House Ways and Means Committee - Implementation of U.S.-Australia Free Trade Agreement - Part I
Federal News Service June 16, 2004 Wednesday
June 16, 2004 Wednesday
HEADLINE: HEARING OF THE HOUSE WAYS AND MEANS COMMITTEE
SUBJECT: IMPLEMENTATION OF U.S.-AUSTRALIA FREE TRADE AGREEMENT
CHAIRED BY: REPRESENTATIVE WILLIAM M. THOMAS (R-CA)
WITNESSES PANEL I: JOSETTE SHEERAN SHINER, DEPUTY UNITED STATES TRADE REPRESENTATIVE; ALLEN JOHNSON, CHIEF AGRICULTURAL NEGOTIATOR, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE;
PANEL II: DAVID SUNDIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, DSI FLUIDS, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE; RUSSELL SHADE, CHIEF EXECUTIVE OFFICER, HIGH VOLTAGE ENGINEERING, ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS; HUGH STEPHENS, SENIOR VICE PRESIDENT FOR PUBLIC POLICY, ASIA, TIME WARNER, ON BEHALF OF THE AMERICAN-AUSTRALIAN FREE TRADE AGREEMENT COALITION;
DAVID WAGNER, VICE PRESIDENT, EXTERNAL AFFAIRS, JIM BEAM BRANDS COMPANY, ON BEHALF OF THE DISTILLED SPIRITS COUNCIL OF THE UNITED STATES; GEORGE FRANKLIN, VICE PRESIDENT FOR WORLDWIDE GOVERNMENT RELATIONS, KELLOGG COMPANY, ON BEHALF OF THE GROCERY MANUFACTURERS OF AMERICA LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING, WASHINGTON, D.C.
BODY:
REP. WILLIAM M. THOMAS (R-CA): The guests will find seats, please. First of all, welcome. The purpose of this hearing is to focus on the recently completed U.S.-Australia Free Trade Agreement and the benefits this agreement will bring to American businesses, farmers, workers, consumers and in fact the entire U.S. economy.
The Australia Free Trade Agreement has been called the "manufacturing FTA." We've had a number of free trade agreements with the economies that tended to be a bit more on the agricultural side and we're pleased to see that this particular FTA will cover nearly all duties on industrial goods, because the U.S. goods exported to Australia have about a 90 percent content of industrial goods, and they'll be duty-free immediately. U.S. manufacturers estimate that the elimination of duties could result in as much as $2 billion per year in increased U.S. exports to Australia.
Despite the fact that our two countries are literally a world apart, the history of European settlement and development show that Australia and the United States have common values and interests stemming from the same roots of free societies and democratic principles. Our two countries have cooperated for more than 50 years on security cooperation and especially in the Pacific theatre of World War II, and literally ever major conflict in the 20th and now into the 21st century including both world wars, Korea, Vietnam, 1990 Gulf War, war on terrorism in Afghanistan and Iraq, Australia has been beside us in every concern.
And it's about time that we created a far closer economic link. Even in world trade relationships on an ad hoc, informal basis, we have worked to maintain free markets-pushing toward free markets in agricultural goods. So this agreement is a concrete solidification of the relationship.
The United States is the largest foreign investor in Australia, and Australian direct investment in the United States has increased by over 50 percent in the past decade. Australian decades have direct investments of nearly $70 billion and employ over 80,000 workers in the United States. The FTA provides excellent market access on services, most goods and most agricultural product. It sets high standards on e-commerce and intellectual property rights.
However, to have an accurate accounting, there are a few significant negatives, I believe, in this deal, and they ought to be pointed out with the hope that they ought not to be repeated. Sugar is entirely excluded from this agreement. Dairy is partially excluded. The textiles chapter is, for want of a better term, very un-ambitious. There is no investor-state dispute settlement mechanism. My hope is that these exclusions will not be reflected in future FTAs brought before this committee.
So while I had hoped for an even more expansive agreement, I do believe, as I indicated, this is a win-win for both countries. I do expect the Australia FTA to be quickly approved with broad bipartisan support as has already been indicated by a number of my colleagues in this committee and on the floor. I'd like to recognize the Trade Subcommittee chair for a brief remark prior to recognizing my colleague, the ranking member.
REP. PHILIP M. CRANE (R-IL): I thank the chairman for yielding and I'm quite pleased that after more than one year on negotiations, the U.S. and Australia have concluded a long overdue bilateral free trade agreement. This is an important agreement. Two way trade in goods and services between our countries is approaching $30 billion.
Australia is our ninth largest goods export market and the U.S. enjoys a $9 billion trade surplus with Australia. This agreement represents the greatest reduction of industrial tariffs ever achieved in a U.S. free trade agreement, and is particularly beneficial to our manufacturers. Over 99 percent of U.S. exports of industrial goods to Australia will become duty-free immediately. In this regard the U.S.- Australia FTA sets the gold standard.
I'd like to emphasize my strong support for this agreement and my appreciation to the Administration for its efforts in completing it. I applaud the efforts of USTR in negotiating an agreement that opens markets for U.S. exports by eliminating tariffs, reducing non-tariff barriers, opening services markets, and strengthening intellectual property protections. This will provide a significant benefit to the U.S. economy.
To put the economic significance of this agreement into perspective, Australia's GDP is $525 billion, nearly double that of Chile and Singapore combined. U.S. agriculture exports to Australia, while only a small fraction of overall exports down under, were nearly $700 million last year. This is many times greater than U.S. agriculture exports to Chile and Singapore combined.
Despite my unwavering support for this agreement though, I must say that I share the concerns that the chairman did about the exclusion of sugar and investor-state provisions from the agreement, and I hope that both will be included in future trade agreements negotiated by the administration. And I'd also like to welcome Josette Shiner and Allen Johnson from the Office of the U.S. Trade Representative, as well as our second panel of representatives from the business community. I am most appreciative that you are here.
