House Ways and Means Committee - Implementation of U.S.-Australia Free Trade Agreement - Part II

REP. CRANE: Mr. Shaw.

REP. E. CLAY SHAW JR. (R-FL): Thank you, Mr. Chairman.

First of all I'd like to, as many of the other members have pointed out, I think the United States doesn't have any better friend in the world than Australia and I think that's been proven time and time again at confrontation after confrontation, and I would guess that if you were to do a poll of Americans I think if you're favorable/unfavorable rating were of Australia that they would be number one in the world among Americans. We like the way they think, we like their friendliness, we like the way they talk, but this is business and we've got to get down to business, and that's very important that we be sure that we take care of the industries that we represent.

I want to address for just a moment the phytosanitary issues regarding fresh fruit and vegetables and most specifically citrus. Mr. Johnson hit upon briefly the question, he mentioned the word citrus in responding to Jennifer Dunn's question regarding other types of fruit. The Indian River Citrus League in Florida has raised concern that they think because of the phytosanitary issues that they're being discriminated against as to the exportation of the fruit itself.

As I understand it, I think that everything is all right as far as the juice is concerned. I'm not positive about that, but I don't think there's any problem there. But as far as the actual exportation of the fruit itself there is a problem.

Phytosanitary is just regarding safety issues as to whether or not the safe-the fruit would be safe for consumption, and I've never heard of any issue being raised anywhere with regard to the safety of Florida citrus as far as consumption is concerned. How does this issues-how does this trade agreement face that question? Does it give our citrus people some relief? And will there be-can they look for a better day with this agreement than they have under the restrictions which they have now? And I would address that to either one of you, I think Ambassador Johnson probably is-it's more in his line than anybody else.

MR. JOHNSON: First of all I have to chuckle in terms of I agree with your assessment of U.S. citizens' opinions of Australia and Australia's opinions of the U.S. I think it's safe to say for both of us there is several weeks where we didn't like a lot of what they thought and they didn't like a lot of what we thought, but it shows how we can work together as partners through very difficult issues and come up with an agreement that is very good for both of us, and reaffirms the relationship and how close it is.

As it relates to Florida citrus in general, the agreement itself is not designed to decide sanitary and phytosanitary issues. So-but it does decide that we have duty free access into Australia. What we did do is we used the focus of the agreement to focus on several SPS that had been outstanding, some of which for a long, long time, in order to get them decided and determined on a science-based basis. Florida citrus actually we think is going to be one of those success stories in that process. We're expecting an import risk assessment that's going to allow for the importation of Florida citrus. We're expecting that soon.

REP. SHAW: So the answer to my question is that you think that the citrus people will be benefited by this agreement under the questions of what is and is not a sanitary issue?

MR. JOHNSON: Yes. Again, we're going to have to be very careful about this, because our regulators are very jealous about that we don't negotiate the sanitary and phytosanitary barriers. But I think our focus from this negotiation has got them to focus and realize some of the things you just said, which is that this import risk assessment will determine and allow for the exportation of our Florida citrus. We're expecting that sometime soon.

REP. SHAW: We'll keep an eye on it. Thank you very much.

MR. JOHNSON: Yes. So will we.

REP. SHAW: And I yield back to the chairman.

REP. CRANE: Thank you.

Mr. Foley.

REP. MARK FOLEY (R-FL): Thank you very much, Mr. Chairman. And I too would like to extend my thanks and appreciation for the provisions on intellectual property, both in music, movies and pharmaceuticals.

I also would like to ask a question relative to homeland security, since as we embark on additional trade missions, we will see a greater influx of containers.

During the negotiations, what specifically do we ask of partner nations about monitoring the things that are going in cargo holds, the security that they are providing? Are those issues as firmly negotiated as some of these other aspects of trade?

MS. SHINER: Sir, as you know, this is an issue that has recently come to our national focus and attention, is really monitoring the contents of these containers and the Container Security Initiative. I've personally had the opportunity to meet with Customs officials in the nations that we trade with to look at how this process this works, because obviously it affects our commercial trade also and how easily that can be facilitated. This has not been previously a major focus of trade agreements. We are thinking at-in particular we launched free trade agreements with Thailand and we've had kind of a model program going with the ports in Thailand for the Container Security Initiative, and whether or not there would be a way in these agreements to help facilitate that kind of aspect of trade and whether it would be a way to help address our mutual concerns and interests.

So I look forward to getting your thoughts on this because I think it might be one area that we could find a really good blend between our national interests and our commercial interests and how we ensure that our ports not only move our goods quickly but safely and create a safer world for the United States and our partners.

REP. FOLEY: We just returned from a weekend in Guatemala and Colombia, meeting with the presidents of both countries. And trade obviously was a key part of the discussion, CAFTA specifically. And when we broached the subject of the security piece, that seems to be given short shrift, like we can't afford it, we don't have enough people. So that's why I want to dramatically emphasize. Because the United States has done a good job securing airports, passengers boarding, frisk searched. You almost need a robe when you go on to get through the-taking your shoes off, belts.

