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m . \\^ THE GAH URUGUAY ROUND: IMPLICATIONS FOR \ SMALL BUSINESS SMI 103-76 Y 4. ; The Gatt Uruguay Round: Inplication.. nEARING BEFORETHE COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION WASHINGTON DC APRIL 26, 1994 Printed for the use ofthe Committee on Small Business Serial No. 103-76 U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,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 BEFORETHE COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION WASHINGTON DC APRIL 26. 1994 Printed for the use ofthe Committee on Small Business Serial No. 103-76 ^'"' 2 ' 1935 U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments.CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-046364-5 COMMITTEE ON SMALL BUSINESS JOHNJ. LaFALCE,NewYork, Chairman NEALSMITH,Iowa JANMEYERS, Kansas IKE SKELTON,Missouri LARRYCOMBEST,Texas RROONMAWNYODELN.,MAOZrZeOgoLnI, Kentucky RJOIECLHAHREDFLHE.YB,AKCoElRo,radLoouisiana NORMANSISISKY,Virginia RONALD K. MACHTLEY, Rhode Island JJKWAOEMHIENSSICHOM.NFYBUEIMRLESB,R,AJMYRa,.r,yNMleiavcnahddiagan JSWIIAMLMLRIJAAOMMHSNTHSA.ODNZ,E,LMITiFenFxn,aessJoRt.,aNew Hampshire FBILLOLYDSAHR.PAFLLIAUKSE,,TNeexwasYork SMCIOCTHTAEMLcIAN.NI"SM,ACC"olCorOaLdLoINS,Georgia GMEAVLRAETNMIN.NPCTLO.ASMYHETAEORNDH,,ANNI,lolriMtnoahisssCaacrohluisneatts JJMOAIEMCEHKSANEOML.LLHTEUANFLBFEEINRTN,GGT,MOiMNsis,cohuCiragilainfornia PATDANNER,Missouri JAYDICKEY,Arkansas TED STRICKLAND, Ohio JAYKIM, California NYDIAM. VELAZQUEZ, NewYork DONALD A.MANZULLO, Illinois CLEOFIELDS, Louisiana PETERG.TORKILDSEN,Massachusetts MARJORIEMARGOLIES-MEZVINSKY, ROB PORTMAN, Ohio Pennsylvania WALTERR.TUCKERIII, California RON KLINK, Pennsylvania LUCILLE ROYBAL-ALLARD, California EARLF. HILLIARD, Alabama H. MARTINLANCASTER, NorthCarolina THOMAS H. ANDREWS, Maine MAXINEWATERS, California BENNIEG.THOMPSON, Mississippi JeanneM. Roslanowick,StaffDirector Jennifer Loon,MinorityStaffDirector (II) CONTENTS Page HearingheldonApril26, 1994 1 WITNESSES Washington DC, April 26, 1994 Esserman, Susan G., Assistant Secretary for Import Administration, U.S. DepartmentofCommerce 9 Morris, Robert J., senior vice president, U.S. Council for International Busi- ness 31 Nader,Ralph,founder.PublicCitizen 22 Samuel, Howard D., executive director, Labor/Industry Coalition for Inter- national Trade, former deputy under secretary for International LaborAf- fairs 28 Woodhead, Gregory,economist.TaskForceonTrade,AFL-CIO 34 Yerxa,Rufus,Deputy,U.S.TradeRepresentative 4 APPENDIX Openingstatements: Dickey,Hon.Jay 48 LaFalce,Hon.JohnJ 49 Manzullo,Hon.DonaldA 52 Newsletter 54 Poshard,Hon. Glenn 55 Ramstad,Hon.Jim 56 Zeliff,Hon. Bill 57 Preparedstatements: Esserman,SusanG 58 Morris,RobertJ 69 Nader,Ralph 74 Samuel,HowardD 105 Woodhead,Gregory 110 Charts 118 Yerxa,Rufus 121 Additionalmaterial: LettertoChairmanwithattachments 131 MemorandunfromJosephH.Price 151 Congressionalresearchletter 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 ofthe committee) presiding. Chairman LaFalce. The Small Business Committee will come to order. This morning our committee convenes to review the primary features 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 forthe 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 Roun—ds, we had the usual "bread and but- ter" issues ofmarket access tariffand nontariffbarriers to pursue with over 100 contracting parties ofthe 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 ofyour dedicated team ofnegotiators overthe years. The signing ofthe 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. exports due to the surge of U.S. imports resulting from vigorous growth ofthe U.S. economy. Under these conditions, further opening ofinternational markets is critical for sustainingUnited States economic recovery and creat- ingnew employment opportunities. For this reason, our committee begins to explore this morning not only the main features ofthe Uruguay Round, but also its pos- sible drawbacks. The followingissues are ofparticular concern: Although labor rights are not specifically addressed in the Uru- guay RoundAgreement, there is an understandingthat this important issue can be placed on the agenda ofthe 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 between countries. This is a pitfall we ought to do all within our power to avoid. So unless we insist on basic uniform labor standards for the workers ofour trading partners, the U.S. workers will inevitably have their wages and living standards decline because of unfair labor comp—etition, and ultimately could lose theirjobs. Another issue while tariffs are being reduced generally by 30 percent, we must determine exactly how United States-reduced tariffs compare with the tariffs of others, whether our tariffs still remain 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 advantage 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 subsidies 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 dispute 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 operate and what its advantages and disadvantages will be for the United States. oblIitgaisticornistimcailghtthaitncwreeasfuelluynduenrdetrhsetaWnTdOhoawndUhniotwedthSetyatweislltcroamd-e 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 ofthe WTO. The committee must also examine the practical effects ofphase- in agreements, and whether certain provisions put U.S. companies at a decided 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-technologyfield. We might review how the services agreement will operate and whatthe 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- videdby the Uruguay RoundAgreement. To shed light on all these issues, we have a very distinguished group ofwitnesses, all trade experts, who have been intimately involved 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, ofbeing 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 youboth. 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 ofthe Economic Strategy Institute. Mr. Samuel was deputy under secretary for International Labor Affairs during the Carter administration. Rounding offthat 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 Knollenbergfor any openingcomments. [Chairman LaFalce's statement may be found in the appendix.] Mr. Knollenberg. I will be verybrief. 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 further expand our exports and continuingto 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 thatgrowth. 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 ofthe new world climate ofopenness and the manybenefits 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 ensuringthatthe small business person continues to play an important part in the world economy as they continue to do in ours. Thankyou, Mr. Chairman. Chairman LaFalce. Thank youvery 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. TESTIMONYOFRUFUSYERXA,DEPUTYU.S.TRADE REPRESENTATIVE Mr. Yerxa. Thatis correct, Mr. Chairman. Chairman LaFalce. President Bush appointedyou 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 DeputyTrade Representative. Mr. Chairman, it is a pleasure to be here today and thank you for this critical hearing. I know the impact ofthe 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 ofthe impact ofthis agreement 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 agreementin 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 ifwe were to have a stable andviable international trading system. The new agreements do open up major areas of trade and provide an important dispute settlement system which will allow the United States to ensure that other countries begin to play by the rules. preIhwenasnitvetoeceomnpohmaiscizsetrattheagtytthoisdeiaslowbivtihouUs.lSy. ocnolmypetpiatritveonfesas.coWme- already have the most productive workers in the world. The United States per man-hour ofwork is always at the top ofthe 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