsequently changed to the 
World Trade organisation ("WTO"). The nto will provide a 
permanent ferua'for negotiations among its Members, repleeing 
the Qeneral Agreement en Tariffs and Trade ("GATT"), regarding 
matters dealt with under the agreenenta included in the Final 
Aet, and will administer the Understanding on KUles end 
Procedures ooveming the Settlement of Disputes ("D8U" or the 
"Understanding"). 



153 



April 11, 
Pag* 3 



Oaaialea-MaXlag by th« WTO OanarAlly 

There are two priairy decisign-making bodies undtr 
th« WTO: • Hinitterial Conf«r«nc«, which nuit aaat at laast 
ono* every two years, and a General Couhcil, which will meet 
as appropriate batwaan Daetings of the Mlnictarial Confaranca. 
Art. IV(1), (3). One of tha funetionc of the General Council 
is to discharge the responsibilities of the Dispute Scttltnant 
Body ("DSB") provided for in the OSU. Art. IV(3). 

To some extant, the WTO will oontinua the practice 
of daciaion-maKing by consensus followed under gatt. Art. 
ZX(1}. Where, however, a decision cannot be arrived at by 
consensus (i.t., if any Kanber present at the meeting where a 
decision is taken formally objects to tha proposed decision) , 
the matter will be put to a vote, with each Mewbar generally 
having one vote. Decisions of tha Ministerial Conference and 
tha General Council are taken by a majority of the votes oast, 
with certain exceptions. One exception is for daeisionf of 
tha Senaral Council when convened as tha DSB. Deoisions of 
the DSB are made only in aeeordanoe with the provisione of 
paragraph 3.4 of the DSU, as described balov. Art. ZX(1). 

In certain other eircuastancas, votes are required 
for WTO decisions. Amendments to any Multilateral Trade 
Agreement Included in the rinal Act that would not alter the 
rights and obligations of the Members will take affect for all 
Members upon acceptance by two-thirds of the Menbera. Art. 
X(4). Aaendnents that would altar tha rights and obligation* 
of Members will teke effect for members that have accepted 
them upon two-thirds acceptance by all tha Mam: ars. If three- 
fourths of the XcBbers agree that such an aaendaent should be 
binding on all, any Member that has not accepted it within a 
period set by the Ministerial Conference nay raaain a Heaber 
only with the consent of the Ministerial Cenfarenea. Art. 
X(3). Interpretations of any Multilateral Trade Agvaeaant nay 
be adopted by the Niniaterial Conference or the oenertl 
Council on a thr^e-fourths vote. Art. IX (2) . Zn exeeptlonal 
aircunstancas, 'the Ministerial Conference may decide to waive 
an obligation iapotad on a Nambar by the Final Agreement if 



154 



April 11 < 
Pige 4 



•uch dtcitien is approved by thrct-feurths eC th« MeabArs. 
Art. 1X(3).1 

Th« ondtrsttBdltt? 9B Rules and Proesdursi 
oovsrnlng tbs flstfelsasat of Dlsputss 

Tha DSU applies to the settlereent ot disputes 
between Members eonoerning their rlghte and obligationa under 
the Agreement Establishing the [World] Trade Organiration and 
under any agreeaent covered by the Osu, as listed in Appendix 
1 to the Understanding (a "Covered Agreenent") . E&cti Hember 
is responsible to ensure the conformity of its laws, 
regulations, and adjalnlstrutlve procedures with the Covered 
AgreamentB. Art. XVI(4). The dispute settlement aeohanisa, 
by which Hewbers are held accountable for lack of such 
oonforaity, is considered integral to the operations of the 
WTO«' The alB of the dispute settleaent aechanlsB is to 
securft a "positive," autually acceptable solution to • 
dispute. If the parties cannot reach a autually agreed 
solution, and a panel or appellate body determines that a 
Member's domestic law is inconsistent with a covered 
Agreeaent, It will recoaaend that the Meaber bring its law 
into confornity with the agreement.' 

ijt i« not clear whether thU preeedur* «ay be ueed to waive an 

obligation lapoaei by the Dia, and If m, under wbmt aieou»«t*noea. 

3 The DiV ttatea at a general priaeipLa that the ■dispute ■■ttloMnt 
•yaten of the IWTOI i> • central eXoiwnt l» ppovidihg aaeurity and 
Bredicttbllity to tha BultLlataral triding ayitaa* beeauee 'prettpt 
eattiesent of altuatlonB In whleh a Meaber eeniidera that any benefita 
•eerulng to it directly er indirectly under th« oo»er»d agreeaente are 
being iapairad by DMaiurai takan by another NaaMr ia esiential to the 
effective funetioning ef the (irroi and tha jaintenaaee of a preper 
balance between the tight* and eBligatione ef Ka«bera.* obd 3.3, 3.3. 

