Hearing of the House Small Business Committee - Impact of Pending Free Trade Agreements on U.S. Small Business Panel I

Interview

Hearing of the House Small Business Committee - Impact of Pending Free Trade Agreements on U.S. Small Business Panel I

REP. VELAZQUEZ: I'm very pleased to call to order this morning's hearing on pending trade agreements. This hearing will provide an opportunity to evaluate the impact of the Peru, Colombia, Panama, and South Korea trade commitments on the small business sector.

It is a critical time to engage in this discussion, as Congress is currently considering the ratification of these four treaties. Given the resources expended to promote cross-border commerce, it is important to determine whether these agreements should serve as models for future international commitments.

Today we will focus on three issues affecting small firms and their contribution to the U.S. economy in an integrated world. The role these firms play in the development of trade agreements; international regulations impacting entrepreneurs; and federal infrastructure supporting small businesses -- American, U.S. businesses, in a global economy.

The beneficiaries of trade agreements are largely determined during the negotiation process. Unfortunately, small businesses' involvement in the development has been limited. As I have voiced concerns before, the USTR continues to lack a formal delegate, as well as staff, representing the small business sector, at the negotiation table. This may explain why the pending agreements lack a small business focus. Given the opposition among some in the entrepreneurial community, particularly to provisions in the Korean agreement, their needs should have been more fully incorporated at the initial stage of the process. If small businesses had a seat at the table, I believe the current agreements would have been stronger.

The agreements also impact smaller firms through their modifications to non-tariff barriers. I wholly support inclusion of trade facilitation, particularly the harmonization of customs requirements. These allow small businesses to more affordably access the newly opened markets.

The elimination of technical barriers, particularly those impacting the livestock industry, is critical for U.S. producers to expand their customer base. However, other regulatory barriers continue to hinder growth, including the maintenance of physical presence requirements, which benefit only those firms able to relocate abroad. Further, the procurement process lacks protection for small firms. For the agreements to help small businesses, regulations must not unfairly benefit their corporate competitors.

But reducing regulations is critical for small businesses. They must also have access to export financing alternatives, technical assistance, and intellectual property protection. Lending programs are crucial for firms exporting to Latin America, due to transaction fluctuations. Similarly, since the Korean government significantly supports its businesses, we must take steps to ensure our firms remain competitive in domestic and global markets.

Overall, these agreements can significantly enhance small business' global market share by decreasing barriers to cross-border commerce. With increased small businesses' involvement in the negotiation process, I believe many of the lingering concerns will have been addressed.

We can have trade agreements that open new markets and also benefit our nation's small businesses. It is my hope that future agreements will accomplish this and incorporate the interests of these smaller firms more broadly.

I look forward to today's hearing and would like to thank all of the witnesses for their testimony. I now recognize the ranking member, Mr. Chabot, for his opening statement.

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REP. VELAZQUEZ: Veroneau. Ambassador Veroneau --

MR. VERONEAU: Yes.

REP. VELAZQUEZ: -- serves as deputy U.S. trade representative. His portfolio at the Office of the U.S. Trade Representative includes trade relations with Europe and Eurasia, the Middle East and the Americas, as well as matters involving the World Trade Organization. He also oversees USTR's functional offices, handling intellectual property, telecommunications, pharmaceuticals, services, and market access.

Welcome, sir.

MR. VERONEAU: Great. Thank you very much. Thank you, Madame Chairwoman. Thank you for holding this hearing and thank you and Mr. Chabot and others on the committee for your leadership in assuring that small business is taken care of and their interests don't fall through the cracks. So thank you, and it's good to be here to talk about the four FTAs.

We have negotiated agreements with Peru, Colombia, Panama, and Korea, and Peru will soon be considered by you on the House floor, we expect next week, so this hearing is very timely, and we appreciate it.

The USTR's mission is quite simple: we're in the business of eliminating and reducing tariffs and non-tariff barriers. And in that sense, I think what we do benefits small businesses more than large corporations. Frankly, large corporations have the resources to find their way around and manage complex trade barriers and high tariffs. Small businesses have a much harder time. So in that sense, I like to think that the band of negotiators, which are the heart and soul of the USTR, their job every day is to do what is in the best interest of small businesses. And I think that is, in that sense, USTR's different than other government agencies.

We don't have -- we're not a regulatory agency, where as we regulate we need to make sure that we're doing so in a way that doesn't hurt small businesses.