When it comes to the trains and the ports, I sense there's a vulnerability. And so I would hope that becomes one of the key provisions of, if we're going to embark on this trading relationship more aggressively, we absolutely must put in place a mutual effort. Our people, their people working together at ports on both ends to ensure safety, contraband from drugs, human smuggling, and regrettably, a potential for dirty bombs and things of that nature.

MS. SHINER: And so just-I completely agree with you. And, again, I think this would be an interesting conversation for us to continue. One thing we have found, to our surprise, is that as we increase security, which requires a technological overhaul of our container movement around the world, we thought it would flummox trade, and when we really get these systems in place, it speeds it up, because we're able to weed out the bad actors and the bad players in a much more efficient manner, and able to inspect.

So, for example, at the port in Hong Kong, which I spent a couple of days going through, they now have the technical means to scan these containers much more quickly. When we can upgrade the ports-and obviously countries like Guatemala are going to face the biggest challenges because they don't have the resources. But as we do it at the countries that can afford this, we're setting a model, I think, where security does not have to flummox trade but actually can facilitate it if we approach it right.

So I've worked closely with Homeland Security on this, with our Customs Department, with-State Department is very much on this. I know it's a key concern for all of Secretary Ridge and Powell and Ambassador Zoellick and Secretary Evans. So we look forward to your thoughts on it more.

REP. FOLEY: Mr. Johnson, relative to sugar, I obviously want to thank you for excluding it in this negotiation. I'd like to know your thoughts, though, what is the determinant when you decide to leave something like that off an agreement? As we're discussing CAFTA, sensitive to my district, Florida, sugar; oranges, Brazil. You know my issues. At what point do you make the decision, it's in or it's out. How do you reconcile those?

MR. JOHNSON: Well, I think it's safe to say that in the Australian-we were talking about this just a little earlier. In the Australian agreement, from U.S. agricultural perspective, there is some offensive interests. But there's far more defensive interests. And so in many ways in order to create a balance that encouraged us to get the market access that we needed for our agricultural products, we were able to achieve that without having sugar as part of that package.

I think in the other negotiation that you mentioned and other negotiations that we'll face, our agricultural export interests are broad and deep, and we're very sensitive about not having other countries taking products off the table, in which case then we included sugar and sugar is part of these other negotiations. But even then, as you know, because we've talked about this, we try to deal with this very sensitively in terms of the out-of-quota tariff reductions, in terms of the quantities that are allowed in, in terms of how we deal with substitution and other issues that are more technical in nature.

So it's an issue that-it's not just an issue, in other words, of including it or not including it. It's also an issue of how you deal with it when it is included, and I think we've got a record of trying to deal with it very sensitively even when it is included.

REP. FOLEY: Thank you.

Thank you.

REP. CRANE: Thank you.

Mr. English.

REP. PHIL ENGLISH (R-PA): Thank you, Mr. Chairman.

Ambassador Shiner, I wanted to clarify some things because I honestly have been rather confused by some of the points being made by a number of the members of the committee on the whole issue of core labor standards. My understanding is that the wave scales in Australia are actually higher than those in most parts of the United States. Is that not true?

MS. SHINER: Sir, I do not know the specifics of that. I do know that they certainly lead the world in labor issues, and that may be one of them.

REP. ENGLISH: So you are not sure but your impression is that when it comes to the strength of their labor laws, the right to strike, the basic rights that we accord workers and the cost of doing so. Australia is at least on a par with the United States?

MS. SHINER: Yes, sir.

REP. ENGLISH: And I wonder if the Office of the U.S. Trade Representative could submit to the committee for our use a specific side-by-side comparison, if you have one, of those points. I think it would be enormously useful. One of the things I have had difficulty understanding is the abstract argument used by some in Congress that we must have a cookie-cutter approach to core labor standards that requires us to negotiate the same thing with every trade agreement that we seek. In the case of Australia, I do not understand why anyone would argue, depending on what you bring forward for us, why we would be required to have, as a part of this trade agreement, core labor standards.

Certainly what-to me it smacks of unilateralism, which is not particularly useful in reaching out to other countries. But beyond that it seems to me to be a distraction from some of the real objectives that we have in this agreement. Now, I want to move over and specifically talk about manufacturing. Do you have any studies that would allow us to interpret how manufacturing is likely to benefit in aggregate terms by access to the Australian market? Are there any economic projections of what the net effect would be for our manufacturing sector of this FTA?

MS. SHINER: Sir, the ITC study deals with it sector by sector and in aggregate, and does predict real benefits for our manufacturing sector, and we could certainly pull out the highlights of that for you. But we expect-there's a couple of elements of that benefit. One is the immediate reduction in tariffs. For example, for our chemical manufacturers, they'll have a $41 million immediate benefit. For our auto parts and auto manufacturers, $130 million immediate benefit.

We export, as you know, four times as much in auto and auto parts in Australia than they export to us, so that's a real win for us.

In machinery, $135 million immediate benefit in reduction of tariffs, plus the access to government procurement contracts is going to be key. So the ITC has looked at all these factors and made an assessment of that, and it predicts real dollar benefits for Americans, and we can get you the details of that.

REP. ENGLISH: That would be most helpful. And can you tell us, based on the most recent figures, what the current balance of trade is between the United States and Australia?