Australia is one of our greatest allies and I look forward to working with Chairman Thomas and our colleagues Mr. Rangel and Trade Subcommittee ranking member Sandy Levin to ensure prompt passage of this important agreement. I'd also like to thank our colleague, Ms. Dunn, whose tireless efforts as head of the Australia caucus are critical to this process.
And with that I yield back the balance of my time and yield to the ranking member of the committee.
REP. CHARLES B. RANGEL (D-NY): Let me take advantage of this bipartisan spirit in this agreement before I yield to Ms. Levin. I'd like to point out that at some point in time I hope that the USTR, other than at hearing, might share with us in more detail why they resist so much using the language of the International Labor Organization and language that we've suggested in enforcing these basic standards. The reason why we don't find opposition on our side to this bill is because when you use the language that you use as boiler plate language and all of these trade agreement enforce your own laws, we have a major problem with countries that don't have their own laws or don't enforce their own laws.
We have met with the trade representatives and heads of state that would allow us to believe that they had been willing to accept the language of the ILO, but that has been the USTR that has resisted it so where we have some type of accord, I just want to take advantage of the bipartisan spirit and ask the USTR to arrange to meet with us in an informal way so that we can encourage more agreements like this with language that you would find acceptable, but in knowing that this enforce your own laws, one size doesn't fit all countries.
I would like to yield to the ranking member for Trade Subcommittee, Mr. Levin.
REP. SANDER M. LEVIN (D-MI): Thank you, Mr. Rangel, and Chairman Thomas and Mr. Crane.
I support this agreement. I do think we need to look at it in its specific context as we should all other trade agreements. This agreement by itself isn't going to have a very major impact on the U.S. economy.
As the ITC report indicates, the impact of the tariff elimination, for example, will be no more than one-tenth of one percent, the impact on GDP, and as the ITC indicated, it would have "little or no impact on U.S. consumers." But it is important for us to proceed here, and also, as I said, to look at the specific context as we should. I very much do not agree that trade issues should be approached, as one of my colleagues put it, blindly, but you simply turn on the spigot of trade on both sides and all sides, and it doesn't matter what's in the flow or how much it flows one way or the other.
I, as everyone knows, I think, have some real concerns about the overall approach to trade by this administration, but despite that I think that this agreement is surely worthy of congressional support, as Mr. Rangel and I and others have so indicated earlier. Our two economies have a lot of similarities. We're dealing here with two developed economies, and in some respects that makes it easier, in other respects it may make it more difficult. In some sectors, for example automobile and auto parts where there are somewhat comparable competitive conditions, clearly this is going to be beneficial to us.
Mr. Rangel has talked about the references in the agreement to core labor standards and environmental standards. Enforce your own laws, Mr. Rangel has indicated, and they work where those provisions reflect strong conditions within a country. The opposite effect would be where they are applied to where the conditions are far from comparable, as is true in CAFTA, and in other countries it would be covered by an FTAA.
I think also, let me mention that because Australia and the U.S. have similar legal traditions and strong independent judicial systems that it was appropriate here not to include an investor-state provision. And likewise, if I might say so, on the capital controls provisions, we have raised a number of questions about these provisions in other contexts. Here it would work, but if applied elsewhere, it would not.
I want to say just a couple of words about what eventually was left out, because I think it's important to note. I had concerns and they were shared by a lot of my colleagues about USTR's efforts to use the Australia FTA to undermine Australia's universal pharmaceutical benefits structure for its citizens, and indirectly through this FTA to make new policy in the U.S. on various pharmaceutical related issues. The most egregious example of this was a provision that I think appeared in the FTA on the day negotiations were concluded, which indirectly were directed at the re-importation debate in the U.S. and I think quite correctly under some pressure, USTR was-decided to strike this provision, but I want to make sure it's understood it was a major mistake to try to put it there in the first place.
But I do believe under the specific circumstances of our relationship of the economic nature of the two countries, that this is an agreement that is worthy of support. I'm glad we're having this hearing. I'm also glad, Mr. Chairman, that we will probe into some of the issues that were raised here. Again, no one should think you just turn on a spigot and everything is win-win. There are some interesting exclusions in this agreement, and there are some interesting modifications without going the full way, and that's true in many of the agricultural sectors. I yield back.
REP. CRANE: And now I'd like to yield to our two distinguished panelists, first Ms. Shiner.
MS. JOSETTE SHEERAN SHINER: Mr. Chairman, Congressman Rangel, members of the committee, I welcome this opportunity to present the United States-Australia Free Trade Agreement and to hear the committee's views on this agreement. I appreciate your leadership of this committee and I'm grateful to the members of the committee and your staff for the guidance and advice you provided to Ambassador Zoellick, to me, to our chief negotiator, Ralph Ives and to our chief agriculture negotiator, Ambassador Johnson, during the process of these negotiations. You are forceful advocates for America's workers, ranchers and farmers, and our close cooperation helps ensure that these deals that we strike are strong win-win agreements for the American people.
As has been pointed out, the United States and Australia do have a special partnership. Our nations' sons and daughters have stood side by side against tyranny in the last century and they do so again today. With this FTA, as Congresswoman Jennifer Dunn pointed out at the recent signing, "We begin a new chapter in twining the tapestry of our mutual history by building on our security alliance of the past with an economic alliance of the future."
This FTA is only the third FTA ever negotiated between two developed countries, the first between Australia and New Zealand, and the second 16 years ago between the United States and Canada. It will eliminate virtually all duties, more than 99 percent, as has been pointed out, on goods that the U.S. exports to Australia on day one. This is the most significant immediate reduction in industrial tariffs ever achieved in a free trade agreement, and will immediately make our manufacturers, from household goods to chemical to machine tools, better able to compete in Australia against competing products from European markets, Japanese, Korean and Chinese traders.
The intellectual-the International Trade Commission estimates that the tariff cuts alone will increase U.S. exports to Australia by about $1.5 billion. In fact, as has been pointed out, the United States enjoys a hefty trade surplus with Australia. We currently export twice as much to Australia as we import from Australia. Our trade surplus on industrial goods alone totaled $6 billion in 2003.