»If the doMatio wnauret complained ef are found ineonaiateBt with the 

proviaione of any covered iigraaaent, tha flret objective ef the dlapute 
eettleaent aechanisa ia to aecuce the withdrawal ef the aeaaurea 
eanaarned. zf loMdiata withdrawal ia iapraeticabla, eoDpenaatlen aay 
bt a temporary raaedy. M a 'laat raaort- and aubjact to authorlaatlen 
by tha DBS, tha Hember InTOking the dlaputa aettiement precedarea aay 
Buapend the application of conceaaiona or other ebligatiena under a 
Ceveree Agreenant en a dlaoriainatary baaia «ia-a-via the ether Meaber. 



(Peetnot* oentinuad on next peg*] 



155 



KpTU IX, 1»94 

PK«t S 



ZBitiatloB of th« Oeaiultatlea ud oiaput* 
B*ttl«a*Dt MaebtBlMS 

ths dliputt ••ttittBsnt seohanisa nay be invokad by • 
Mtnbcr Raking a raquect In writing Cor consultation! witA tt\* 
effanding party. Tha raq;jaBt must identity tha naaaurafl at 
isaua and giva an indication of tha lagal baaia Cor tha 
complaint, and tha DSB nuat recaiva notiea of tha raquest. 
DSU 4.4. Th« DSU providaa tisa fraaea for tha partiaa to 
antar nagotiations and aither to raach an agraamant or reCar 
tha disputfi to a panel of qualified indivlduala aatabllshad by 
tha DSB. 4 

PtBel Deelelea 

The panel preparaa a report within elk aonthe (three 
months in casaa of urgency) baaed en written aubBisslone and 
oral arguaants by tha parties. DSU la.S. 7C no settleaent ia 
reached in the process, the report will explain the panel 'a 
findings of fact and recomoiendatiena. Tha panel will give tha 
parties an opportunity to coanent on an interla report before 
distributing the final report to all the Meabari. No laaa 
than 10 days and no Bore than 60 days after a panel report la 
distributed to the Henbare, the report will be addptad at a 



[Footnote continued froa previous page] 

MU 3.7. Tha Xtval of raeci«in»tl.«a authotliad bf tha DSa euat be 
•afuivkiant «e* tha Xaval o( tha latrLngostaat. DSU 33.4. 

^oanartlly, tha xaabac to whiob the taquaat i« eada mt»x. reply ta the 
raquatt within lO daya after raeeipt a( tha r««u*a« *ml auai aatar Inte 
contultatiena within 30 days after tha data of the raguast. Xt tha 

Mambar daaa not raapend or antar Into oenaultatlena within thaaa tiaa 
pariedi, than tha Mobar that raquaatad e^nsultatieni eay preeaad to 
raquaat tha aatablithnant ef a panel. DSU 4.3. Tha oeavltlBino party 
fiay alao raqu«it tha aattbliihnant of a panel If aahaultatieni fail «e 
aattla tha diiputa vlthin 10 dayi or If naoetiations at «adlation 
preeaduraa braak'dowa bafcra that ti«e. 080 4.7. fi.4. Xa ucgeat eaaea, 
suek aa thaaa lA<fal*in« periahmbla goods, the tiM for efttaviitf lata 
eenaultatiena will ba ahertanad to 10 days, with tha emplaiAiBf party 
anfeitlad to ra<iuaat a panel if eenaultttioni do net aattla the dlapute 
within 30 days, bbo 4.S. Tha DIB eay daeida by eanaanaua not te 
aatabliah a panel, oso S.l. 



156 



Xpril 11, 1994 

Fag* 6 



DSB neetin? unless on« ot the parties to the dispute formally 
notifies the DSB of its decision to appeal, or the OSB decides 
by consensus not to adopt the report. DSU l«.3, ie.4. 

Vegative Ceasessus 

The fera or consensus used In the DSU. with respect 
to the adoption of a panel report and in other instances as 
described below, has been termed "nagativ* conseneus" because 
the report will be adopted or other action taken unless within 
the specified tine period a consensus to the contrary ensrges 
among all the Members." Merely by refusing to join this 
consensus, the party initiating the dispute settlement 
procedures or any other Member can ensure that the report will 
be adopted or action taken. Negative consensus gives much 
greater momentum to an action such as a panel report finding 
nonconformity of a Member's laws with a covered Agreement than 
existing GATT procedures, under which t -positive" oonBaneus 
is required to implement the reeommendatlone in a panel report 
and can be blocked by the affected Member. 