MS. SHINER: Sir, as of last year we had a $9 billion surplus estimate with Australia. Six billion of that was in our manufactured goods, which represent 95 percent of our trade with Australia, our exports.

REP. ENGLISH: So in terms of an overall candidate for an FTA, and particularly a candidate for an FTA in which manufacturing would be particularly benefited, it's harder to imagine a stronger candidate than Australia. Is that fair to say?

MS. SHINER: That is fair to say, sir, and it's why the National Association of Manufacturers had dubbed this early on the manufacturing FTA, and why many of you have advocated very much for this very FTA, because it brings such clear benefits to a sector in America that we all want to give a real boost to, which are our manufacturers. So you have been a lead in focusing our attention on that. Sir, if I could just also thank you for the attention. You're focusing our attention on China's discriminatory taxation of our semiconductor industry?

REP. ENGLISH: Yes.

MS. SHINER: As you know, we brought the first case with your urging. But these kinds of wins and efforts for our manufacturing community are ones that you continually focus our attention on and we appreciate, and this agreement is a real plus for them.

REP. ENGLISH: Well, thank you, Ambassador.

And thank you, Mr. Chairman, for allowing me the time to complete this line of questioning. I think the administration deserves credit not only for negotiating this FTA in a manner I think very sensitive to the concerns of manufacturing, but also being willing to take on China trade in a very aggressive way. And I thank you, Ambassador, for all of your efforts, particularly in that regard. Thank you, Mr. Chairman.

REP. CRANE: Yes.

Mr. Herger.

REP. WALLY HERGER (R-CA): Thank you, Mr. Chairman.

I want to join in welcoming our ambassadors, Shiner and Johnson, here to our committee, and really the outstanding work that you're doing. I don't think anything is more important to the prosperity of our economy than that of trade, and certainly that's represented in the district that I have the honor of representing in Northern California, which has heavy agriculture in it, which is so dependent on our ability to be able to trade and trade in an inexorable way. So thank you for the work you've done here on this Australian free trade agreement and others.

I do want to emphasize, Ambassador Shiner, another point that's been made by several of those who have questioned before me, and that is on pharmaceuticals. One of the greatest issues we see, one of the biggest issues in our district, is how our drug costs, our miracle drugs are so expensive. And to see the American consumer still paying the vast majority of the research and development costs of these miracle drugs that we have, and our trading partners paying a much lesser degree cannot be emphasized enough how important it is on these trade agreements to ensure that the rest of the world is paying their fair share of our Americans developing these great drugs.

In another area, it's clear that the Chile and Singapore agreements were used as models for this fair trade agreement. But at the same time there are some significant differences. Are there any new provisions in the FTA which are not in the Chile and Singapore, but which should be-are beneficial and should be carried over into the future FTAs.

MS. SHINER: Well, sir, there is an approach we try to take in the FTAs where we keep a very high standard across all sectors, and that certainly holds true here and held true in Chile and Singapore. But you do need to customize based on what the economy represents that you're negotiating with, and also obviously based on their interests. So one of the area that is key I think is in the area of pharmaceuticals, where we had a number of issues regarding transparency in that area, and where we wanted to really set some common principles in that area. So that's one area that would see a different approach or a-because the systems are different than we had in those previous agreements.

Another area was access for United States film and other entertainment products, which we have a very close relationship with Australia culturally. We've benefited from obviously their actors and their products, and they benefit from ours. And this was an area that is not so major in our other agreements but really was critical in this one. So I know it's a major industry in California and it's one that we worked very closely with to ensure that this was customized in this product to bring real benefits to that industry.

REP. HERGER: Thank you very much.

And, Ambassador Johnson, again, thank you for your diligent work, working with our agricultural community. We're looking forward to having you come and visit with us in the middle of August. So, again, thank you for all of your work.

MR. JOHNSON: Thank you.

REP. HERGER: I yield back my time.

REP. ENGLISH: Mr. Pomeroy.

REP. EARL POMEROY (D-ND): I thank the chair. And I want to express at the outset my high regard for the work each of you has done as part of an extraordinary trade team of the administration. I really marvel at your broad grasp of so many issues.

Now, to the Australian Wheat Board. There's some disturbing reports of the Australian Wheat Board selling to Saddam Hussein's Iraq wheat priced double what ours is available for. I don't know if there's been a definitive determination whether there were any kickbacks involved in any of these arrangements. But it really brings to the fore the whole range of issues of how do you trade against an entity that is so completely without transparency, and so unilaterally can control the dimensions of the entire wheat market for Australia.

Now, I note that while the Australian Wheat Board is left intact in this agreement, there's some kind of commitment extracted that they'll work within the WTO to develop export competition disciplines that eliminate restrictions on right of entities to export. Would you please tell me what that means and what kind of cooperation we can expect from Australia as we really try to deal with the unfair international competitive advantages of state trading enterprises? I know that Ambassador Zoellick feels strong about this, and so this will be something that you'll have spent some time on. I just don't understand it at this point.