Similarly, we are not a procuring agency, such as the Department of Defense, where we need to make sure that our procurement strategy doesn't leave out small businesses. Our mission is, quite simply, to eliminate these barriers. And the benefits, as I said, I believe, accrue mostly and most importantly to small businesses.

We are benefited from having a Small Business Advisory Committee, which I'm pleased to report has endorsed each of these free trade agreements.

Exports equal jobs. Is this microphone on, by the way? Exports accounted for over 40 percent of the economic growth in the past year. Exports are growing at twice the rate of imports, and 95 percent of the world's consumers live outside the United States. One in six manufacturing jobs relies on exports. One in three acres of farmland is planted for export. Export-related jobs pay 13 to 18 percent higher than non-export-related jobs.

Our free trade agreements accelerate exports, and therefore create jobs even faster. In fact, our exports to FTA countries, free trade partners, have increased at a rate of 60 percent faster than the rate of exports to other countries.

The pending FTAs -- the Peru, Colombia, Panama and South Korea agreements -- each provide an opportunity to level the playing field for U.S. exporters, small businesses and others. There is currently a significant gap between the tariff that U.S. companies face in those markets and the tariff that those exporters from those countries enjoy in the United States.

Each of these agreements serves U.S. interests, and I respectfully suggest they deserve the support of each and every one on this committee.

I'd like to now briefly discuss each of them in the order in which they were negotiated.

The Peru free trade agreement, I'm pleased to say, passed the Ways & Means Committee yesterday by a vote of 39-0, which is a tremendous credit to the leadership of Chairman Rangel and Chairman Levin and Mr. McCreary. So we are grateful for that and look forward to floor action next week.

Our bilateral trade with Peru has doubled in the past three years. Ninety-eight percent of the goods from Peru come to the United States duty-free -- 98 percent. The average tariff that U.S. exporters face in Peru is 10.2 percent. The average tariff that Peruvian exporters face in the U.S. is 2.2 percent. So this free trade agreement provides an opportunity to level that playing field at zero tariffs.

I would finally note that small business, small and medium-size enterprises, account for 81 percent of our exporters to Peru, accounting for 35 percent of our goods going to Peru.

Let me now turn to the Colombia free trade agreement. Colombia is the largest export market in Latin America for U.S. agricultural products. Ninety-two percent of the Colombian goods coming to the United States enter duty-free. The average tariff on U.S. goods going to Colombia is 12.5 percent. The average tariff on Colombian goods coming here is 2.2 percent.

Last June, this Congress, by an overwhelming majority, voted to renew the Andean trade preferences program, which is a terrific program that has helped to solidify economic growth in that part of the world. But it is time that these countries, Peru and Colombia, have stepped up to say, "We appreciate the unilateral trade benefits, but what we really want is a partnership. We want a free trade agreement that helps to lock in duty-free access for both sides and provide other benefits, such as assuring better protection of intellectual property rights and other benefits."

But again, the Colombian free trade agreement provides that opportunity to level that playing field at zero tariffs. Small and medium-size enterprises account for 85 percent of the exporters to Colombia, accounting for 35 percent of the goods.

From an economic and regional stability perspective, the Colombia free trade agreement is the most important of the three Latin FTAs. Colombia, as many of you may know, has suffered in recent decades through effectively a civil war. It's been a country that has had more than its share of turmoil and violence. And to President Clinton's credit, in the late '90s he proposed Plan Colombia, which this Congress has supported initially, when President Clinton proposed it, and during President Bush's term here, to advance and promote Plan Colombia.

Plan Colombia, in a nutshell, has been a stunning success in helping that country move back from a brink of chaos and implosion to a point now where, speaking of business, Colombia was on the front cover of Business Week this summer as one of the critical emerging markets in the world. And that is a remarkable testament to the changes that have taken place in that country, and it is a far, far better place today than it was five or 10 years ago.

I had an opportunity to meet recently with General Barry McCaffrey, who many of you may know, he was President Clinton's drug czar. And he was recently in Colombia, and he summarized his assessment of it as being "night and day" from what he saw in the late '90s. So there's been a remarkable turnaround in that country. And to reject their offer, their entreaty, to have a bilateral trade agreement would be a very serious debacle in U.S. foreign policy. And it is my hope and my belief that at the end of the day this Congress will give its support to that important agreement.