Appellate Decisiea 



The DSB will establish an Appellate Body to review 
legal issues on appeal from panel decisions. DSU 17.1. The 
Appellate Body should generally render its decision within 60 
days from notice of a party's intent to appeal. DSU 17. B, 
The appellate report will be adopted 'by the DSB and 
"unconditionally accepted" by the parties to the dispute 
unless the DSB decides by negative consensus not to adopt the 
appellate report within 30 days following its issuance to the 
Members. DSU 17.14. 

Xspleaeatatioft 

A DSB meeting will be held within 30 days of the 

adoption of the panel or appellate report. The Member 
ooncarned must Inform the DSB at this meeting of Its plans to 
Implement the. tilings and raeemmendations of the DSB. The 

>Tha OSi IS da«a«i to h«v« dacidad by eontansus en a Mttar autalttea (or 

its eenildaration if na Naobac praaant at the OSB maating %rti*r* tha 
Mttar la eoniidsrad fonalXy eD}*ets to tha ptopoaed daelslon. DSU 
2.4, n. 1. 



157 



April 11, 
Page 7 



Member may bi given a "rtaaonabl* period of time" to comply, 
generally net to exceed 15 Bontha. D6U 31.3, ai.4. 

It the Member falla te bring its lav Into oenforalty 
by the expiration of the "reaeoneble period," the Member nuat 
enter into negotiations regarding conpenaation with any party 
that invoked the diepute settlement proeedurea and requeete 
auch negotiations before the expiration of the period for 
conplianoe. If no eatiafactory coapenaation hai been agreed 
to within 20 dayi after the expiration of the period, the 
perty who invoked the dispute eettlement procedures may 
request authoriiation from the DSB to luapena the appliMtion 
to the Meaber concerned of concaaaiona or other obligatione 
under the covered Agreeaenta. DSU 22.3. The DSB will grant 
•uch authoriiation unleaa the, Maabeta unaniaouely relect the 
request by negative ooneensuB within 30 daya after the 
expiration of the reasonable period. 



WA»4ieia.e»v-i* 



168 




CRS 



Congressional Research Service • The Library of Congress • Washington, DC. 20540-7000 

March 22, 1994 



TO : House Committee on Energy and Commerce 

Subcommittee on Commerce, Consumer Protection, and 

Competitiveness 
Attention; Bruce Gwinn 

FROM American Law Division 

SUBJECT Relationship of Uruguay Round Dispute Settlement 

Understanding to Section 301 of the Trade Act of 1974 



This memorandum responds to your request for a discussion of the possible 
effect of the Uruguay Round Understanding on Rules and Procedures Governing 
the Settlement of Disputes on United States use of § 301 of the Trade Act of 
1974, 19 U.S.C § 2411 et seq. This statute authorizes the United States Trade 
Representative to investigate and to take a broad range of measures in response 
to illegal or unfair foreign trade practices. 

Current GATT dispute settlement practice. Article XXIII of the 
General Agreement on Trade (GATT) allows a GATT party to invoke GATT 
dispute settlement procedures whenever it considers 'that any benefit accruing 
to it directly or indirectly under this Agreement is being nullified or impaired 
or that the attainment of any objective of the Agreement is being impeded as the 
result of 

(a) the failure of any other contracting party to carry out its obligations 
under this Agreement, or 

(b) the application by another contracting party of any measure, whether 

or not it conflicts with the provisions of this Agreement, or 

(c) the existence of any other situation" (Art. XXIII:1). 

Members must first consult, but if this proves ineffective, a panel may be 
requested. Under GATT practice, if a panel finds that a measure violates the 
GATT, there will be a prima facie nullification and impairment of benefits. 
Where, however, a party alleges that a non-violative measure causes such trade 
injury, that party must make a detailed justification of its case. These 
presumptions and requirements are carried forward in the new DSU (Arts. 3.8. 
26.1). 



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If the complained-of measure is found to have violated the GATT or caused 
other trade injury, the GATT panel makes its recommendations and rulings to 
the contracting parties. Where a measure is found to be inconsistent with the 
GATT, the panel would ordinarily recommend that the defending party bring its 
measure into conformity with its obligations under the Agieement. The panel 
report is placed on the GATT agenda for adoption by the contracting parties as 
a whole. If the parties "consider that the circumstances are serious enough to 
justify such action," -- this would presumably occur when a party did not 
withdraw an offending measure within a reasonable period of time -- Article 
XXin:2 allows the contracting parties to authorize the prevailing party to 
suspend GATT concessions (e.g., raise a tariff on an item) owed the defending 
party. Authorization to reuliate has only been granted once in GATT history. 