MR. JOHNSON: Well, first of all, I appreciate your comments. And, as you might recall, when I went to North Dakota after a positive 301 determination a few years ago, we outlined a four-pronged strategy for trying to deal with export state trading enterprises, basically monopolies. And in that, what we identified in the case of Canada was a negotiation which we tried to pursue-a WTO case which we've pursued one part, we've appealed the other parts. We've pursued anti- dumping CVD actions which are currently existing with the industry.

And then the last part is this negotiation in the WTO. And we put forward the exact same points you just did, which is we want to see transparency, we want to see an end to the monopoly control, and we want to see-we don't want to see government underwriting of these state trading enterprises. As you went into the negotiations in Geneva, consistently what we had was us on one side and a few other countries, and on the other side you had Australia, Canada and a few others.

As part of this negotiation, of course, we wanted to see disciplines on the Australian Wheat Board. They wanted to see disciplines on our subsidies and other practices, and we both understand that what we really need is an aggressive, comprehensive agreement in the WTO. Australia has agreed, as part of a comprehensive agreement, that it will address these concerns that you and I share, and that is very important because it then basically creates the situation where Canada is more isolated, as you and I have talked about, and increases our probability of success. And even in the last few weeks and months, we've had a very constructive working relationship with Australia in trying to move forward a comprehensive agreement in the WTO that includes disciplines and STEs.

REP. POMEROY: Thank you.

Thank you, Mr. Chairman. I yield back.

REP. CRANE: Thank you.

Mr. Weller.

REP. JERRY WELLER (R-IL): Thank you, Mr. Chairman. And let me begin by commending the Bush administration, Ambassador Zoellick, Ambassador Shiner, Mr. Johnson, in the result of your good work on the U.S.-Australian trade agreement.

You know, this is just one more example of what I believe is a positive effort, as we work to compete in the world economy. I look at the work of the Special Trade Representative's Office on the Central American Free Trade Agreement, on the Dominican trade agreement, Morocco. Our efforts in Panama, as well as in the startup we have now with our friends in the Indian countries.

We have to recognize, of course, we're a nation of about 200 million people -- 290 million people, but there's five and a half billion people around the globe. It's pretty obvious where the customers are and where the opportunity to grow our economy is. So I salute you and commend you on your efforts to break down trade barriers.

You know, Illinois is a manufacturing state. And Mr. English really focused on many of the questions that I wanted to ask. But I always like to point out that my own family has faced some of the challenges that the manufacturing sector has experienced.

Illinois is a state which has lost some manufacturing jobs. My own brother, a manufacturing worker, lost his job with a manufacturer as a result of too much litigation. A frustrated employer just said, the heck with it, shut down the plant. He and several hundred other workers lost their jobs because of too many lawsuits.

But he became employed again and obtained a new job as the result of an export contract. Another manufacturer who obtained an export contract, an opportunity to sell products abroad, and to put Illinois workers to work. Unfortunately, our state legislature and governor have just imposed some new taxes on top of business, so it makes it even harder to employ people in my state of Illinois.

I really want to note that from a manufacturing perspective, I want to congratulate you. When more than 99 percent of U.S. manufacturer exports to Australia would become duty free immediately upon entering the force of this agreement, this clearly is the most significant reduction in industrial tariffs ever achieved in a free trade agreement. So I want to salute you for that.

And economic analysis suggests that means $2 billion in new demand for U.S. manufactured goods. So I salute you for that. Mr. Chairman, I look forward to working with you for ratification of this trade agreement before the Congress. My hope is we'll move quickly towards in that direction, and I want to thank you for your work and thank you for appearing before the committee today.

REP. CRANE: And let me express appreciation to both of you, Ms. Shiner and Mr. Johnson, for your participation today.

And with that, I would like to now call our second panel.

REP. PAUL RYAN (R-WI): Phil.

REP. CRANE: Wait, excuse me. I'm sorry. Mr. Ryan. Hold on.

REP. RYAN: Just for one minute. Mr. Chairman, sorry. Real quickly.

Like Pennsylvania and Illinois, I come from Wisconsin, which is a very, very large manufacturing state. We have the second most manufacturing jobs per capita in the country, so this is a perfect agreement for manufacturing. This is a wonderful agreement for our manufacturers. We too, however, though, are the dairy state, and we call ourselves America's dairy land.

And so, Mr. Johnson, I wanted to just go over quickly with you-it's my opinion, from looking at this agreement, that the concerns of the dairy industry were very much taken care of and accounted for in this. But that story has not been told well enough to many in the dairy industry, especially the producers. Now, what I would like to ask you is if you could just quickly and briefly go through how the dairy industry was accommodated in this agreement, and why those in the dairy industry who had concerns prior to the finalizing of this agreement, those concerns had been allayed. That's the story that we need to tell. Other legislators are going to be voting on this in the dairy parts of our country.

MR. JOHNSON: Well, first of all, let me just say that we have a-I personally feel a very strong working relationship with our dairy industry, and not just in this agreement but all the other agreements that we've been working together on. So right before the negotiations started, Ambassador Zoellick and I had a meeting with the leaders of the dairy industry, and they identified to us their important issues and priorities. The first one to us was maintaining the out-of-quota tariff. They didn't want to see that reduced. We were able to achieve that. It was a difficult negotiation, frankly, but we were able to achieve their top priority.