American businesses, farmers, ranchers and workers see exciting new opportunities in this agreement. When I travel around the world, I see Caterpillar's bright yellow tractors and road graders dotting the world's landscapes. Australia is already this American icon's second largest export market. So with the immediate elimination of duties from this FTA, Caterpillar expects its annual sales to Australia to increase to $1 billion annually in the next decade.
It's not just large companies that expect to benefit. You'll hear testimony today about small business and how they expect to benefit. I have one example of a small company in Iowa called Vermeer Manufacturing that makes drills like this drill that lays cable lines. Currently they export these-their machinery to Australia. They expect sales to soar by 10 percent upon enactment of this agreement and it's very critical to them and their 1700 workers. In addition to the benefits for the manufacturing sector, duties on all U.S. farm exports to Australia, literally from soup to nuts, will be eliminated on the first day of the agreement. Ambassador Al Johnson will address these provisions that he oversaw the negotiations of, after I'm finished with these remarks.
Just a brief overview of some other features of this agreement.
In the services area, Australia will provide substantial new market access in the telecommunications, computer services, tourism, energy, construction, education and other sectors. The agreement ensures improved market access for U.S. entertainment industry, including films and television, and provides new rights for life insurance and express delivery providers. Australia and the United States invest deeply in each other's economies as has been pointed out, and the agreement fosters this partnership by virtually exempting most U.S. investments from screening by the Australian government.
This FTA is also the first to include non-tariff market access provisions to address the pharmaceutical sector in which the United States is the leading innovator in the world. This is an agreement for the digital era, with innovative electronic commerce provisions and state of the art intellectual property protections for trademarks, copyrighted works, digital works and patented products. It strengthens penalties for piracy and counterfeiting, providing strong deterrents against these activities. In the area of government procurement, one of the biggest gains that the National Association of Manufacturers is looking toward, U.S. suppliers will be a step ahead of most other countries by obtaining through this FTA non- discriminatory rights to bid on contracts from 80 Australian central government entities.
In this agreement once again, the United States has been able to include the world's highest standards of enforceable labor and environment provisions in any trade agreements. We are the leaders in the nexus between trade and workers rights, and care for the environment, and this agreement is no exception. This is an achievement forged in close partnership with Congress and this committee, and we are grateful for your leadership in this area.
Finally on enforcement, our FTAs are our single most effective tool in setting the world's highest standards for a level playing field in trade. Our FTAs typically contain hundreds of pages of enforceable obligations that are the bedrock of building a fair, level and enforceable playing field in the trade between nations. The U.S. - Australia FTA is no exception to this tradition of excellence.
The nearly 1500 pages of rules and commitments that comprise this FTA will form the basis of our enforcement program. In addition to the specific benefits, it's important to keep in mind that Australia has been one of our closest and most reliable partners in pursuing global trade liberalization. Both of our countries are deeply committed to the Doha development agenda, and our alliance on this FTA will be further-will further fortify our WTO work together. They, as well as us, have the success of the Doha development agenda at the top of their trade agenda, and will continue to pursue that.
I look forward to working with you further on this agreement and to answering any questions you may have, thank you.
REP. CRANE: Thank you, Ms Shiner.
Mr. Johnson.
MR. ALLEN JOHNSON: Thank you, Chairman Thomas, Congressman Rangel-sorry, thank you Chairman Thomas, Congressman Rangel, Chairman Crane and Congressman Levin, members of the committee. While this is-the focus of this FTA obviously deals a lot on the industrial side, I think it is safe to say agriculture was critical to a successful conclusion of this agreement. The challenge with any agreement is striking the best balance possible between U.S. agricultural export interests and import sensitivities. In meeting with many of you, your staffs, the agricultural community personally over the last several months, it was essential that we work through these issues in addressing the most important issues. I think we have found the balance possible in these agreements, providing for fair and equitable treatment, while at the same time creating new opportunities for our farmers, ranchers and agricultural industries.
Briefly let me just go through some of the highlights of these agreements. First let me point out that of course creating good opportunities for other sectors outside of agriculture is also important to agriculture. A strong economy at home is important in maintaining and growing our domestic demand for our agricultural products, and the Australia FTA clearly does that. It also creates new export opportunities. Duties in all farm exports, $700 million in 2003, will be eliminated on the first day of this agreement. An interesting fact is that on a per capita basis, Australia's consumers purchase four and a half dollars of U.S. products for every dollar we spend on their products in the U.S.
U.S. is already the second largest supplier to Australia's $56 billion food market, and our position will continue to-we will enjoy a preferential treatment in this market due to this agreement. Australia's tariffs are-can be between five-as high as 30 percent in some cases, and those again will be going to zero on the first day. The beneficiaries of this additional access include oil seeds and products, processed foods, fresh and processed fruits such as cherries, grapes, raisins, frozen strawberries, dried plums, tomatoes, fruit juices, vegetables and nuts such as almonds, walnuts, olives, dried onions, potatoes, sweet corn, distilled spirits, soups, and the list goes on.
Of course SPS issues, sanitary and phytosanitary issues have been an important concern to many in our agricultural community and members of congress. We have been working closely on these issues over the last two years in a whole range of areas, and the agreement itself establishes a bilateral committee on SPS matters as well as a technical working group. Some examples of success has been the table great market opening for the first time in 2002, reaching $3.2 million in exports in 2003.
Recently we've seen processed pork products and pork for processing SPS issues addressed, which will result in an estimated market between $30 and 60 million. Of course we still need more work in areas like citrus, stone fruit and apples. At the same time, many things have been achieved that get less notice such as beef, sweet corn seed and some others.
Admittedly, import sensitivities are high with Australia. Beef, as I told some Montana ranchers last week in Louistown, Montana, was an issue that we spent a lot of time discussing with our Australian counterparts what was a reasonable approach. We believe that the long transition of 18 years and during that period allowing manufactured beef, products that are largely complimentary to our high quality products, addresses that concern.