Under current practice, actions to be taken by the GATT Council at various 
stages of a proceeding are decided by consensus -- that is, agreed upon if no 
party objects. Reforms adopted in 1989 make it more likely that a panel will be 
established in a timely fashion, but a party may still block the adoption of a 
panel report or a request for authorization to retaliate. Given general principles 
of reciprocity, however, defending parties would have an incentive to agree to 
the adoption of panel reports so that panel reports in their favor will also be 
adopted. At the same time, the GATT institutional mechanisms have been 
viewed as being weak with respect to the surveillance and enforcement of panel 
reports, a situation that has resulted in the negotiation of the DSU dispute 
settlement procedures discussed below. 

Uruguay Round Dispute Settlement Understanding. The Uruguay 
Round Understanding on Rules and Procedures Governing the Settlement of 
Disputes (Understanding or DSU) applies to disputes brought under the 
consultation and dispute settlement provisions of virtually all Uruguay Round 
agreements ("covered agreements"). Dispute settlement is to be administered by 
the new World Trade Organization through a Dispute Settlement Body (DSB) 
composed of all WTO Members. DSU rules may be subject, however, to special 
or additional dispute settlement rules and procedures in covered agreements 
(Art. 1.2).* While significantly strengthening dispute procedures, the DSU also 
limits the ability of WTO Members to Uke certain unilateral actions in trade 
disputes involving covered agreements. DSU rules and procedures will be 
reviewed within four years after the DSU enters into force, at which time WTO 



' GATT. Art XXra;2 

' For example, under the Agreement on Trmde-Rel«t«d A<iMcti of InUlJectu«J Property 
Righu, including Trade in Counterfeit Good* (TRIPS), compUinu under GATT Ariieies 
XXIH: l(b)(non-violation nullification and impairment) and Article XXIII:l(c)(the 'exutence of any 
other eituation") may not be brought for five year» from the entry into force of the Agreement 
Eatabliahing the World Trade Organization? Agreement on TRIPS. Art 64 1. 



160 



Members meeting at the ministerial level will vote as to whether to continue, 
modify, or terminate them.' 

The DSU retains the basic elements of the currer t dispute system, but adds 
specific deadlines at various phases of the dispute proceeding and enhances 
GATT surveillance and enforcement mechanisms. The DSU continues tc. 
provide for dispute panels of 3 to 5 members to hear a party's complaint and for 
panel reports to be considered for adoption by the WTO Members acting in 
concert, hereinafter throu^ the DSB. The DSU adds a new element to the pre- 
adoption process, however, by allowing a party to a dispute to appeal a panel 
report on "issues of law covered in the panel report and legal interpretation 
developed by the panel" (Art. 16.4, 17). Appellate reports are to be 
"unconditionally accepted" by the parties to a dispute. 

Where a party does not comply with an adopted panel report against it 
within an agreed upon "reasonable period of time", that party, if so requested, 
is to enter into negotiationi regarding "mutually acceptable compensation" with 
any party having invoked the dispute settlement procedure. If no agreement is 
reached within 20 days after the "reasonable period" expires, any complaining 
party may request authorization from the DSB to suspend the application to the 
Member concerned of concessions or other obligations under the covered 
agreements. The DSU allows for cross-retaliation -- that is, retaliation in a 
sector other than the one at issue in a dispute ■- in the event the prevailing 
party finds that retaliation in the latter is not practicable or effective. 
Authorized retaliation is to be equivalent to the level of the nullification or 
impairment of benefits -• that is, the trade injury in the dispute at hand.* 
Compensation and the suspension of concessions are viewed in the DSU as 
temporary measures, available where the panel's recommendations and rulings 
are not implemented within a reasonable period (Arts 3.7, 22.1). Compensation 
may be used in final settlement of a dispute that does not involve a violative 
measure (Art. 26.1). 

Along with providing for cross-retaliation, the DSU makes its most 
consequential reforms in reversing current consensus practice. Thus, panels will 
be established, panel and appellate reports adopted, and, where requested, 
retaliation authorized, unless there is a consensus not to do so (Arts. 16, 17, 22). 
A matter will be considered to have been decided by consensus "if no [WTO] 
Member, present at the meeting of the Dispute Settlement Body when the 
decision is taken, formally objects to the proposed decision" (Art. 2.4, n.l). As 
a result of these strengthened procedures, there will seemingly be increased 
pressure on parties to comply with panel reports, a result that would appear to 



' D«aaioD on the AppUcauon and Review of th* Undenunding on Rules and Prooedurw 
Govenung the Settlement of Dapuitt (MTN/FA 01-9). 

^ If the defending party objecu to the level of (utpension proposed, or claim* that DSU 
principle* and procedures regarding cross-retaliation have not been followed by the party aeeking 
to crooa-retaliau, the matter U to be referred to arbitration (Art. 22 6) Partiea are to accept the 
arbitrator's dedaion as rmal. the parties concerned may not aeek a second arbitration (Art. 22 7). 