The second concern was that the amount of product being let in that would be quotas under that tariff would be manageable and not disruptive. So, again, as I pointed out earlier, the amount of product being let in on the first year is equal to 0.2 percent of the value of U.S. agricultural-U.S. dairy production. And then we looked at the growth rates on these numbers to make sure that the more sensitive items grew at a slower rate. So I think, again, that addresses it.

And as we look to the program itself, we wanted to make sure that it was still-that we've maintained its operational effectiveness, which we were able to do that as well.

REP. RYAN: Is it true that MPCs are not subsidized in Australia?

MR. JOHNSON: No. I don't believe they are, sir. But at any rate, the gist of it is that even on a tonnage basis, when you look at the milk equivalent, the amount of tonnage being let in is equal to about 0.03 percent of the U.S. production of milk. So we think we're very sensitive to it. That's not to say that our dairy friends don't have some concerns about it, but we addressed as best we could those, and we continue to work with them hard in other agreements, including the global negotiations.

REP. RYAN: All right. Thank you very much.

Thank you.

REP. CRANE: Thank you.

And with that, I will now excuse you folks and thank you for your participation today.

And I would like to now call before us the second panel. David Sundin, president and chief executive officer of DSI Fluids on behalf of the U.S. Chamber of Commerce. Russell Shade, CEO, High Voltage Engineering, on behalf of the National Association of Manufacturers. Hugh Stephens, on behalf of the American-Australian Free Trade Agreement Coalition. David Wagner, vice president of Jim Beam Brands Company, on behalf of Distilled Spirits Council of the U.S. And George Franklin, vice president for Worldwide Government Relations with the Kellogg Company, on behalf of the Grocery Manufacturers of America.

And I would like to ask you panelists if you will follow the light and try and keep your presentations to two minutes or less. And any additional statements will be made a part of the permanent record. And I apologize for this, but we have votes that will be coming up, and as I understand it, there are some of you that have 1:30 flights to get out of town. So with that, we will start with the order in which I presented you.

Mr. Sundin.

MR. DAVID SUNDIN: Thank you very much, Mr. Chairman. I thank you for the opportunity for me to come and make this presentation today on behalf of the U.S. Chamber of Commerce and of DSI Fluids, my company, on the benefits of the U.S.-Australia Free Trade Agreement. As a U.S. Chamber member, I'm proud to have my company featured in a recent publication called "Faces of Trade with Australia" that I'm sure the chamber will be happy to distribute to you.

DSI Fluids is a family-owned company in Tyler, Texas. We manufacture heat transfer fluids, electrical insulating fluids. We export about 50 percent of what we manufacture around the world, and about 5 percent of our manufacturing capacity goes straight to Australia. And in the interest of brevity, I'm going to talk about something that's very near to my heart, which is how this free trade agreement will impact DSI Fluids.

Our highly biodegradable products help our customers minimize their environmental impact. Our synthetic lubricants have been shown to maximize fuel economy and energy savings. We also sell fire resistant transformer oils which raise the fire safety of electrical distribution networks worldwide. In 2004, we expect that about $100,000 of our company's growth sales, or about 5 percent, will be due to exports with Australia. We compete in an international market with a handful of very specialized lubricant manufacturers. Lower tariffs will allow us to be more competitive in the Australian market.

When the United States enters into a trade agreement that reduces trade barriers, it lowers the cost that our customers have to pay for our products. That money comes straight to Tyler, Texas and pays for our employees' salaries and our raw materials. The money ripples through the economy of East Texas-five times I've been told by economists that it turns over-and it helps buy our groceries and our houses and our clothes and our ATVs. East Texas' economy then enjoys an injection of capital that otherwise would have gone to an Asian or European competitor.

Our American technology is world class. We employ lean manufacturing methods. We have run the fat and the overhead out of our processes. Often the difference in price between our products and those of our competitors is in the tariffs that are negotiated between different countries. What we're asking for is for Congress to help all of us to be as successful and as competitive as possible by lowering these trade tariffs.

Thank you, and I'm pleased to take questions.

REP. CRANE: Mr. Shade.

MR. RUSSELL SHADE: Thank you, Mr. Chairman, members of the committee. Good morning. My name is Russ Shade. I'm the CEO of High Voltage Engineering Corporation, and I also currently serve as the chairman of the Technology Policy Committee for the NAM.

My company, HVE, sells its high-tech goods and services to a broad range of foreign and domestic OEMs and end users. These include industries in process automation, steel and water, water and wastewater treatment, petrochemical, pulp and paper, marine cable, oil/gas extraction and transportation. We're headquartered in Wakefield, Massachusetts, we employ over 1,800 people, and our major operating and manufacturing facilities are in California, Massachusetts, Minnesota, Pennsylvania, Italy, the Netherlands, the U.K. and elsewhere.

Over the past 10 years, HVE has been able to carve out a small but important portion of the Australian market for industrial power controls for water pumps, cement plants, mining, pulp and paper conveyers and the like. For the past six years, our sales to Australia have averaged about $2 million a year. Our business activity over the years has closely tracked capital investments and has been very sensitive to the overall state of the Australian economy.

