Implementation of U.S. Bilateral Free Trade Agreements with Latin America and Chile

Statement of Willard A. Workman, Senior Vice President, International, U.S. Chamber of Commerce - Testimony before the Subcommittee on Tax, Finance and Exports of the House Committee on Small Business on "The Chilean Free Trade Agreement: Opening Doors to South American Markets" on behalf of the U.S. Chamber of Commerce

June 12, 2003

Mr. Chairman, thank you for inviting me to appear before this panel today. I am Willard Workman, Senior Vice President for International Affairs at the U.S. Chamber of Commerce, which is the largest business federation in the world. Representing nearly three million companies of every size, sector, and region, the Chamber has supported the business community in the United States for nearly a century.

Small businesses not only make up the majority of the membership of the U.S. Chamber of Commerce, but are also a critical engine for economic growth in communities throughout the United States. As such, we are active and ardent proponents of enhanced trade opportunities for this nation's small businesses.

As part of that mission, the U.S. Chamber of Commerce works with regional affiliates such as the Association of American Chambers of Commerce in Latin America (AACCLA) and the Chilean-American Chamber of Commerce (AmCham Chile) to promote greater opportunities for small businesses in Latin America and Chile. In our view, the U.S.-Chile Free Trade Agreement is a landmark agreement that, as part of a comprehensive agenda of worldwide trade liberalization, will help slash trade barriers for U.S. exports, enhance protections for U.S. investment, and strengthen the competitiveness of American companies — both big and small — throughout the world. We believe it is an agreement worthy of your support.

The Bracing Tonic of TPA

America's international trade in goods and services accounts for nearly a quarter of our country's GDP. As such, it is difficult to exaggerate the importance of the victory obtained last summer when the Congress renewed Presidential Trade Promotion Authority (TPA). When President George W. Bush signed the Trade Act of 2002 into law on August 6, it was a watershed for international commerce. As we predicted, this action by the Congress has helped reinvigorate the international trade agenda and has given a much-needed shot in the arm to American businesses big and small, and by extension workers and consumers struggling in a worldwide economic slowdown.

When TPA lapsed in 1994, the U.S. was compelled to sit on the sidelines while other countries negotiated numerous preferential trade agreements that put American companies at a competitive disadvantage. Last year, during our aggressive advocacy campaign for approval of TPA, I believe many members of Congress grew tired of hearing that the U.S. is party to just three of the roughly 150 free trade agreements in force today.

The passage of TPA allowed the United States finally to complete negotiations for a bilateral free trade agreement with Chile in December. Along with the Singapore agreement that followed in January, these are the first significant free trade agreements negotiated by the United States since the NAFTA.

The Chile agreement shows that the international trade agenda is moving forward again. The fact that no products were excluded from the agreement's market access commitments shows that the United States can and does practice what it preaches on free trade. The U.S.-Chile Free Trade Agreement raises the bar for rules and disciplines covering a host of economic sectors from services and government procurement to e-commerce and intellectual property. It also raises the bar for future trade agreements, including the Free Trade Area of the Americas (FTAA).

Maintaining Competitiveness

One factor adding urgency to our request for quick Congressional action on the agreement with Chile is the heightened competition U.S. companies — and small businesses in particular — face in the Chilean marketplace. In this sense, Chile is an example of how the world refuses to stand still, and how American business will lose its competitiveness without an ambitious program of trade expansion.

Chile is one of Latin America's most open and fastest-growing economies. The country's legal system and commercial environment are widely regarded as the most stable and transparent in the region. And Chile offers many opportunities to U.S. small businesses. Passing and implementing the U.S.-Chile Free Trade Agreement is the right way to support our small businesses by enhancing those opportunities.

Let me illustrate. Many of you know that Chile's free trade agreement with the European Union came into force on February 1. On that day, tariffs on nearly 92% of Chilean imports from the EU were eliminated. Consequently, it is not surprising to note that Chilean imports from the EU expanded by 30% in the year ending in February 2003, whereas Chilean imports from the United States grew by less than 6%. Chilean imports from Germany grew by 47% and those from France grew by 41% in the same period.

The reason is simple: While U.S. exporters wait for a free trade agreement, our exports to Chile continue to face tariffs that begin at 6% and, for some products, range much higher. The direct result is that European companies are seeing their sales in Chile rise five times as quickly as those of U.S. firms. With a U.S.-Chile Free Trade Agreement, we could level the playing field for small businesses in communities throughout the United States.

Gauging the Benefits

How might the U.S.-Chile Free Trade agreement benefit small business in the United States? There is a strong economic argument to be made for free trade agreements. As U.S. Trade Representative Robert Zoellick has pointed out, the combined effects of the North American Free Trade Agreement (NAFTA) and the Uruguay Round trade agreement that created the World Trade Organization (WTO) have increased U.S. national income by $40 billion to $60 billion a year. Thanks to the lower prices that these agreements have generated for such imported items as clothing, the average American family of four has gained between $1,000 to $1,300 from these two pacts — an impressive tax cut, indeed.