161 



be of most benefit to exporters Keking the dismantling of restrictive foreign 
trade practices. 

Article 23 of the DSU, titled "Strengt^hening th<! Multilateral System," 
requires WTO Members to use DSU pro:edures with respect to disputes 
involving covered agreements. This obligation applies "[wjhen Members seek the 
redress of a violation of obligations or other nullification or impairment of 
benefits under the covered agreements or an impediment to the attainment of 
any objective of the covered agreements." This language generally reflects the 
concepts inherent in Article XXIII: 1, quoted above, regarding when dispute 
settlement may be invoked. Thus, the DSU would presumably apply to cases 
involving: 

(1) violations of covered agreements; 

(2) other nullification and impairment of benefits under covered 
agreements - presumably, cases involving non-violative measures or 
the existence of any other situation that allegedly cause this effect;' 

(3) an impediment to the attainment of an objective of any covered 
agreement -- as above, presumably, cases involving non-violative 
measures or the existence of any other situation that allegedly cause 
this effect.' 

In these cases, the DSU limits or prohibits the actions of WTO Members in 
three areas: (1) making determinations as to violations of covered agreements 
or adverse trade effects; (2) determining an implementation period for a panel 
report; and (3) retaliating in the event a panel report is not complied with. 

First, Members may not determine that a violation has occurred, that 
benefits have been nullified or impaired, or that the attainment of any objective 
of a covered agreement has been impeded, except through recourse to dispute 
settlement under the DSU and io accordance with its rules and procedures (Art. 
23.2(a)). Further, any such determination must be consistent with an adopted 
panel or appellate report or an arbitration award rendered under the DSU Ud.). 

Second, Members must follow the DSU in determining the reasonable 
period of time for the defending Member to implement panel recommendations 
and rulings (Art. 23.2(b)). 

Third, where a Member fails to implement the recommendations and 
rulings within that reasonable period of time. Members murt follow the DSU in 
determining the level of concessions or obligations that it may wish to suspend 



Cf. .Articl* 26 1 (provides rulaa for cases involving ■o-caUed noo-*iolation complainu. or 
caiea involving measurca that may or may not conflict with th* GATT (Art. XXIIlKb)) or the 
exin«nc« of any other situation (Art. SQIIrKc)). 



162 



and must obuin DSB authorization to do to before suspending concessions or 
other obhgations under the covered agreements (Art. 23.2(c)). 

Article 23 would appear to have potentially broad scope in that its 
requirement that WTO Members use the GATT dispute system would seemingly 
apply not only in cases of GATT violations and non-violation nullification and 
impairment under covered agreements, but also, at what would appear to be iu 
outermost limit, in cases where "any other situation' allegedly 'impedes the 
atuinment of any objective of the covered agreements.' The Uniud States' 
interpretation of the scope of this provision is discussed below. Disputes 
concerning rights and obligations under the DSU, whether 'taken in isolation 
or in combination with any other cohered agreement," are subject to the rules 
and procedures of the DSU (Art, 1.1). Further, the WTO Ministerial Council 
and the General Council may adopt interpreUtions of the DSU, based on a 
recommendation by the Council overseeing the functioning of the DSU.' The 
decision to adopt an interpretation is to be taken by a three-fourths majority of 
Members.* 

Section 301 of the Trade Act of 1974. Section 301 of the Trade Act of 
1974 provides the United States Trade Representative (USTR) with authority 
to investigate petitions alleging illegal or unfair foreign trade practices and to 
respond to practices that are subject to afTirmative determinations in this 
regard. Given the increased number of trade issues covered by Uruguay Round 
agreements, and given that § 301 conUins a forceful set of retaliatory 
authorities that may be used outside the GATT system, Article 23 of the DSU 
will have some effect on United States use of that statute. At the same time, § 
301 may in many respects be applied consistently with the DSU and, as 
indicated below, the use of retaliatoiy measures is now likely in many cases to 
be internationally authorized. In evaluating the potential effect of the DSU on 
this statute, it may be helpful to focus upon and distinguish between two 
aspects of the statute: (1) the use of the § 301 system per ae\ and (2) the use of 
§ 301 authorities to retaliate when an illegal or unfair foreign practice is not 
corrected. 