In addition the agreement provides for two years for our beef industry to get back on its feet after the BSE problem of this year, or until 2003 exports are resumed. The grace period of nine years and then back loading of tariff reductions and safe guards during the transition as well as after the transition, we believe addresses a concern. Expanding TRQs that start at 0.17 percent of U.S. production and after 18 years are still only up to 0.8 percent, we think largely addresses the sensitivities around these-the beef industry.
Dairy. The top priority for our dairy industry was maintaining the quota tariffs which we did in this agreement. Yet again, we offered expanding TRQs but at a manageable rate. In the first year they're 0.2 percent of the annual value of U.S. dairy production. These will allow us to operate-make operationally effective our dairy programs, and again the growth rate on these products, those that were more sensitive have slower growth rates than those that were less sensitive, including some that are not produced in large quantities in this country.
Finally, as was pointed out by a few members of the committee already, we did not change the access above the WTO allowed access for Australia as it relates to sugar. This agreement makes still closer the relationship that we have with Australia in pursuing our global objectives in the WTO. We share many common objectives with its export subsidies, elimination, substantial reducing domestic support or increasing market access.
Let me just conclude by saying that this agreement is solid. It achieves the agricultural objectives defined in Congress and the Trade Promotion Authority. More importantly it creates new opportunities for U.S. farmers and ranchers whilst sensibly dealing with our sensitive products. It adds to the message that the U.S. is moving forward in agricultural trade and creates new strength in old partnership in our global agenda. With 6 billion people outside of our country, 96 of global population, it's important that we meet this challenge and take advantage of this opportunity to send this method and advance our overall trade agenda. Thank you.
REP. CRANE: Thank you.
Ms. Shiner, the Australia FTA allows the administration to provide provisional relief and a textiles and apparel safeguard if there are critical circumstances.
I understand this was added at the insistence of the Australians and it's an unfortunate provision that I hope will not be included in future agreements. do you consider the inclusion of this provision to be a precedent for future agreements?
MS. SHINER: Sir, the particular provision that you're referring to would allow, as you said, in critical circumstances, before an investigation, to allow the safeguard to be in place while we conduct the investigation. Typically we're being more aggressive in negotiating the safeguards for our industry to ensure that we can act if there are critical circumstances. We do not see this as a precedent. Again, while we try to-we have a model of what we attempt to do in these agreements, sometimes we need to customize given the circumstances, and this is one area where there was that customization.
REP. CRANE: Mr. Johnson, some sectors of the ag community are indifferent to this agreement at best, and at worst it is argued that the agreement will harm U.S. dairy and beef industries. How do you respond to that criticism?
MR. JOHNSON: Well, again both-I should point out that in both dairy and beef we have a very close working relationship with them, not just as it relates to Australia but in all of our other FTA and other negotiations including the WTO. I think in general it sends the right message that we are moving forward with our agenda, which both of those industries have an interest in sending, in trying to move other FTAs and the WTO forward. And particularly I think in this particular agreement we dealt with their issues very sensitively. As I pointed out in my opening statement, the starting TRQ for beef is 0.17 percent of U.S. beef production, and even after 18 years it's still only about point 8 percent of U.S. beef production. To give you some idea of the value, that's an additional value of about $167 million in an industry that's worth about 25 billion.
On the dairy side, similarly our access starts at about 0.2 percent of the value of U.S. dairy production. Growth rates for each of the commodities is moderate that we're sensitive to. Again on a tonnage basis, that's equal to about 0.03 percent of total milk production. So we think that we've dealt with the sensitivities while moving the agendas forward for both of these commodities.
REP. CRANE: Thank you, Mr. Johnson.
Mr. Levin.
MR. LEVIN: You know I smile a bit at your language, how you describe your approach in agriculture. You talk about sensitivity. You talk about customizing. I wish there were similar sensitivity in other areas. I think it does show that these trade issues have some complexity to them and that the model that simply, as I said earlier, turn on the spigot, really doesn't work. I support the agreement. I think the impact on dairy will be minimal. You mentioned in another area 167 million out of 20-plus billion, it would be nice when you looked at other areas if we would take into account impact and not simply say trade is win-win.
I think we also should acknowledge where we're proceeding cautiously like on SPS. You essentially have a working group, using WTO language, or a committee, whatever you want to say it, there's no guarantee of results. There's no guarantee. And this is an area where we are very much short changed, I think, in Australia and in Europe, and it's been difficult to move ahead, or at least we haven't moved very far ahead either with Europe, and I think we should acknowledge that in this agreement we don't move ahead very clearly.
And on apparel and textile where you use the word 'customize', Ambassador, I support this provision. I don't care who raised it, and it isn't the first such provision. We were able to support in the China agreement a safeguard protection for apparel and textile and for other areas, and without it I think it would have been impossible and should have been impossible to pass China TNTR. So I do think it's useful to listen closely to the terms you use and to acknowledge the advantages but also the limitations in this agreement, and as you say the need to look at particular circumstances.
So I don't really have any questions, I just wanted to say a word about core labor standards. I don't think we'll deter you Ambassador Zoellick from continuing to use this language about the world higher standard and about American leadership in terms of core labor standards. But for many of us that is-that doesn't hold true. There are real differences within this committee and within this Congress in terms of the standard that you use. Enforce your own laws may be a high standard where there are high laws and enforcement, but where there are not such standards or laws and enforcement, it's not the highest standard, it's the lowest standard, and essentially encourages a race to lower and lower standards.
By the way, you worded this somewhat carefully but the standard enforce your own law is weaker than our GSP laws. And the enforcement provisions are far weaker than under GSP. So for the administration to continue to say that they have a high standard in enforceable labor and environmental provisions is really untrue. The Jordan agreement-because Jordan has them in their laws and enforce them, and that was the clear reference in that agreement. This agreement doesn't really meet that standard as I see it.
But anyway, we'll talk about these issues some other day, but I think it's important to consider them because we're going to be taking other agreements up which involve very, very different circumstances than Australia. I'm hopeful that we pass Australia, because of the specific content of it, despite its limitations and I hope, by the way, that it will stand on its own and there won't be an effort to combine this with any other agreement. Thank you.