The Panama agreement, equally important to the United States in terms of leveling the playing field. Ninety percent of the goods from Panama come to the U.S. duty-free. There's a tariff differential of 7.3 on U.S. goods to Panama; Panamanian goods coming to the U.S., only a 2 percent tariff. Again, this is an opportunity to level the playing field.

Lastly, let me mention the Korea free trade agreement. Economically, this is the most important agreement in 15 years. It is our seventh-largest trading partner. The International Trade Commission, which is obliged by statute to do a study of each of these free trade agreements, produced its report in September, and it concluded that in goods alone, not counting services, in goods alone, it will increase exports to Korea from the United States of $10 billion a year -- $10 billion a year -- which is a tremendous amount of job growth, and good job growth, for the United States.

Again, the Korean tariffs -- U.S. goods going to Korea, average tariff, 12.1 percent; average tariff on Korean goods to the U.S., 3.5 percent. Again, this free trade agreement provides an opportunity to level the playing field in a way that I think small businesses and large businesses will benefit.

Lastly, let me just say that if we do not move with dispatch to approve these agreements, we will not only miss an opportunity to level that playing field as quickly as possible, but we need to be mindful that the playing field will get more unlevel.

The world will not wait while we contemplate whether to have these bilateral trade agreements. Europe, Canada, other trading partners of ours, and competitors in these markets, are moving forward with trade agreements. And it is important that we not find ourselves in a situation where we're facing tariffs, our small businesses are facing tariffs in those markets, and our competitors are not facing tariffs.

Thank you very much.

REP. VELAZQUEZ: Thank you, Mr. Ambassador.

Mr. Ambassador, it's really fascinating to hear you representing the administration and the previous administration under President Bill Clinton, to come here before this committee and talk about the important role and the benefits for small businesses on any of these trade agreements.

My question to you is, if this is so important for small businesses where they can benefit, American small businesses, why is it that throughout the negotiation process on any of these trade agreements, we don't have a formal delegate representing small businesses?

MR. VERONEAU: Well, I think, Madame Chairwoman, I would say that we do have a Small Business Advisory Committee, so we routinely consult with them. They have the same access to everybody that we do. And I would say that it would be artificial, honestly, to have a negotiator -- I mean, USTR, the heart and soul are negotiators. So you've got a negotiator at the table.

The interest that that negotiator is pursuing is unavoidably and necessarily the interest of small businesses. It is not as though we would be sitting there saying, "Well, this is a good proposal and a good outcome for large businesses but not good for small business." I mean, what we do is eliminate tariffs. That's going to be good for everybody. What we do is eliminate non-tariff barriers. That's going to be good for everybody.

So it would be artificial, honestly, to try to disaggregate -- from the negotiator's perspective -- small business interests from other interests.

REP. VELAZQUEZ: But can you explain to me why the Small Business Trade Advisory Committee to the USTR does not support the Korea FTA in its totality?

MR. VERONEAU: The --

REP. VELAZQUEZ: I have the report right here?

MR. VERONEAU: Yeah. There have been concerns about some of the non-tariff barriers on the Korea -- in Korea, and they have been significant. And we have -- a major focus of that agreement was not simply eliminating the tariffs, but focusing on the non-tariff barriers and having mechanisms to address that.

Frankly, I think some of the members of the Small Business Advisory Committee were concerned that, not withstanding the provisions in the agreement, that they were still not confident that all of those non-tariff barriers would be eliminated. And my response to that would be I believe they will be, and the administration -- and I'm sure any future administration enforcing this agreement is going to put an extremely high priority on assuring that those non-tariff barriers come down.

REP. VELAZQUEZ: But what is really disappointing is the fact that the Small Business Trade Advisory Committee to the USTR is not allowed to raise formally their concerns -- only if the agreements are finalized. Isn't that true?

MR. VERONEAU: Actually, it's not, Madame Chairwoman, because they have the same access and input in the process as we go through these negotiations. As we -- before we have a negotiating round, we reach out to our advisory committees, share text with them. So there is access to our negotiating process and throughout our negotiating process of the same level that all other advisory groups have.

REP. VELAZQUEZ: If they were included in the process, then why is it that they're opposed?

MR. VERONEAU: Well, there -- much to my chagrin, there are sometimes where other groups, other advisory committees, are not pleased with the outcome and don't support it. So I would not equate tepid support or opposition as synonymous with being shut out of the process. They just wanted a better outcome, and I respect that, but I believe that over time we will demonstrate that these non-tariff barriers will come down in a way that will provide opportunities for U.S. companies.