It should be noted that a GATT party (in the future, a WTO Member) must 
seek authorization to retaliate under both existing and future GATT procedures 
where the proposed retaliation involves the suspension of a GATT or Uruguay 
Round obligation or benefit. Ordinarily, proposed retaliation is likely to take 
the form of increased tariffs on certain imports from the defending country. 
Where the targeted products are subject to negotiated tariff rates, the prevailing 
country would be subject to its obligation under Article II of the GATT not to 
impose tariffs above these so<alled *bouDd' rates. Thus, under current 
procedures, if a GATT party formally object* to a request by the prevailing party 
to raise tariffs on items that are subject to negotiated tAriff rates, the latter is 
placed in a situation in which it might still wish to retaliate without GATT 



^ Agreement Establishing the World Tnde Organiution (WTO Agreement), Art IX:2 



163 



authorization, but would risk violating iu GATT obligation under Article II.' 
Under the DSU, «uch authorization will atill be needed, but it will be granted 
virtually automatically upon request at the proper aUge of the dispute 
proceeding. While a tariff surcharge may be the most likely form of retaliation, 
the luspension of any GATT obligation under a covered agreement would 
normally require GATT authorization. Thus, while thr scope for authorized 
retaliatory action is broadened due to the increased number of matters subject 
to international trade obligations as a result of the Uruguay Round, the 
increased participation in GATT agreements stemming from the conditions of 
WTO membership,'" and the possibility for cross-retaliation, the universe of 
measures that will require authorization for use as retaliatory tools vinll also 



Section 301 provides for interested parties to petition the USTR to 
investigate certain illegal or unfair foreign trade practices. The USTR may also 
self-initiate a § 301 investigation. If the USTR decides to initiate an 
investigation in either situation, the complained-of matter involves a trade 
agreement, and bilateral consultations fail to resolve the dispute, the USTR is 
to promptly request proceedingsunder the formal dispute settlement procedures 
provided under that agreement. The USTR must eventually make a 
determination as to whether the foreign practice is illegal or unfair; if the 
determination is affirmative, the USTR is authorized to take one or more 
actions to enforce United States trade agreement rights or to eliminate the 
foreign act, policy, or practice at issue. Section 301 proceedings operate under 
prescribed statutory deadlines, with extensions allowed in certain cases. 

Section 301 is divided into mandatory and discretionary authorities. 
Section 301(a) provides that, where a matter is determined to deny a right of the 
United States under a trade agreement, or where a foreign act, policy or practice 
either (1) violates, or is inconsistent with the provisions of, or otherwise denies 
benefits to the United States under a trade agreement or (2) is unjustifiable and 
burdens or restricts United States commerce, the USTR must take certain 
retaliatory action authorized in the statute. The USTR is not required to act, 
however, if (1) GATT determinations or rulings are made that a United Sutes 
right is not denied, a foreign act is not violative or inconsistent with United 
States agreement rights or does not adversely affect United States benefits, or 
(2) if the USTR makes certain other findings regarding bilateral resolution of 
the dispute or finds that taking action will have a negative economic or security 
impact on the United States. Any action taken to eliminate the foreign act must 



• Arfumenu h»v» been m«d«, however, that an inumitional lepJ right to uae an 
unauthorized retaliatory meaaure waj eziat where the queetion ii one of rifhta under an 
inumatioaa] agreement and 'the adjudicative bod; does not have 'the neceaaary maana to achieve 
the objective juatifying the counienn«a»urea~ "Self-Help in Inumational Trade Diaputea," in 
ProeatUnf of the Eighty-Fourth Annaal Meeting of the American Society of tnUmationai law, 
Manh 28-31, 1990, at 3&-I0 (remarkavf R Hudae). 

" To become a Member of the new-World Trade Organiiation, a countiy muat accept 
vu-tually all Uruguay Round agreemeBta WTO Agreement, Art XTV 1 



164 



CRS-7 



be structured to afTect goods or services in an amount that is equivalent in value 
to the burden or restriction being imposed on United States commerce. Section 
301(b) provides that where the foreign act, policy, or practice is "unreasonable 
or discriminatory and burdens or restrict United States commerce,' the USTR 
is not required to act, but rather is to take 'all appropriate and feasible action' 
to obtain elimination of the act, policy or practice involved. 

As noted earlier, Article 23.1 of the DSU requires WTO Members "to have 
recourse to, and abide by, the rules and procedures" of the DSU when they 'seek 
redress" of foreign actions involving Uruguay Round agreements. Specifically, 
WTO Members may not make determinations that a violation or other adverse 
trade effects have occurred except in accordance with the DSU, must make any 
such determination consistent with the findings in a panel or appellate report 
or arbitration award; must follow the DSU procedures in determining the 
reasonable period of time for implementation, must follow the DSU in 
determining the level of benefits to be suspended, and must obtain DSB 
authorization to retaliate before suspending concessions. 