REP. CRANE: Thank you.
Miss Johnson.
REP. JOHNSON: Thank you and welcome to both of you. Ambassador Shiner, could you describe the "advances" in this agreement in regard to pharmaceuticals in more detail? I'd like to get a better understanding of what access it provides to advanced U.S. pharmaceuticals that may not agree to a government price being attached to them, and what advances it makes in compelling the Australian government to include a greater recognition of the cost of research of development in the reference price.
MS. SHINER: Thank you. Australia has a system of pharmaceutical purchasing that is fairly similar to a system used throughout Europe and other areas of the world, Japan and other places in Asia, and we have made an effort in recognition of the fact that the United States is now the leading innovator in developing life saving medicines. We have the leading firms in America, it employs many Americans, it is one of our leading exports to the world, one we're very proud of, because it's important to the quality of life and the benefit that it brings to countries throughout the world. In that recognition our pharmaceuticals really are the back bone of many of these health care systems around the world.
What happens is when you have a government setting a price for these pharmaceuticals, typically it may represent 90 percent of the market as it does in Australia, and frankly what we were looking for is to ensure that in setting those prices, that the cost of innovation, not just the cost of producing the innovations, is recognized in that process, or at least that the representations could be made to that. So this is isn't, you know, it is only our goal to be able to have the opportunity to make our case.
Governments have the right and will develop health care systems that will allow low cost access to medicines and health care for their citizens. This is a goal we know of all governments, to ensure that. But we want the chance to be able to ensure that the system is transparent, that we understand how the prices are being set, we understand when we can make a case to list our new medicines. We had a situation in China recently, for example, where they had not updated their formularies since 1998. There's no new medicines listed on there for years, and there's been a number of new developments there. I think in this agreement we were able to affirm our support and agreement as nations for the importance of innovation. We were able to --
REP. JOHNSON: Excuse me, explicitly, if one of our medicines in not listed on their-as available under their government system with a reference price, under this agreement will we have the right to sell it in the market?
MS. SHINER: We currently have the right to sell it in the market, and we can sell any medicines there.
The key is for-to get government reimbursement which is key, because it helps citizens to get access to the medicine, that is, you know, a key part of being able to market the medicines. But currently we have the right on the private market there, through private health care, it's just not a very developed private market.
REP. JOHNSON: But there was no willingness on their part to allow whatever they would reimburse for a comparable medicine to be applied toward a different medicine with the consumer paying the difference between what the government would pay and what the pharmaceutical of their choice would charge?
MS. SHINER: Congresswoman, it's not too different than our private health care system where our managed care programs will decide, you know, a priority medicines or make some decisions. The challenge we face is when there's just one system really that represents all the market, it becomes difficult if a medicine finds that it's not --
REP. JOHNSON: Well even in our managed care systems we're really pressing them hard to say that this is their medicine of choice and they'll cover 100 percent, but that they'll let you use that same amount of money toward another medicine not on that formulary but for the same purpose, and I think that's the only hope of making much progress in these countries, is to move in that direction. But I am very disappointed that we haven't made greater progress. I think it is wrong for Europe, Australia, Asia not to be willing to shoulder some of the costs of advancement from which their people benefit. Thank you, my time has expired.
MS. SHINER: Thank you.
REP. CRANE: Thank you.
Miss Tubbs Jones.
REP. TUBBS JONES: Thank you, Mr. Chairman. I didn't realize I was coming up so soon.
Good morning, Honorable Shiner, Honorable Johnson. I come from the great state of Ohio, a great manufacturing state, though we're touching hell right now as a result of the losses that we have. Domestic manufacturing is important to Ohio, and while I'm generally happy that immediately after the Australian Free Trade Agreement is signed 99 percent of all Australia tariffs on U.S. manufactured products will be eliminated, at the same time 97 percent of all U.S. tariffs on Australian manufactured products will also be eliminated. Are there any concerns that U.S. consumers will now buy Australian manufactured goods instead of U.S. manufactured goods since almost all tariffs will be eliminated? The second follow up is are there any studies that have been done on this issue?
MS. SHINER: In fact we have an ITC study that is excellent and comprehensive and looks at the impact of this agreement which we can get to you further details and specifically look at the industries of concern in your district. I will say this, we have seen through recent history Austrians like American products. They buy American products. That's why we have such a surplus in this, and really the competition is in that market place between Japanese manufactured goods, Korean, Chinese and us. So this will really help us get a competitive edge up on this.
Australia is one of the biggest investors in the United States, it's the eighth largest investor here, and Australian firms in the U.S. already employ, I think it's like 85,000 Americans. Our exports to Australia support about 150,000 jobs here. So we expect that to increase. I will get back to you on whether we have specific offensive or defensive concerns and we can discuss those further if that suits you.
REP. TUBBS JONES: Honorable Mr. Johnson, my question with regard to the exclusion of sugar from the Australian Free Trade Agreement, you might have answered this already in my-I was kind of going back and forth. Mr. Franklin on behalf of the Grocery Manufacturers of America, the exclusion of sugar from the Free Trade Agreement may have compromised the overall benefits of the agreement to the processed food sector. However it also concerns me that the exclusion of sugar may set a bad precedent that could weaken the objective of achieving comprehensive trade agreements in the future. Could you speak to that issue? If you have done it already I apologize for the repetition, but maybe somebody else didn't hear what you said.
MR. JOHNSON: First of all, not to worry. I haven't answered that question. Let me just answer it in two parts. First of all when it comes to our agricultural exports again they're all duty free on the first day to Australia, so that includes our processed foods. In terms of the-needless to say in this negotiation from an agricultural perspective this is a very sensitive negotiation.
Our agricultural imports from Australia are about 2.1 billion, our exports are about 700 million. We had several concerns raised by the sugar industry, by the dairy industry, by the beef industries, in particular some horticultural industries, and we tried to deal with each one of them in their own way sensitively in order to make sure still that we were getting the high quality agreement that Ambassador Shiner had described. So in that sense I think that we've accomplished that objective.
