*EPF405 07/20/00
Text: Baucus Says U.S. Should Press Trade Partners on Compliance
(Senator Max Baucus July 20 cites Japan's trade surpluses) (2720)

The United States must seek greater compliance from its trading partners on existing trade agreements, says Senator Max Baucus (Democrat of Montana).

The free trade advocate gave that recommendation at a July 20 conference on "America's Trade Agenda after the Battle in Seattle" in the Dirksen Senate Office Building on Capitol Hill.

Baucus characterized Japan as a nation that doesn't fully live up to its trade agreements with the United States, a theme he elaborated on later in his speech.

Baucus offered some remedies to the problem of getting trading partners to comply with agreements they have made, including the creation of a "Congressional Trade Office (CTO)."

The CTO, he said, would provide Congress "with additional independent, non-partisan, neutral trade expertise."

It would be accountable only to Congress, Baucus said, "and would enhance our oversight capabilities."

The Montana Democrat called for greater oversight by the Senate Finance Committee, where he is the second ranking minority member after retiring Senator Daniel Patrick Moynihan (Democrat of New York).

"Congress must monitor in a continuing and systematic way compliance issues involving Japan, China, the European Union, and World Trade Organization dispute settlement," Baucus said.

Baucus noted that the bilateral merchandise trade deficit with Japan "has deteriorated by about fifteen percent each year, from $47.6 billion in 1996 to $73.9 billion in 1999 and will likely be in the range of eighty to eighty-five billion dollars this year."

While some analysts explain this trend by citing slow growth in Japan versus high growth in the United States, Baucus said, "I am afraid that does not wash."

For the past 20 years, Baucus said, "whether there was slow growth in Japan or fast growth, whether the U.S. economy was booming or stagnating, whether the U.S. had a huge budget deficit or no budget deficit, the bilateral trade deficit continued at very high levels."

Following is the text of Baucus' remarks, as prepared for delivery:

(begin text)

Senator Max Baucus
"Improving US Trade Law"
Conference on America's Trade Agenda after the Battle in Seattle
July 20, 2000
Washington, D.C.

I would like to outline my trade agenda for 2001 and beyond. Some of this relates to the WTO. Some of it relates to US trade law and practices. Some of it relates to the problems of our domestic agricultural sector and how trade policy will help our nation's farmers.

Yogi Berra once said, "Why buy good luggage? You only use it when you travel." Well, we use our trade policy all the time, and it needs to be a lot better.

Compliance

The first issue on my trade agenda is compliance with agreements. US Administrations have negotiated hundreds of bilateral and multilateral trade agreements over the last twenty years. Many of them are good ones. However, a good agreement, without compliance, is worse than no agreement at all.

There has been a change in the rhetoric of trade agreement compliance. Everyone is in favor of it and insists on its importance. Now we talk about motherhood, apple pie, and compliance. But the change in practice has not kept up with the change in rhetoric.

Japan represents perhaps the most egregious example of this, although certainly not the only one. The American Chamber of Commerce in Japan recently concluded that only 53 percent of the major bilateral US/Japan trade agreements reached over the last two decades were fully or mostly successful. Forty-seven percent fell short of that standard. There are a number of reasons for this, but prominent among them is inadequate monitoring, oversight, and enforcement. If we made assessments on the results of agreements with other trading partners, we might find similar results. And, with China entering the WTO, the challenge of compliance will only become more difficult.

The President has requested a significant budget increase for trade agreement compliance activities. Sufficient resources is a sine qua non of adequate compliance, and we must have the right number of people with the appropriate skills following clear priorities. I was surprised to see that the Commerce Department, while talking about a greater concern for compliance, has chosen to abolish the position of Deputy Assistant Secretary for Japan. I am not sure I understand where their priorities are.

My agenda on compliance includes the following elements.

One, create a Congressional Trade Office. This would provide Congress with additional independent, non-partisan, neutral trade expertise. The CTO would be accountable only to Congress and would enhance our oversight capabilities. Its work would help us monitor compliance, ensure enforcement of commitments, and evaluate Executive Branch trade policy formulation and implementation.

Two, oversight by the Finance Committee. Congress must monitor in a continuing and systematic way compliance issues involving Japan, China, the European Union, and WTO dispute settlement. We also need to look at this from a sectoral perspective, such as compliance with agricultural trade agreements, with agreements on intellectual property rights protection, and with dumping and subsidies decisions.

