INTRODUCTION

Mr. Chairman, when Secretary Daley testified before this committee only a few weeks ago regarding the Administration's trade policies, he stressed that ensuring compliance with our trade agreements was one of his top trade objectives. I am very pleased to have the opportunity to appear before the Committee this morning to discuss what we are doing to achieve this priority. Under the Secretary's leadership the Commerce Department, and particularly the International Trade Administration, has been actively increasing its efforts to monitor and obtain compliance with our trade agreements. Today I would like to describe what the Department does in this area, how our activities relate to USTR's enforcement activities, and how we see the global compliance situation both multilaterally and bilaterally.

THE TRADE SITUATION

In beginning my statement, I think it is useful to review our trade position briefly so that compliance activities may be placed in the context of our overall situation.

U.S. exports have been at the forefront of our economy, and through 1997 provided one-third of all our economic growth. Jobs supported by exports of goods pay significantly more than the average. Good jobs and good wages are the keys to an expanding economy and a rising standard of living. In February, the U.S. economic expansion reached 95 months, the longest peacetime expansion in history. Employment is at record levels, and unemployment is at nearly a 30-year low. Inflation is low and economic growth and productivity are strong.

Still, we face challenges.

Our trade deficit this year looks as though it may set a new record which will be the fifth straight year of record deficits. It is important to recognize that the surge in our deficit is not, so far, due to a wave of imports into the United States from Asia -- except for steel, where we have a serious problem the Administration has been addressing aggressively. Other than steel, however, our imports from Asia grew less rapidly than our imports from the rest of the world.

The key problem in our trade today is our plunging exports to Asia. U.S. exports to the rest of the world grew 4 percent last year, but to Asia they fell a staggering 14 percent. That drop represented the loss of almost $26 billion of U.S. exports -- roughly one-half of the total deterioration in the U.S. merchandise trade position.

It is, however, a mistake to blame all our deficit on the recent economic crisis in Asia. Longer term forces are also at work -- including the continued existence of trade barriers that have held back U.S. export opportunities. Amazing though it may now seem, from 1894 to 1970 the United States had an unbroken string of trade surpluses, but since 1970 we have had virtually an unbroken string of merchandise trade deficits that have cumulated to over $2 trillion dollars. Most of our trade growth, and most of our deficit occurred in the last ten years. Nearly 80 percent of the deficit was with Asia -- and fully 40 percent was with one country, Japan.

Nothing could do as much to bring about a resurgence in the growth of our exports as an economic recovery abroad, especially in Asia. We also know that the United States must continue to lead the world in a more open trade policy. We must resist efforts at protectionism anywhere in the world. American companies still face trade barriers abroad, and we must continue to remove these so that U.S. companies and workers have the full ability to compete in world markets as surely as we welcome foreign competition in our market.

OPENING UP EXPORT MARKETS

There are two aspects to removing trade barriers and opening up markets for American exports. The first is negotiating agreements that eliminate the remaining important barriers; and the second -- which is equally important -- is ensuring that our trade agreements are actually implemented and that American firms and workers get the benefits we bargained for.

America is committed to open trade among all nations, a principle which has been reaffirmed vigorously in recent weeks by the President and by Secretary Daley and other cabinet officers. The cornerstone of our trade policy remains, as it has been since World War II, to reduce trade barriers globally, multilaterally as well as regionally and bilaterally. This effort has produced remarkable benefits to the world and the U.S. economy. Since the formation of the WTO's predecessor the GATT in 1948, world trade has grown 15-fold and tariffs have been reduced by 90%. The WTO now includes 134 members--most of them developing economies. Trade has contributed to better living conditions, economic development, the spread of democracy and human rights, and to peace.

The U.S. trade agreements program works. The roughly 270 agreements concluded by this Administration have opened markets around the world for American companies. These agreements have created new opportunities and new rights for U.S. exporters. I would like to cite just some examples of how far we have come. Nearly all of our exports to our two largest markets -- Canada and Mexico -- now are shipped virtually duty-free under the NAFTA. This accounts for more than one-third of our global exports.

An additional 8 percent of our exports outside these two countries will become free of foreign duties once the Information Technology Agreement goes into effect in less than a year. Just these two agreements together will eliminate duties on 42 percent of our global exports. Other zero-zero duty agreements in the Uruguay Round raise that figure even higher.

Despite years of negotiations, though, there is no question that American exporters still face formidable barriers in some parts of the world. In Asia, for example, we need to work on reducing the gap between bound tariff rates and applied tariff rates. It is inconceivable to me that a country could apply a tariff of, say, 15 percent to our exports for years -- high as that may be -- yet face no penalties under international trade rules for raising that tariff several times over if it chooses to offer protection, for example, to a new investment. In South America tariffs are still on average 4 times higher than U.S. duties. In Europe and in other parts of the world we need to address standards and certification requirements that are newly important obstacles to our market access. We need to continue to level the playing field by engaging our trading partners in new negotiations. We cannot rest on past accomplishments, especially in today's turbulent trade world that is changing so rapidly in terms of markets and technologies.