Various aspects of 5 301 proceedings may already be carried out 
consistently with DSU requirements. First, where a trade agreement is involved 
and bilateral consultations fail, the USTR must resort to the formal dispute 
settlement procedure of that agreement" This would include both invoking 
the dispute process itself and seeking authorization to retaliate at the end of 
that process. Second, where the USTR makes an affirmative detennination, he 
or she is not required to act if there is a GATT decision, report, or ruling that 
no violation, inconsistency, or adverse trade effect has occurred as a result of the 
foreign action. Third, any retaliatory action must be equivalent to the burden 
or restriction on United States commerce. 

At the same time, however, i 301 seemingly requires the USTR to make a 
determination as to the investigated foreign practice, whether it be affirmative 
or negative. Under Article 23.2(a) of the DSU, the USTR would appear to be 
precluded from making an affirmative determination where the DSB has decided 
to the contrary. Second, the United States would need to amend any i 301 
deadlines that are shorter than those provided for in the DSU. Third, as now, 
the United States would be required to obtain authorization to suspend 
concessions or benefits under a covered agreement to respond to a failure to 
implement a panel report within a reasonable period of time. As i 301 permits 
the USTR to act without such authoriation, use of the statute in this way 
where a covered agreement was involved would seemingly violate both Article 



" Sec Trade Act of 1974, 1 303(a). 19U.S.C. SX413(«X2> '.If the investic*tion initiatw) under 
•ecboD 302 involves i tnit agreement and a mutually acceptable reaolution it not reached before 
the earlier of - (Al the close of the conaulution ptriod, of any, apedficd in the trade agreement, 
or (B) the 150th day after the day on whick contulution was commencad, the Trade 
Representaave shall promptly requeat proceeding on the matur under the formal dispute 
aettlcment procedures provided under luch agreement*). 



165 



CRS-6 



23.2(c) u well as the underlying obligation that is luspended." Neverthelew, 
the probability that the United StaUs will be authoriied to reuliate when it so 
requesu makes it more likely that this portion of the statute can now be used 
consistently with the United Sutes" internstional obligations." 

Notwithstanding the possibilities for authorized reUliation, one may ask 
what scope remains for use of the ( 301 process iteelf ouUide the multilateral 
dispute system created in the DSU and administered by the WTO. As noted 
earlier, § 301 would appear to be consistent with Article 23.1 language requiring 
that WTO Members resort to the DSU to seek redress of -violations of 
obligations or other nullification or impairment of benefits" under the covered 
agreements" in that, where a 5 301 investigation "involves" a trade agreement, 
the statute requires the USTR to act within the dispute process of that 
agreement. * At the same time, S 301 may also be invoked with respect to 
other foreign acts, policies and practices - namely, those that are "unjustifiable" 
or "unreasonable or discriminatory" and burden or restrict United States 
commerce. While such an act iteelf maj not be the subject of a covered 
agreement or involve the nullification or impairment of a specific agreement 
benefit, it could conceivably constitute "the existence of any other situation" •- 
the ground of dispute settlement set forth in Article XXHliKc) -- and, further, 
might act as an "impediment to the atteinment of any objective of the covered 
agreements." The scope of these concepts is unclear, however, as there does not 
appear to have been a GATT case brought on the basis of either this specific 
cause or this specific effect." 

The USTR has stated in congressional testimony that Uruguay Round 
agreements do not preclude the United Steles from using § 301 procedures with 
respect to disputes involving matters that are not covered by these agreemente, 



Wher* • covered «gre«nient was not «t iuue and the Unitwl Suuc ehocc to r«»pond in i 
i 301 proeewling by increasing t tariff on a -bound- ium or by t*kinj another measure that wa* 
»ubje« to a Uruguay Round agreement obligiuon without authorization, the action would 
•eemingly violau the underlying agreement obligatkn though not the DSU 

Where a DSU complaint doe* not involve the violation of an agreement, but rather a non- 
vioUtiv. meaaur* that directly or indirectly causa* nillification or impairment under, or impwl** 
the objective, of. a covered agreement, the defendisc P»rty will not be under an obUgation to 
remove a measure found to be causing the advene t»d* efTects (Art 26.1(bl). In such cue*, the 
P«n*l or appeUau body is to recommend that the Member concerned make a "mutually 
aatiafactory adjusunent- (Art 26 Kb)). Compensatan may be part of this adjustment as final 
■ettlemcnt of the dispuu (Art. 26.1(d)). 

" Trade Act of 1974, { 303(ax2). 19 U S C I 2U3(aX2). 