Three, Congress needs to examine how the Executive Branch is structured for monitoring and enforcement of trade agreements. The General Accounting Office has looked at this and identified a number of serious gaps in the process.

Four, we need to change the annual National Trade Estimates report. Now, it is a comprehensive listing of trade barriers. But it should also be a policy document that provides direction and priorities for compliance activities and negotiations, a road map for the coming year. And the Executive Branch should then be held accountable for how well it followed that road map.

Five, we need to bring the one thousand members of the ISACs, the Industry Sector Advisory Committees, and other trade advisory committees, into the process of monitoring compliance. These individuals come from all industry sectors and can help us understand whether agreements are working or not, and what needs to be done.

World Trade Organization

Turning to the WTO, we need to improve the existing dispute settlement process. That means making it transparent, with meetings open to the public and panels required to accept briefs from interested non-governmental parties. Why should this quasi-judicial process be hidden from public scrutiny and accountability?

The process must move faster and permit action by the aggrieved party at a much earlier stage. We need to make sure that panelists are qualified and that they have no conflicts of interest. And there must be a way to ensure that countries, like Japan and China, where protection is implemented in invisible ways, cannot hide behind this non-transparent curtain.

U.S. trade law is under serious attack at the WTO. And leading those attacks are our closest trading partners, Japan and the European Union. They are challenging Section 301, our dumping and countervailing duty laws, and our safeguards provisions. These are not benign actions. They are attempts to gut those American trade laws that protect our companies from the most egregious commercial and government practices abroad or that provide our companies temporary relief from injury caused by import surges. We cannot allow these attacks to continue. Congress needs to look closely at this development and ensure that our trade agencies are fighting back aggressively.

Building the Center

Much of our trade policy has been paralyzed the last few years because of the lack of agreement on how to handle the relationship between trade and the environment and between trade and labor. People and institutions are moving farther and farther apart on these issues, and the center has disappeared. We need to find a way to reconcile business and environmental interests, and reconcile business and labor interests. I have begun to do this with a process I call "Building the Center". I have begun to bring business and environmental leaders together to search for a common ground. We are starting with the easier issues to build up mutual confidence. Then we will move to the tougher ones. I am optimistic, although this is a long-term endeavor.

Agriculture Trade Policy

We are in the third year of a severe agricultural crisis in the United States, with record low prices across-the-board. Our farmers are suffering terribly. One part of the solution lies in increasing the quantity and value of our agricultural exports, bringing the products of the world's most efficient farming to the people of the world.

That means ensuring that our producers are not besieged by dumped or unfairly subsidized imports. That means our producers need time to adjust to surges in imports. That means bringing China into the WTO and granting them PNTR. And that means working to dismantle the European Union's system of massive trade-distorting export subsidies to its farmers.

I introduced several agricultural trade bills this session, and I will continue to pursue them.

First, the Trade Injury Compensation Act. Tariffs collected from retaliation taken in the beef hormone case at the WTO would go into a trust fund for the beef industry. The trust fund would help beef producers improve the quality of their product, and assist them in market development, consumer education, and trade promotion in overseas markets. The beef industry has been damaged by the EU's protectionist policies. This would help the industry overcome some of that damage.

Second, the Agriculture Import Surge Relief Act. This amends Section 201 of our trade law so we can be more responsive to import surges in the agriculture sector. It makes the standard of injury similar to the standard in the WTO. It speeds up the process for addressing import surges.

It requires that the President focus on the beneficial impact of a remedy, rather than trying to prevent a negative impact on other industries. And it establishes an import monitoring program for agricultural surges -- an early warning system.

Third, the GATT Trigger Bill. Under this legislation introduced last year, if the EU failed to reduce agricultural export subsidies by half by January 1, 2001, the United States would target a billion dollars of Export Enhancement Funds at the EU's most sensitive export markets. If they failed to eliminate those subsidies completely by 2002, which was the end of the anticipated three year new trade round, we would target two billion dollars against the EU. I will shortly update this proposal. The Trigger bill gives our agriculture negotiators leverage to change EU practices.

Fourth, I plan to look at some special 301-type provisions for agriculture trade problems. Along with the United States, the EU was a major driving force behind the creation of the Dispute Settlement Understanding. Their goal was to have it replace U.S. trade law. Yet, we now have a situation where the EU does everything possible to circumvent the WTO's dispute process on beef and bananas. It is time to rethink how we can address some of these agricultural problems and open up overseas markets through the use of our own laws.