TRADE COMPLIANCE

Let me now turn to the second aspect of opening foreign markets -- compliance with the agreements we negotiate. Secretary Daley put it well when he said, "Compliance with agreements is the true litmus test for what we achieve in our negotiations and trade practices." There is little benefit in negotiating measures addressing trade barriers without ensuring that the agreements are honored and that American firms and workers obtain the benefits and opportunities intended. Getting what we bargained for is good for American business and American workers. It is also one of the best ways to help create confidence among business, labor, and the general public that trade agreements actually work and actually create new business and employment opportunities. If the perception is that agreements are not being honored by our trading partners or that there is widespread lack of compliance, there can be little interest and support for extending agreements further.

It is for these reasons that monitoring agreements and securing compliance is such a top priority throughout the International Trade Administration. We are changing our organizational ethic and the entire way we work so as to devote the most attention to compliance that we can. This is true not only for our Market Access and Compliance unit, but also for Trade Development, Import Administration, and the U.S. and Foreign Commercial Service. The effort is spearheaded by the Trade Compliance Center we have created in our Market Access and Compliance unit. The Trade Compliance Center coordinates our compliance activities and serves as the nerve center, but I want to emphasize that all of our country market access officers and all of our industry sector experts are deeply involved in the compliance effort.

In this, our Trade Compliance Center and USTR's Monitoring and Enforcement Unit complement each other and work hand in glove. Their responsibilities, however, are different; and I think it would be useful for me to explain to the Committee how "compliance" differs from "enforcement" so the Committee can know who does what. Last year, to ensure both efficient use of resources and effective cooperation, ITA and USTR staff delineated their respective responsibilities in a work program that was approved both by Secretary Daley and Ambassador Barshefsky.

Difference Between Commerce and USTR roles -- Commerce and USTR share responsibilities for monitoring and compliance. By "monitoring", we mean using the resources and outreach capabilities of the Commerce Department to identify problems in foreign implementation of U.S. trade agreements. It is our mission to find out where U.S. companies may not be receiving the benefits to which they are entitled under trade agreements, and where foreign governments may not have followed through fully on their commitments. Through aggressively undertaking policy and compliance advocacy efforts aimed at improving foreign implementation of trade agreements, we in Commerce address compliance problems short of dispute settlement wherever possible. We also support USTR with analyses and strategies when dispute settlement cases or remedies under U.S. law are necessary.

The significance of compliance advocacy lies in attempting to resolve problems rapidly without the necessity of the United States having to enforce its rights through formal dispute settlement mechanisms. In other words, our compliance activities are aimed at achieving the desired results "out of court". If we are not successful, then we give full support to USTR so that its enforcement office has the best opportunity to win the case. But everyone would agree that compliance today is more valuable to firms and workers than a successful dispute settlement case tomorrow.

Trade Compliance Center -- The nerve center for our activities is our Trade Compliance Center, the "TCC", which performs three key functions, the first of which is coordinating the monitoring function -- the process of utilizing government and private resources to identify compliance problems. In this, the TCC works closely with ITA's country and industry officers who are constantly evaluating information from industry contacts, the foreign and domestic press, cables from our embassies, and other information.

In addition, we have made it a priority for the Department's overseas commercial officers to constantly be on the lookout for potential compliance problems. Working day in and day out with U.S. exporters, they are frequently the first to know when a U.S. company is being treated unfairly or is not getting the benefits it should. We also asked our U.S. Export Assistance Centers to be on the lookout. Additionally, Secretary Daley wrote to the heads of business groups last year, inviting them to designate "compliance liaisons" to work with the Trade Compliance Center to identify potential problems. Over 65 organizations have done so, and they are becoming an important source of information about trade problems.

Finally, we have established a "Trade Complaint Hotline" (http://www.mac.doc.gov/tcc) on the Internet, with a novel on-line complaint form designed particularly to enable small and medium-sized companies experiencing trade problems to reach the entire trade policy and market access resources of U.S. government easily and inexpensively. While the primary objective of the on-line system is to deal with compliance problems, we ensure that any market access problem is addressed. Companies should not have to experience harm before we step in to help.

The TCC's second function is to provide information to American companies about trade agreements, how to use them, and how to know if their rights under these agreements are being violated. Last year the TCC unveiled "TARA" -- the Trade and Related Agreements database that now contains 306 agreements negotiated by the United States -- about 270 of which have been concluded during this Administration. This database (http://www.mac.doc.gov/tcc) is on the Internet in an easily-searchable fashion. It also contains Commerce Department, State Department, and USTR information on market access. Our database has received praise from the private sector, and one example is attached to my statement. In order to make the database even more useful for small firms, we are now in the process of writing plain language "how-to" guides that will tell firms how to use trade agreements to expand exports, how to know if they are being treated unfairly, and where to go for help. These guides will be posted on our website.