From a business perspective, the following are a few examples of specific market-opening measures in the U.S.-Chile Free Trade Agreement, provided here to give some insight on how U.S. companies stand to benefit:

Manufactures and Other Goods. The agreement with Chile will eliminate tariffs on more than 90% of all U.S. goods immediately, with the remainder to be phased out in a fairly rapid fashion. Today, most U.S. exports to Chile face a tariff of 6%, which can constitute a significant barrier indeed, but tariffs are substantially higher on some sectors.

For instance, Chile continues to impose a luxury tax of 85% on vehicles imported from the United States valued at more than $15,000 — a significant barrier to U.S. exports that the free trade agreement will eliminate. This will benefit not only our nation's automakers, but also hundreds of thousands of American small businesses that supply parts and services to those automakers.

Services. Services accounts for over 80% of GDP and employment in the United States. The services chapter of the U.S.-Chile Free Trade Agreement provides enhanced market access for U.S. firms across different service sectors using a "negative list" approach (full market access for all service providers except those in sectors specifically named). U.S. service suppliers will also be assured fair and non-discriminatory treatment in Chile. Banks, insurers, hospitality industry and express delivery providers are among the sectors that will benefit from new opportunities if the Chile agreement is approved and implemented.

One small business that would benefit from the agreement is Miami-based Global Caribbean, Inc., a family-owned hospitality amenities business established in 1990, which despite initial success in the country, is now concerned about increased competition from countries that already enjoy free trade agreements with Chile. Global Caribbean Vice President Stacy Soucy told us that "a free trade agreement would allow us to export more with less restrictions, increase the potential for more clients, offer more opportunities to our employees, and generate more money to reinvest in our community."

Electronic Commerce. The landmark E-Commerce chapter of the U.S.-Chile agreement will help ensure the free flow of electronic commerce, champion the applicability of WTO rules to electronic commerce, and promote the development of trade in goods and services by electronic means. Provisions in this chapter guarantee non-discrimination against products delivered electronically and preclude customs duties from being applied on digital products delivered electronically (video and software downloads). For hard media products (DVD and CD), custom duties will be based on the value of the carrier medium (e.g., the disc) rather than on the projected revenues from the sale of content-based products.

Intellectual Property Rights. The agreement with Chile provides important new protections for copyrights, patents, trademarks and trade secrets, going well beyond protections offered in earlier free trade agreements. In the case of Chile, the agreement criminalizes end-user piracy and provides strong deterrence against piracy and counterfeiting. The agreement also mandates both statutory and actual damages under Chilean law for violations of established norms for the protection of intellectual property. Denver software manufacturer JD Edwards is one U.S. small business that would positively benefit from immediate implementation of this and other provisions in the U.S.-Chile Free Trade Agreement. According to JD Edwards' Roberto Steeger, "Our products compete head-to-head with countries enjoying free trade agreements with Chile. Reducing trade barriers will have two positive effects: We can be more competitive in quoting prices and can reduce risk exposures with appropriate agreements."

Provisions on Labor and the Environment. The longstanding policy of the U.S. Chamber is that trade agreements should not hold out trade sanctions as a remedy in response to labor and environmental disputes. Our interpretation of the enforcement mechanism of the labor and environmental provisions of the Chile free trade agreement is that monetary compensation is the remedy of first choice and that trade sanctions would be employed only as a last resort.

What the Chamber is Doing

The U.S. Chamber is helping to lead the charge in the effort to win approval of the U.S.-Chile Free Trade Agreement. In concert with our partners in the U.S.-Chile Free Trade Coalition, the Chamber has met face-to-face with over 120 members of Congress since January to make the case for approval of the agreement. We have also met with members of Congress in their districts throughout the country as part of our ongoing "TradeRoots" program to educate business people and workers about the benefits of open trade. We have found extremely broad support for the agreement both in the Congress and in the business community.

As part of this "TradeRoots" effort, the Chamber published a "Faces of Trade" book to highlight small businesses in the United States that are already benefiting from trade with Chile — and that stand to benefit even more from free trade with these two markets. We are making copies of this book available to members of the Subcommittee as well as to press here today. I invite you to review these success stories and see the face of American trade today. It isn't just about multinationals, which can usually find a way to access foreign markets, even where tariffs are high. It's about hundreds of thousands of small companies that are accessing international markets — and that are meeting their payroll, generating jobs, and growing the American economy.

We've generated a wealth of information about the potential benefits of the U.S.-Chile Free Trade Agreement and our efforts to make it a reality. In the interest of brevity, I would simply urge you to contact the Chamber if you need more information. A good place to start is our website: www.uschamber.com. Another good place for information on the Chamber's broader coalition efforts is the US-Chile Free Trade Coalition website at http://www.uschilecoalition.com/

Conclusion

Trade expansion is an essential ingredient in any recipe for economic success in the 21st century. If U.S. companies, workers, and consumers are to thrive amidst rising competition, new trade agreements such as the one with Chile will be critical. In the end, U.S. small business is quite capable of competing and winning against anyone in the world when markets are open and the playing field is level. All we are asking for is the chance to get in the game.

Mr. Chairman, we appreciate your leadership in reviving the U.S. international trade agenda, and we ask you to move expeditiously to bring the U.S.-Chile Free Trade Agreement to a vote in the Congress.

Thank you.