Unilateral Trade sanctions

This brings me to the issue of unilateral trade sanctions taken to achieve political goals. They not only hurt our agriculture sector, but these sanctions also seriously damage our economy more broadly.

I have opposed unilateral trade sanctions for years. They just don't work, whether it is China, Cuba, or Afghanistan. They do not change the behavior of the country we target. They let the Europeans, Japanese, and other competitors do business while markets close to our farmers, workers, and businesses. They anger our closest allies and isolate us.

That is why I have fought in support of most favored nation status, now Normal Trade Relations, without conditions, for China for a decade. That is why I support the elimination of restrictions on the export of food and medicine. And that is why I have introduced legislation to lift completely the embargo on Cuba.

Trade sanctions that are multilateral and coordinated can work South Africa is the best example of this. But unilateral trade sanctions are self-defeating, hurt us, and do nothing for the people we are trying to help. This is a policy that should be put to bed forever.

Openness in U.S. Trade Policy-making

There is a crisis of confidence in US trade policy. Seattle was just one manifestation of that. The Congress created an advisory process for the private sector to provide input to trade agencies as they develop our nation's trade policies. This is a multi-tiered system that includes broad trade policy advisory groups as well as committees that advise on specific industry sectors. The system, however, is in need of serious repair. It needs to be more open, more inclusive, more participatory. Congress has to update this system and make sure that it reflects the substantive concerns of all interested elements of our society.

Japan

I need to talk separately about Japan, what I would call the orphan of American trade policy.

Recently, the bilateral merchandise trade deficit with Japan has deteriorated by about fifteen percent each year, from $47.6 billion in 1996 to $73.9 billion in 1999 and will likely be in the range of eighty to eighty-five billion dollars this year. Some analysts explain this away by citing slow growth in Japan versus high growth in the United States. I am afraid that does not wash. Over the last two decades, whether there was slow growth in Japan or fast growth, whether the U.S. economy was booming or stagnating, whether the U.S. had a huge budget deficit or no budget deficit, the bilateral trade deficit continued at very high levels.

Over the last year, Japanese foreign exchange reserves have increased by over $100 billion, much of this occurring over the past six months. Some analysts conclude that there has been massive intervention by the Japanese government to keep the yen weak so that high exports will drag Japan out of its slump. In other words, forget about domestic reform, restructuring, and trade liberalization. Turn to old fashioned foreign exchange manipulation instead.

As we all know, in the Uruguay Round negotiations, Japan was able to escape focus, other than on a few issues such as rice policy, while we fought bitter battles with the European Union. I fear we have taken our eye off the ball, and this ball is the second largest economy in the world, an economy that still has much of the best technology in the world, cutting edge manufacturing, an enormous export machine. Promoting deregulation, open markets, and economic reform in Japan must be a top priority.

Trade Architecture

I want to conclude with a discussion of the global trade architecture and American trade policy. We tried to kick off the next round of comprehensive multilateral trade negotiations last fall in Seattle. There were many elements contributing to the failure, including the complexity of dealing with 135 countries over a massive agenda, suspicion engendered by a lack of transparency, public scrutiny and accountability, the absence of consensus on trade and environment issues and on trade and labor issues, and the unwillingness of Japan to play a leadership role in trade liberalization.

I have serious doubts as to whether the current WTO structure will be able to cope with either the remaining trade issues or the emerging issues -- food safety, GMOs, competition policy, tax policies as exemplified by the FSC case, agricultural subsidies, electronic commerce issues, the linkage between trade and the environment, the linkage between trade and labor.

In the aftermath of World War II, we created the Bretton Woods institutions to help manage the world economy. A quarter of a century later, in 1970, President Nixon created the Commission on International Trade and Investment Policy, the Williams Commission, to look at the changes in the world economy since Bretton Woods. It produced a set of policy recommendations for the 1970s. Now, three decades later, it is time for another fundamental re-thinking of America's international trade policies. I look forward to beginning this process next year in the Finance Committee.

Mark Twain wrote: "It used to be a good hotel, but that proves nothing -- I used to be a good boy." Times change. Institutions change. We need to ensure that our trade and international economic policies are appropriate for the era we are entering.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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