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\\^ THE GAH URUGUAY ROUND: IMPLICATIONS FOR
\ SMALL 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.

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

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.

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

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

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

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.

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?

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?

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

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

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

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

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.

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.

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-

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.

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.

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

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.

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.

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.

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 0 -94 -2

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.]

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

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.

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-

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.

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.

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.

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.

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

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.

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.

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

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

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.

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."

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.

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.

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

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 :

0 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.

0 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.

0 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.

0 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.

0 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.

0 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.

0 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.

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.

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.

Washington Post, February 1, 1994, p. A4

•^ III lldiill llltl

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.

^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.

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.

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

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

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

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

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

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

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 .

Implementing Legislation and Administration 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

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. 0 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.

- 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:

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.

Stronger 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.

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

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.

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

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.)

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.

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.

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.

(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.

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.

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.

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

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.

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.

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.

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.

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"

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

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.

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).

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» .

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.

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.

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.

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.

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

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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.

0 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

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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.

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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.

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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.

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

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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.

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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;

0 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. 0 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

May 1, 1992

LNITED iTATH> COLNCiL FOR iNTER-NATION.U BLilN:
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134

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135

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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 Criteria fcr Sound
Science aad Unaecesaarv Trade Reatraiat

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 Tmpact 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.

145

Th.9 GATT and Multilateral gnviramaental 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 Potential 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

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

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).

159

CRS-2

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).

Pub L No 103-182, f 102(«K2)

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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"

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