REP. VELAZQUEZ: So you are correcting your statement that you gave when you were reading or giving us your testimony saying that the advisory -- the Small Business Trade Advisory Committee was supportive of all the agreements.

MR. VERONEAU: Yes. I'm --

REP. VELAZQUEZ: That's not correct.

MR. VERONEAU: That's not correct. I overstated.

REP. VELAZQUEZ: Mr. Ambassador, with fewer resources to protect their enterprises from unfair trade practices, small businesses require effective enforcement of regulations and agreements. Currently, many small firms are being harmed by inadequate enforcement. For example, small U.S. mills are increasingly reporting losing orders to companies that claim inaccurately to be based in the U.S. What is the USTR doing to help small businesses from falling prey to unfair trade practices as new trade liberalization efforts are introduced?

MR. VERONEAU: One of the recent actions that we have taken to address that is we took a WTO case against China for subsidies -- export subsidies that it provides. We've taken other WTO cases that help small businesses -- ranchers, farmers and businesses. So I think the USTR -- the primary tool that we have is bringing WTO cases as formal enforcement actions. Obviously, the Department of Commerce has --

REP. VELAZQUEZ: How many --

MR. VERONEAU: -- authority to take countervailing and antidumping actions against companies that are subsidized.

REP. VELAZQUEZ: How many complaints have filed with WTO regarding practices -- unfair practices?

MR. VERONEAU: Well, every case that we've filed, obviously, is based upon a country in our belief not living up to its obligations. We've taken, I think, 23 WTO cases in recent years, which puts us at the top of the list. The United States has taken more WTO cases than any other country. Europe is a close second, but we've taken -- we took the first WTO case against China. We've taken the largest case ever in the WTO in dollar terms in our case against Airbus, which frankly helps a lot of small business who support Boeing.

REP. VELAZQUEZ: Given all these trade agreements and the fact that unfair practices, trade practices, can happen -- and we might foresee that it will happen -- how does USTR work with U.S. Customs? Are you -- how many -- in terms of personnel -- are you going to hire more personnel? U.S. Customs is going to hire more, I know that, but what is your interaction with U.S. Customs to make sure that you have the personnel necessary to make -- in terms of enforcement?

MR. VERONEAU: Well, we work with closely with Customs in a number of ways. They are the primary enforcers, obviously. We are not a direct enforcement agency.

REP. VELAZQUEZ: I understand that. My question is do you have any interaction with U.S. Customs, any discussion in terms of the implementation of trade agreements and what it will require with this, and -- ?

MR. VERONEAU: We have constant dialogue with them. I mean, our agreements don't go into effect without Customs understanding what the new terms are. In fact, that is why there is usually a six-month lag between the ratification of an agreement and its entry into force is we need all that time to work with Customs to make sure they understand what the new obligations are of these agreements.

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REP. VELAZQUEZ: Ms. Hirono, will you yield?

REP. HIRONO: Yes.

REP. VELAZQUEZ: And I would like for the ambassador to also address the issue, you say compliance is high. What about the area of intellectual property and textiles?

MR. VERONEAU: The -- I think on intellectual property again, if you look around the world, our biggest -- some of our biggest problems have been with partners that we don't have bilateral trade agreements with. China and Russia are the two countries that we're having the major problems with on intellectual property, and in that sense, frankly, the FTAs that are the subject of this hearing today provide mechanisms to address intellectual property that we don't have with -- with those other countries in the same fullness.

But I would be pleased to provide information about -- about enforcement actions, but I think it's important to not -- to be clear that enforcement actions encompass much more than bringing formal disputes. I mean everyday I or someone at USTR is on the phone with -- with a foreign government to say, hey, you've got to -- you've got to live up to this obligation.

So enforcement is -- the vast majority of enforcement is not through formal dispute mechanism, but through pressuring and jawboning and putting pressure on countries to meet their obligation.

REP. VELAZQUEZ: Time has expired.

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REP. VELAZQUEZ: Mr. Ambassador, thank you for your participation this morning. We still have some more questions. We will be submitting them in writing. You are excused, but before you leave I would for the record to reflect who will be the person or persons from your staff that will stay here, to listen to the next panel?

MR. VERONEAU: Our congressional affairs office will stay here and enjoy the rest of the hearing. Thank you very much.

REP. VELAZQUEZ: Thank you very much. The committee stands in recess, and we will resume right after this vote.

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