Now from the precedent question that you asked, each one of these negotiations will have their own dynamics. I think it's safe to say that the dynamics that exist in Australia are somewhat unique. It's a developed country, it's one where we don't have as much agricultural export interests as we do import sensitivities in many sectors. As we look forward at these other agreements it's clear that there's a lot of agricultural export interest, and in order to maintain an ambitious result we're going to have to have everything on the table.
When it comes to the WTO in a broader sense, the global agreement that we're all negotiating, the sugar industry has been supportive of trying to get a comprehensive global agreement to address the trade distorting practices in the world and so I think our agricultural community is largely united in that objective, including the sugar industry.
REP. TUBBS JONES: I'm smiling because I'm telling I'm almost out of time. I just want to associate myself with the comments of my colleagues with regard to labor standards. It is such an important issue. I hope that as we go forward with these various trade agreements we will pay close attention to that. Our country is supposed to be the country that sets the standards and we don't allow them to go under-that we stay at a high level in the process and language becomes important. Mr. Chairman, I probably have 15 seconds left and I'm going to yield them back to you.
REP. CRANE: Thank you.
And our next questioner is Mr. Houghton.
REP. AMO HOUGHTON (R-NY): Thanks very much. I'd like to follow up on Mrs. Johnson's question about the pharmaceuticals. Are you saying in effect that the only restrictions you have, or the only discipline you have in the cost of innovation being reflected in the price wording, there's no arithmetic, there's no guidelines, there's no nothing, because without that, you know, you can do almost anything. Having been in the research business I know how important this thing is.
MS. SHINER: Sir, I now spend a tremendous amount of my time looking at how we can ensure that American innovation really has its place in the world, and one of the areas that we've done a tremendous amount of work is in the life saving medicine, so I really agree with you. How you price that, how you communicate what goes into the next medicine that saves lives is very critical, and how we ensure that we can continue to develop that innovation. I just took a trip up to Rahway, New Jersey to meet with some of the developers and scientists at the Merck Company, and it's amazing when you hear about the next generation of medicines that are being produced there, but you look at the investment that has to go into that. So whether it's frankly our films or our music or our medicines where, you know, the cost of producing the DVD or the CD or the actual chemical compound is not where --
REP. HOUGHTON: Madam Ambassador, I understand that, and you've done a wonderful job on this, but specifically if you have a state controlled pricing system and you don't have any sort of discipline in terms of the country that's exporting, this thing is just a matter of words. It's a concept.
We ought to reflect it but we don't know how to do it. So I'm just trying to tie it down a little bit.
MS. SHINER: No, sir, I appreciate that, and it's why Congress has instructed us to study the pricing systems and the listing systems of all the OECD countries, the ones that have the biggest programs, and to really develop a strategy for approaching this issue so that we can assure innovation is assured. So as you know we've appointed our first assistant USTR for pharmaceutical policy. This is the first team in the world that will develop the expertise about these systems to ensure that we can make the case for innovation with our trading partners. We already are and we plan to do so even more.
REP. HOUGHTON: But how do we get back at this, I mean we'll approve this thing, we'll move along and everybody will feel pretty good about it, but how do we get back at this, because this is an absolutely quintessential issue.
MS. SHINER: Sir, we have established a working group with Australia which we also are seeking and have done, for example, with Japan, and it allows us to communicate and make some progress on some of the core issues like the ability to make our case and to be heard. So I think that our pharmaceutical companies feel that we have been able to achieve some significant improvements here in the system, and so we will continue to look at how to approach this issue so that we can assure-we are with you in ensuring that innovation will be protected and that we can ensure that the rest of the world is contributing to that critical part of this industry.
REP. HOUGHTON: Well so far innovation has not been protected and we all know that, so the question is how to put some sort of a bond on this thing. Let me just ask you one other question. In terms of the agricultural tariffs, these are reciprocal, I assume, when 67 percent of U.S. tariffs on agricultural products are immediately reduced. I assume this is the same way the other way, is that right?
MR. JOHNSON: Well in fact it's 100 percent. 100 percent of our agricultural products will be zero on the first day.
REP. HOUGHTON: Okay, and what are the key areas that you say will take 4, 10 or 18 years to resolve?
MR. JOHNSON: You're talking about agricultural production?
REP. HOUGHTON: Yes.
MR. JOHNSON: Well in terms of products coming in, as we were describing earlier, there are some high sensitivities as it relates to dairy, beef, sugar. In addition to that there's several horticultural products that we were sensitive on and those again have taken the longest --
REP. HOUGHTON: Well as far as sugar is concerned, which is a big issue, would that be in one of those yearly classifications, 4, 10 or 18 years?
MR. JOHNSON: No, in sugar's case what we basically did was maintain their current access at the WTO-allowed level that they currently have and haven't expanded that.
REP. HOUGHTON: Okay. Thanks, Mr. Chairman, thank you very much.
REP. CRANE: Mr. Lewis. No questions.
Mr. McCrery.
REP. JIM McCRERY (R-LA): Thank you, Mr. Chairman. I'll be brief.
I just want to commend the USTR for including the question of pharmaceutical pricing in your talks with Australia. I know it's not a subject that USTR is accustomed to dealing with, and it's not something that's traditionally in the trade arena, but unfortunately those of us who have studied healthcare and pharmaceuticals for some time have reached the conclusion that it is necessary for us to include this question in our trade talks, not only with Australia but with the entire industrialized world.
If we don't find some way to change the thinking of governments of industrialized countries on this question, I'm afraid it won't be very long until consumers in this country demand and perhaps rightly so, that our government take similar action with regard to pricing. In my view that would be a terrible development for innovation and for continuation of the development of life saving and life extending drugs. So I commend you for broaching this subject and I encourage you to continue those efforts with other nations.