Australia is a great market for small and medium-sized U.S. firms, and this trade agreement is only going to make it better. The NAM, which represents some 14,000 U.S. manufacturers includes about 10,000 small and medium manufacturing companies like mine, and we've taken to calling this, as you know, "The Manufacturers Agreement" for Australia.

Most of HVE's exports already enter Australia duty-free under the WTO's Information Technology Agreement, which Australia has signed. More important for us will be the agreement's government procurement provisions which allow us to compete more actively and directly for new business with Australia's various government entities. In this key area, the FTA provides U.S. firms competitive entry into the Australian central government entities, as well as its states and territories.

In HVE's industry, competition is extremely intense with European and Japanese suppliers, and this accord will tilt the government procurement playing field toward our direction. Another reason this agreement is so commercially meaningful for American manufacturing is the fact that it builds on an extremely solid trade base that we've already discussed this morning. The government-the agreement contains provisions for reinforcing the WTO Technical Barriers to Trade agreement and for promoting improvements in bilateral implementation.

U.S. manufacturers have a strong interest in ensuring that technical standards and regulations governing manufactured products do not constitute barriers to market access. Bilateral trade will also be greatly facilitated by the agreement's customs chapter. The specificity of obligations with regard to customs procedures, coupled with commitments to information sharing to combat illegal transshipment of goods and facilitate express shipment, maintain a high standard. Steps to ensure transparency and efficiency are also included.

Thank you very much.

REP. CRANE: Thank you.

Mr. Stephens.

MR. HUGH STEPHENS: Thank you, Mr. Chairman and members of the committee. My name is Hugh Stephens and I'm senior vice president for Public Policy in Asia-Pacific for Time Warner, and Australia is one of the countries over which I have policy responsibility for my company.

I'm appearing before you today in Time Warner's capacity as the co-chair of the American-Australian Free Trade Coalition, AAFTAC, and as a member of the Entertainment Industry Coalition for Free Trade. The AAFTAC is a coalition of 272 companies and organizations, representing every sector of the U.S. economy. As a member of AAFTAC, the Entertainment Industry Coalition represents the men and women who produce, distribute and exhibit films, videos, TV programming, music and video games.

The Entertainment Industry Coalition members are multi-channel programmers and cinema owners, producers and distributors, guilds and unions, trade associations and individual companies. Both AAFTAC and EIC strongly support the U.S.-Australia Free Trade Agreement and urge Congress to act quickly to ratify it.

We've already spoken this morning of the importance of manufacturing and tariff reduction for this agreement. From the perspective of Time Warner and the entertainment industry, eliminating the tariffs on film projectors, state-of-the-art CD for cinemas, and the promotional materials and equipment used in the production of films and music, just to name a few, means lower cost for our businesses and better prices for consumers. We've also noted that services are important in this agreement, and I would note that this agreement marks the first ever commitment by Australia in the area of audiovisual services.

Most important for our industry are the IPR provisions. The agreement's high-standard protections for intellectual property rights is a very important benefit for every U.S. company that depends on the protection of patents, trademarks and copyrights for its business, such as Time Warner and other companies in the media and entertainment business.

With respect to copyright in particular, the agreement achieves a number of important objectives.

It includes provisions that go beyond the TRIPS provisions in the WTO by providing world-class intellectual property protections for the digital age. It ensures that copyright owners have the exclusive right to make their works available online, and it provides an expeditious process for copyright owners to get ISPs to deal with infringing material.

It establishes strong anti-circumvention provisions to prohibit tampering with technologies that are designed to prevent piracy and unauthorized distribution. It protects copyrighted works for extended terms, in line with emerging national trends that allow companies like ours to reinvest in the U.S. to restore older works and take significant risks in creating new ones. And, finally, it strengthens intellectual property enforcement.

In sum, this is an outstanding agreement for almost every sector of the U.S. economy. Its IPR provisions are particularly exemplary. This is why Time Warner, the entertainment industry and the entire AAFTAC coalition gives such strong support to the U.S.-Australia Free Trade Agreement and urge Congress to quickly act to approve it.

Thank you, Mr. Chairman.

REP. CRANE: Thank you, Mr. Stephens.

Mr. Wagner.

MR. DAVID WAGNER: Thank you, Mr. Chairman, members of the committee. My name is David Wagner and I'm vice president, External Affairs for Jim Beam Brands Company. I'm pleased to be here with you today on behalf of Jim Beam Brands and the Distilled Spirits Council of the United States, our national trade association, to discuss the importance of the FTA to our industry.

Distillers such as Jim Beam are significant purchases of agricultural or raw materials. Last year, Jim Beam Brands alone bought more than 3.4 million bushels of corn and over 650,000 bushels of rye and malt. Beam's raw material purchases, sourced here in the U.S., total more than $130 million each year, and include Florida oranges, California grapes, grain from the Midwest, sweeteners and bulk spirits, glass, plastic and aluminum containers, flavors and blending ingredients, labels, closures, folding cartons, corrugated shipping containers and much more. To put this into some perspective, we calculate that the economic impact of even our smallest facility in Cincinnati exceeds $20 million for the state of Ohio alone.