Peacatore, -DrafUng and Analyzing Decisions ao Dispuu Settlement,' in P. Pescator* W 
Davty. and A Lowenfeld. Handbook ofCATTDUpuaStttlanent, Part Two, at 5 (1992). The DSU 
provide* that, wher* a party consider* and a panel drtermine* that Arlicl* XXin:l(c) appUaa to 
• complaint, the DSU wiU apply only up to the point is the proceeding where the panel r«port hM 
been issued to WTO Member* Procedures sd forth in the 1989 Dispuu Settlement 
Improvemenu. and not the DSU. wUl apply to the adspUon and surveillance and impleme 
of recommend Ationa and ruling! in these riJM 



166 



CRS-9 



with respect to countries that are not Members of the WTO, or with respect to 
bilateral agreement*.'* The United States position has also been restated as 
follows in the January 1994 report of the Industry Policy Advisory Committee 
(IPAC) on the Uruguay Round results: 

USTR officials have spe<:ifically assured the IPAC that the United 
States: is not compelled under the terms of the Understanding to bring 
all disputes to the WTO for resolution; has reserved the right to act 
unilaterally or bilaterally to resolve market access problems such as 
anticompetitive activities; will continue to Uke unilateral or bilateral 
action where appropriate; and if necessary, is prepared to exercise its 
sovereign prerogative and Uke action that trading partners might 
characterize as violative of international obligations in order to resolve 
disputes." 

It should also be noted that a statute such as Section 301 would ordinarily 
be necessary under the United Sutes constitutional system in order that the 
USTR may take specific actions to respond to foreign practices determined to be 
illegal or otherwise unfair as a matter of domestic law, whether or not 
authorized by the GATT or the new DSB. Given Congress' express 
constitutional power to impose duties and Uriffs and to regulate foreign 
commerce, the President or Executive Branch officer would at a rule need 
delegated authority to impose teriff surcharges or other import restrictions." 
Absent the availability of such authority in other stetutes, a separate delegation 
such as that found in § 301 would generally be needed to take such actions to 
eliminate the foreign practices at issue or achieve other United Stetes objectives 
in a particular trade dispute." 

Further, in approving and implementing prior multilateral and free trade 
agreements, Congress has placed a provision in implementing legislation that no 
provision of those agreements, nor the application of any such provision to any 



" See, e.g.. ttsumony of United States Trade Repre»*ntative (USTR) Mjchael Kantor before 
the House Way» and Meana Committee (hearing on Uruguay Round agreementa), January 26, 
1994, as rtpnnted in LEXIS/NEWS/CURNEWS. te«miony of USTR Michael Kantor before the 
House Foreign AfTain Committee (hearing on Clinton Administration trade policy), March 2, 1994, 
as rtpnnted in LEXIS/NEWS/CURNEWS 

" The Uruguay Round of Multilaterai Trade Segoaanont; Report of the Industry Policy 
Advisory Committee (IPAC) 59 (January 1994) 

'• See United Sut« v. Ycahida Infl Inc., 526 F.2d 560. 572 (C C.PA 1975X-no undelegated 
power to regulau commerce, or to act tahfb, inheres in the Presidcncy'Xemphasia in the original j. 
United States v Guy W Capps, Inc^ 204 F. 2d 655, 660 (4th Cir. 1953), a/f^ on oOier grounds. 
348 US. 296 (1955X'Imports from a foreign country are foreign commerca «jbj«ct to r»gulation, 
to far as this country is concerned, by Congr«as alone.'). 

" Section 301(c) aeu out tpedfic authorities that may be invoked in { 301 proceedings 
Under Section 301(a), however, the USTR may not only use these authorities to respond to an 
offending practice, but may also take "all other appropriaw and feasible action within the power 
of the President that the President may direct the Trade Representativs to take.' 



167 



CRS-IO 



perton or circumstance, which i« in conflict with any federal law will have 
efTect.*' Implementing legislation for the North American Free Trade 
Agreement (NAFTA) also contains a provision stating that nothing in the 
NAFTA Implementation Act "shall be construed ... to limit any authority 
conferred under any law of the United States, including section 301 of the Trade 
Act of 1974; unless specifically provided for in this Act."*' Assuming such a 
provision is contained in implementing legislation for the Urugiiay Round 
agreements, this would mean that, as with any other federal statute, § 301 as 
it now stands will remain valid domestic law unless it is amended in the 
implementing statute or in subsequent legislation or it is repealed. 

We hope that this discussion is helpful to you and that you wrill call on us 
if you have any additional questions. 



^ Jeanne J. Grimmett 
Legislative Attorney 
American Law Division 



Tr»d» Agreemenu Act of 1»79, Pub L No 96-39, f 3(4), 19 U.8.C. I 2504<«); Umt«d 
Sut«t-C«na(U Free Trad* Agreement Implemenution Act, Pub L No. 10(M49, | 102(«), North 
American Free Trade Agreement Implemenution Act, { 103-182, | 102(«X1). 



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