I want to get back for just a moment to the question of manufacturing and outsourcing of jobs. Ms Tubbs Jones broached that question which is somewhat sensitive these days politically. Do you think this agreement will cause more outsourcing of jobs to Australia?
MS. SHINER: Thank you, and first if I could thank you for your leadership on the issue of affordable access to medicines, protecting innovation, we really appreciate very much the consultations we've had and your leadership on this issue, and it's very much appreciated because we're all facing this challenge together. We really pledge to continue to work with this committee to ensure that we are able to address this issue in a way that really benefits the American people and again an industry that we're very proud of in the world.
On the issue of outsourcing, the dynamic of this agreement is really one that I think is a real win for the American worker. Australia is one of the biggest investors into the United States and Australian investment-businesses in the United States employ almost 100,000 U.S. workers right now. We expect that with the closer partnership that will increase. We-I will look further into the issue of the dynamic of the-whether or not there's real dynamic of outsourcing. It hasn't been a character really of the relationship and again it's just one where again Australians have loved American products. This is going to provide us a more competitive edge there, and will allow with customs facilitation our goods to get in there quicker. But it is worth taking a look at and I work closely with the Congresswoman on other questions she's had on this. So we'll look further to see if there's any concerns that we should be particularly aware of in that area.
REP. McCRERY: Well you've mentioned a couple of times now Australian investment in the United States, and that this agreement should encourage additional investment in the United States. That's really the reverse of outsourcing, isn't it? That's in sourcing. And what happens when other countries in source to this country? We create jobs here. So I'm glad that you are mentioning that as a benefit of this agreement. Another benefit, wouldn't it be, that American companies that purchase inputs for their manufacturing from Australia will see their costs of doing business reduced because those input costs will be reduced when the tariffs from this country are released?
MS. SHINER: Yes, sir, and I've been impressed-the ITC report which are always excellent, we really have an excellent component to our trade agreements with the ITC and the reports they've done, and we've put a tremendous burden on them. But just reading through about this agreement, it is remarkable the areas of complementariness and the benefits that I believe will come in a critical area that has been a major concern for all of you, which is our manufacturing sector. We are the most innovative country in the world in manufactured goods. Our small and medium manufacturers really, when they are given a level playing field, are able to compete, and this I think is an agreement that they've strongly supported because they see that the nature of the relationship is one that is a win.
In addition, just being able to compete in the Asia Pacific region, Australia and the United States share a common cause in that. And so being able to form a common alliance on the economic front where we can find mutual benefits in the ASEAN region and North East Asia is one that I think is another benefit that we'll begin to see of this.
REP. McCRERY: Thank you.
REP. CRANE: And now I'd like to yield five minutes to our distinguished chair of the Aussie caucus, Ms. Dunn.
REP. JENNIFER DUNN (R-WA): Thank you very much, Mr. Chairman. I'm sorry I was missing for my question period.
As all of you appreciate, there are problems that crop up when a member of Congress is about 3000 miles away from her home and a pipe bursts underneath her garage floor and the whole thing has to be torn up. So I am back and I appreciate-and I want to congratulate you for the excellent work you've done in negotiating this agreement, moving it along briskly. I also want to pay compliments to our colleague Cal Dooley, who has been my co-chair of the Australian caucus and has consistently been there with good, correct information and conversations with members of Congress who need to know just a little bit more about some area, and also has given us a particularly important view into the sense of support that exists on this agreement from both sides in the United States Congress. He's been invaluable.
It is an important agreement from my perspective because our state of Washington is the number one trader with Australia. We sell Boeing aircraft. We sell software. Boeing aircrafts comprise 95 percent of the Qantas Airline fleet for example, and with the reduction of tariff we certainly look for increased value being available there.
This agreement does, I think, in contrast to what one of your earlier questioners was saying, create a lot of benefits for the United States, certainly starting with the immediate $2 billion of greater sales to the manufacturing sector, and many of us are concerned about that. It is a fact of free and global trade that manufacturing goes to the area that can produce it most efficiently. And so we're seeing some, not as great as some people would like to think in hyperbolic statements, a minimum of manufacturing receives that certainly this allows our manufacturing sector to benefit hugely to the tune of $2 billion.
I think what should be said on behalf of Australia in addition is that this economic agreement continues our friendship and brings it in line with the security of partnership that we have had and shared for many, many years with the nation of Australia. Their people were on the shores in Normandy too, and their prime minister was there celebrating. Many of you saw him and heard his speeches on television, and they have consistently been with us in security arrangements through the decades. They are our very good friend and ally and we do share a common culture, a common rule of law, a common, in many cases, approach to how we do business.
I am interested in one sector and I know that you can answer my question on-that was brought up by Congressman Levin on SPS, you didn't get a chance to answer that, and I would like it if you would please bring us up to date on how we are resolving the issues that are so critical to our farmers, particularly those who are in the eastern side of my state who raise stone fruit and also apples. Could you tell us where that issue stands now, please?
MR. JOHNSON: Sure, let me just take you back because I think it will make you more comfortable with the answer if I describe the process, which is we've been working for over two years with Australia in trying to strengthen our relationship and dialogue on SPS issues. The government in Australia has improved the transparency of its regulatory process, and we have a better understanding of how they're addressing these issues. We've worked with them in identifying the different list of products and as they're moving through the chain, and some encouragement is what we've already seen happen with grapes, we've already seen happen with pork, we've already seen happen with beef, we've already seen happen with moving on board with citrus.
When it comes to stone fruit in particular, we've seen that Australia has agreed to initiate an IRS process in July, next month, and we're focusing on-in apples, getting an expedited risk assessment for apples as they are completing an apples import risk assessment-final risk assessment on New Zealand, which we'll be commenting on ourselves. So the idea being that as they're opening that market we're going to be able to take advantage of what they're already doing in New Zealand and trying to expedite that process for ourselves.