My personal experience with the Australian market dates back to 1991, when I was sent to Australia to start a Beam sales and marketing company there. I can tell you that Australia is an extremely important market for the U.S. spirits industry. While worldwide exports of U.S. distilled spirits totaled $587 million in 2003, U.S. exports to Australia alone were valued at $60 million, ranking Australia as America's fourth-largest export market.

For Jim Beam Brands, Australia's our largest and most important export market. In fact, it accounted for 13 percent of our total profits last year. We sold nearly 600,000 cases of Jim Beam bourbon and more than 4.6 million cases of pre-mixed Jim Beam and cola. The U.S. spirits industry strongly supports prompt congressional approval of the FTA because it will bring about significant immediate benefits for U.S. spirits exporters to Australia.

Under the FTA, Australia has agreed to eliminate its 5 percent ad valorem import duty, and this will make U.S. spirits even more competitive in the Australian market. The elimination of Australia's spirits tariff will also level the playing field, and U.S. domestic producers will not face added competition in the U.S. market as a result of this agreement, since U.S. tariffs on nearly all imported spirits categories are already zero.

The agreement also includes certain protections for the use of the terms bourbon and Tennessee whiskey, which will ensure both U.S. producers and Australian consumers that only spirits produced in the United States in accordance with our laws and regulations may be sold in Australia as bourbon or Tennessee whiskey. These distinctive products are by far the United States' leading spirits exports. In summary, the U.S. spirits industry enthusiastically supports the FTA.

REP. CRANE: Thank you, Mr. Wagner.

Mr. Franklin.

MR. GEORGE FRANKLIN: Thank you, Mr. Chairman. My name is George Franklin. I'm vice president of the Kellogg Company and I'm here on behalf of the Grocery Manufacturers of America. And, pursuant to your instructions, I am going to make this short and sweet.

I wish to clarify at the outset that we are not opposed to the U.S.-Australia Free Trade Agreement. We believe that the agreement could generate increased sales for the processed food industry and will strengthen bilateral relations with an important economic and political ally. We were deeply disappointed, however, by the exclusion of sugar from the agreement. We believe that this exclusion not only compromised the overall benefits of the agreement to the processed food sector, but set a terrible precedent to diminish the level of ambition of any future trade agreement. For this reason, we are not actively supporting this agreement.

Kellogg Company has a long history in Australia. We have been there for over 80 years. And you would think, given that relationship, that the U.S.-Australia Free Trade Agreement-that GMA and the Kellogg Company would be natural choices to lead the charge for swift passage of the agreement. Unfortunately, we are not actively supporting the agreement because of the glaring exclusion of sugar. We did not arrive at this position lightly.

For U.S. food manufacturers, particularly a confectionery manufacturer, access to high-quality sugar at a fair market value is a key factor for continued growth in the U.S. U.S. food companies take two to three times the world price of sugar, including hundreds of millions of dollars of extra costs each year. The industry has lost thousands of domestic jobs as companies are forced to leave the U.S. to manufacture sugar containing products in countries where there is access to low-priced sugar. Chicago has been particularly hard hit, losing over 8,000 to 9,000 jobs over the past coupe of decades.

A recent study by Promar International indicates that in last six years, up to 10,000 confectionery jobs have been lost in the Us because of the high price of sugar. The exclusion of sugar in the U.S.-Australia agreement could also have extremely damaging consequences for future trade agreements.

As Chairman Thomas correctly noted in his January 28th letter of 2004 to President Bush, quote, "Any exclusions at all jeopardize our ability to conclude and implement agreements which will benefit U.S. employees, workers, farmers and consumers. If we exclude one industry, we will be under enormous pressure to exclude others. We will become paralyzed by our own sensitivity because we will have no consistent rationale to resist the demands of any sector." Unquote.

Once again, Mr. Chairman, we appreciate the opportunity to appear before the committee and look forward to answer any questions you might have.

REP. CRANE: Thank you, Mr. Franklin. Well, that was short but not as sweet as I thought it might be, and I guess it was the sugar component.

I'd like to now yield to Ms. Tubbs Jones.

REP. TUBBS JONES: Mr. Chairman, like you, I also have a lunch and so I'm going to try and keep my comments very brief.

I want to go back to Mr. Franklin because I'm interested-not to the exclusion of the rest of you guys, but I have to keep mine short too. What would you have wanted the agreement to say with regard to sugar, Mr. Franklin?

MR. FRANKLIN: We would have liked to have the Australian sugar industry have greater access to the U.S. market. We support the U.S. sugar market. We want it to be competitive, we want it to be vibrant. However, we also have to be realistic about the competitive food processing world.

And I think, if I could, Congresswoman, I brought an article from the Chicago Tribune and I brought an article from the Detroit News.

The headline from the Chicago Tribune says "Chicago Candy Makers are Bitter on High Cost of Sugar." It talks about Mayor Daley strenuously opposing the existing U.S. sugar program. The other thing, just an hour from where I live in Western Michigan, the Live Saver plant announced they were closing about a year and a half ago, 600 high-paid jobs went to Canada. They didn't go to some other country where you think you'd be looking for low-cost labor. They went to Canada because of the high cost of sugar. And it's just a situation that just can't continue. I heard a lot of members here talking about manufacturing. Well, food processors, we're manufacturers. And this is a significant impact on about ability to compete.

REP. TUBBS JONES: Thank you, Mr. Franklin.

Mr. Chairman, I would seek unanimous consent to have the two articles that Mr. Franklin talked about. Would you get those articles for me --

REP. CRANE: Without objection, so ordered.

REP. TUBBS JONES: -- submitted to the record.

Very briefly, I'm going to go back to Mr. Sundin.

MR. SUNDIN: Sundin actually, but I'll come to anything.

REP. TUBBS JONES: Okay. I apologize, Mr. Sundin. I'm curious about NAM and your position. You support this Australian Free Trade Agreement. Would your support be as strong if Australia was not as an advanced community with labor standards, or would it be different?

MR. SUNDIN: Well, actually I'm here on the behalf of the U.S. Chamber of Commerce.

REP. TUBBS JONES: You're the wrong one? Okay. Go ahead. But anyway, go ahead.

MR. SUNDIN: Well, the answer to your question is yes, because we export about half of what we make, while the other 45 percent-the majority goes into China. And in China we're doing a lot of educational programs to help people there understand the benefits --

REP. TUBBS JONES: How many jobs have you lost since you started doing all this work in China?

MR. SUNDIN: How many jobs have we lost?

REP. TUBBS JONES: Yes.

MR. SUNDIN: None.

REP. TUBBS JONES: None at all?

MR. SUNDIN: We've picked about five or six up, out of our 11 total.

REP. TUBBS JONES: Five or six?

MR. SUNDIN: Out of our 11 total, which means a significant benefit to me.

REP. TUBBS JONES: Okay. Mr. Shade, on behalf of the association?

My last question, Mr. Chairman, I promise.

MR. SHADE: Same question?

REP. TUBBS JONES: Yes.

MR. SHADE: I would support this agreement even if Australia were not as advanced a country. The products that we build and make in America, which are high-tech products and are exported into countries like Australia will continue to be built in the U.S.

REP. TUBBS JONES: But you represent, on behalf of the NAM, many more organizations then that don't have high-tech jobs. Is that a fair statement?

MR. SHADE: That's correct.

REP. TUBBS JONES: And for those folks it could, in fact, signify a loss of jobs for their companies. Fair, yes or no?

MR. SHADE: The analysis that we have done, and NAM's, suggest that most of what we call outsourcing is, in fact, not movement of U.S. manufacturing jobs to other countries, but in fact the creation of domestic facilities in those foreign countries to serve those local markets. So in case-many of my colleagues in the NAM and our Technology Policy Committee, we have not lost manufacturing jobs through outsourcing. We have, in fact, started local companies and subsidiaries in order to improve the export situation.

REP. TUBBS JONES: I'm not going to get an answer to this question, but the fact is that in the state of Ohio we've lost close to 200,000 manufacturing jobs, and nationally we've lost them. And so that's my concern.

Mr. Chairman, thank you very much.

REP. CRANE: Thank you.

Mr. Levin.

REP. LEVIN: Mr. Chairman, I don't have any questions. I came back. I had to go to a meeting. I had no choice. I just wanted to indicate I will read with interest your testimony and the staff will tell me about the questions that we've thrown at you and your brilliant answers. So thank you, Mr. Chairman.

REP. CRANE: Thank you.

And, Mr. Lewis, do you have a question?

REP. RON LEWIS (R-KY): I don't have a question, but I'd just like after the fact to welcome one of your guests today, if that would be all right.

REP. CRANE: Oh, yes.

REP. LEWIS: Okay. Of course I'd like to welcome David Wagner of Jim Beam. Jim Beam is an important part of Kentucky and has its roots in Kentucky over the last 200 years. And in 1795, a farmer and grain operator named Jacob Beam sold his first barrel of sour mash. His son and grandson continued to carry on that tradition. And I've been told Jim Beam produces some of the finest spirit products in the world. And I might-is that true?

(Laughter.)

Under the leadership of the late master distiller, Booker Noe, the Jim Beam Company launched the Small Batch Bourbon trend through their brands Bookers, Bakers, Knob Creek and Basil Hayden. These super premium products have re-ignited worldwide interest in the cultural heritage and traditions of bourbon whiskey distilling in the great commonwealth of Kentucky. And Jim Beam employs 550 Kentuckians statewide, including 356 within my congressional district. So after the fact I welcome you and we certainly are privileged and proud that you have your great company in the Second District of Kentucky.

MR. WAGNER: Thank you, sir.

REP. LEVIN: Mr. Chairman?

REP. CRANE: Yes.

REP. LEVIN: Kelloggs doesn't go back in Michigan to 1795, but it goes back a long way. And Mr. Franklin and I have known each other a number of years. I already earlier welcomed him. How far back does Kellogg go in Michigan?

MR. FRANKLIN: We will be 100 in 2006.

SEN. LEVIN: That's a good number of years, so a special welcome.

MR. FRANKLIN: Thank you.

REP. CRANE: Well, let me express appreciation to all of you for your participation. I'm sorry for the time constraints that we got under here, and I trust everyone will still be able to make his flight and we will make our votes.

Thank you all, and with that the committee stands adjourned.