So I think the one point that I would make to Congressman Levin was that he made the comment that there's no assured results. Well our regulatory agencies feel similarly to Australian regulatory agencies which is decisions seem to be based on science. They're not going to pre-judge the outcome, but they are committed to a science based decision process. Sometimes we think they're too conservative in their approach, admittedly, but we now have a working group, and technical groups for working through these issues as they come up. We have some evidence of success.
MR. CRANE: Mr. Becerra.
REP. XAVIER BECERRA (D-CA): Thank you, Mr. Chairman, and ambassadors, thank you very much for being here.
Let me see if I can try to get through about three questions. Let me start with a technical one that perhaps you can answer in writing later on. It has to do with the copyright section of the FTA with Australia-by the way, first, congratulations on the work. It was done in a way that surprisingly rapid. Sometimes these things can get bogged down, so congratulations to you and to the-our Australian counterparts for being willing to negotiate in a rapid fashion.
In the copyright section of the FTA, there's a provision providing for the transfer of economic rights in section 17.4 and specifically paragraph 6. You don't need to look at it right now, but what I'd like to do is see if you can-and maybe you already off the top of your head know this, but I'd like to know if you can give me a sense of how that particular provision has been applied or interpreted by USTR. It's a provision that exists in NAFTA, it was in the Chile and Singapore FTAs, and it deals again with the whole issue of transfer of these economic rights.
The question I would have for you is do we have any history now that we can use based on the previous FTAs that include this, or is there a particular interpretation that USTR has with regard to the section and to the question of whether it includes the transfer of equitable remuneration, which is another way of saying royalties. That's a question that's arisen-I've been asked about it, and I would love to know what your response is. If there's a history now to it from the previous FTAs or if you can give us an interpretation. So, Ambassador Shiner, I'll leave it at that unless you have something you can say on it. If you have something you can say on it, great, otherwise I'll move on.
MS. SHINER: Well, I first want to thank you because we've worked very closely in ensuring that we get increased market access for films and you're a real advocate in that, and I do want to assure you that we feel we work very closely with the MPA and others to ensure that we have a gold plated intellectual property section here. We'll get back to you on the details of that, but also we were able to achieve, as you know, some increased market access for our films in Australia, that is significant, and especially dealing with some of the cultural restrictions that had been problematic. So we look forward to getting back to you on that and ensuring that we're taking care of any concerns you might have on that.
REP. BECERRA: Thank you, Ambassador. Let me ask you, on IPR, and again I think that USTR has done a tremendous job of ensuring that what we produce here, the intellectual minds that have created so many different things, that those rights are protected, and we want to thank you for that work in making sure that piracy is something that we fight tooth and nail. In the provisions of the FTA with Australia, we negotiated some pretty tight provisions, extremely strong enforcement provisions, there are requirements not permissive terms in the agreement, and that's all well and good, and I'm wondering, Australia is not one of the countries we list on that list of countries that is a huge violator of our intellectual property. It's not one of the major pirates in the world that's abusing of our-whether it's our software or movies or music, but we went ahead and we have an agreement here that would be as good if not better than previous free trade agreements.
I'm wondering if you can give me a comparison-Australia also has a great record when it comes to labor issues. Its workplace protections, the fact its minimum wage is higher than the U.S. minimum wage, yet our provisions in this free trade agreement continue with that old song of enforce your own laws. Well perhaps in Australia that's okay, but if we take a look at what we've done with Australia compared to what the USTR did with regard to Central America where we know that there is an enforcement of many of their labor laws and some of their labor laws we know are not good, there was nothing different done when it came to labor.
When it came to intellectual property we fought tooth and nail to get the same, very rigorous protection.
So can you explain why we are not treating the various issues in similar ways? Fighting hard as we should for intellectual property, but seem to be not fighting hard for our working men and women here to make sure there's not a competitive advantage in these other countries based on unfair labor standards.
MS. SHINER: Sir, thank you, let me make an attempt at addressing those. First of all, I do believe that fighting for intellectual property protections around the world is fighting for our workers, because this is really at the heart and soul of what America does now, is innovate.
REP. BECERRA: I agree.
MS. SHINER: I think, just to really recognize what our country has done when in the '90s we were able to get global rules protecting intellectual property, and the United States was strongly protecting those in the World Trade Organization, Australia has been an important partner of that. We agree we have similar values when it comes to this and there is no disagreement on these issues. The real trick now that we face that these laws exist is effective deterrence. How do we ensure that it-that we can enforce those rules in a way that puts the counterfeiters and the pirates out of business around the world. And so I think that you will see that the United States and Australia have been strong partners in this.
But really we use these FTAs as an opportunity to upgrade and update intellectual property rules to fit the digital era. So for example, as we know, we have a major problem, the world has a major problem with our songs and films being downloaded and there not being in place laws from the '90s, because this didn't exist as a problem before. So it's not so much people pirating discs, I mean that is a huge problem, but we're going to move more and more into where we have to address the fact that through technical means people can get access to our innovations and not pay for them. That isn't right. It's wrong.
And so in a way the FTAs are our way of being able to upgrade laws around the world to make the case for digital protections and to bring hopefully our FTAs in compliance with our own millennium digital copyright rules. So we feel it's important and, you know, with Australia, we're both facing similar challenges which is more, you know, computer downloads and others, it's more the new era of counterfeiting and piracy rather than the traditional means that we're seeing and fighting so much in China we worked very closely with this committee to address.
REP. BECERRA: I agree with everything you've said in terms of trying to upgrade the laws. I just think we missed the boat in not trying to upgrade the labor laws like Central America.
MS. SHINER: Well I will just say that Australia is a leader in labor standards and laws and conditions around the world, and what we really found ourselves sharing about is how we could together in the region to upgrade the laws of those in the region, how we could be partners in this cause together, because it was not our assessment that we needed them changing or our labor laws or they-we needed to change theirs. Just as we would not want them telling us precisely how to do business and labor and it's not a permission that the Congress has given us as trade negotiators to change our laws. They also felt the same way, they have very high standards. But I do think we have formed a partnership that will be important in looking at labor protections, labor safety in the region, and there's a lot of work to be done, and I think we have a new partnership in that area.