The TCC's third, and most important, function is that of coordinating ITA's compliance effort. Utilizing the country and industry experts in the International Trade Administration, and working with trade lawyers in the General Counsel's office, with the U.S. and Foreign Commercial Service country experts, and others, we examine carefully the provisions of the agreements and the areas in which we believe there may be a failure to implement or follow through with the agreement. We then seek to utilize vigorous compliance advocacy, including my efforts and those of Secretary Daley, to bring about resolution of problems impeding U.S. exports.

COMPLIANCE ACTIVITIES

Most countries enter into trade agreements with the expectation that there are mutual benefits, and they generally live up to their commitments. Still, as a result of our heightened and more focused effort, we are finding an increasing number of potential compliance problems. This is not really surprising. As we cast our nets out further and address our tasks with increased vigor, we should expect to uncover a higher percentage of the problems American exporters are facing. This stems both from the fact that we have more trade agreements that give us an expanded set of trade rights, and from the fact that we are beginning to do a better job of finding compliance problems than in the past. We are also able to focus our resources more quickly on seeking resolutions to problems and are able to provide more cohesive support to USTR in enforcement cases. Our staff regularly briefs the USTR enforcement staff on what we are finding, and seeks to provide the fullest support we can.

At Commerce, we are now working actively on close to 20 compliance issues, and I would like to illustrate several of these for the committee:

European aircraft noise regulations -- A pressing problem, and one that I recently raised face- to-face with European officials in Brussels concerns the European aircraft market. The European Commission has proposed a regulation that would prevent many U.S. aircraft from being operated within the European Union or sold to E.U. Member States or third countries after 2001 because they use "hushkits" or replacement engines to comply with international noise standards.

We understand the concern regarding noise at European airports. However, the proper approach for addressing those concerns is within the international standards setting process of the International Civil Aviation Organization (ICAO), not through unilateral adoption of a discriminatory design standard. Hushkitted and reengined airplanes comply with the ICAO Chapter 3 noise standards which were adopted by all ICAO members, including the E.U. Member States. The EU has not conducted any studies which demonstrate that the regulation would reduce engine noise. In fact, the regulation would ban the use of equipment whose sole function is to limit engine noise. The EU regulation, if put into effect, carries serious implications for future cooperative work in the ICAO. It calls into question the commitment of the EU to agreements on international standards including ICAO and the WTO.

Furthermore, EU concerns about hushkitted U.S. aircraft flooding the European market are unfounded. Such aircraft registered in the United States can and will continue to operate here after 2000 because they meet ICAO Chapter 3 noise standards. Unlike the EU, the United States is applying a performance standard -- aircraft must be quiet enough to meet the internationally-agreed standard, and if airlines meet that requirement by hushkitting existing aircraft rather than by purchasing new aircraft, that is fine. The European Union, though, specified a particular engine design rather than a noise standard, and it seems that the EU is attempting to use any rationale possible to justify its actions except a sound, scientific study to demonstrate that the regulation would reduce noise.

Regrettably, the European Parliament accelerated action and approved the regulation without amendment on February 10. Now it appears that the regulation may be considered by council meetings scheduled for as early as February 25 or March 9, instead of waiting for the Transport Council meeting in late March. The acceleration of consideration at the Council level appears aimed at precluding consultations between the United States and the EU before implementation on April 1, 1999. Because of its potential impact on our bilateral commerce, Secretaries Daley and Slater, and Ambassador Barshefsky have written not only to the Commission, but also to Ministers of the Member States asking that the Council not proceed with adoption of the regulation until consultations could be held.

While I have received some assurances that the Commission is prepared to modulate the regulation's impact through implementation and enforcement procedures, and to clarify some ambiguous provisions, we remain deeply concerned that this regulation remains on track for approval without meaningful consultations having taken place. We continue to ask the EU to delay adopting this regulation so that we can resolve our concerns. I have informed the EU that the United States is prepared to respond appropriately to the harm our industry will suffer.

Government Procurement in Korea -- Another example is a Korean procurement for the new $6 billion Inchon International airport--the largest in Asia. In response to our request that our Foreign Commercial Officers be on the alert for possible trade compliance violations, our Commercial Office in Seoul notified the TCC that a U.S. firm -- a world technological leader in elevators and escalators -- had been told by the Koreans it was ineligible to bid for business at the new airport. Upon investigation, we learned of other examples of contracts in which the Koreans were imposing requirements that are inconsistent with its WTO commitments in the Government procurement Agreement (GPA). Korea has imposed discriminatory licensing requirements, joint venturing requirements and does not provide access to bid challenge procedures. We have protested these practices, which are not consistent with Korea's international trade obligations and the principles of free and open competition. I have written to and met with senior Korean officials on this issue, and recently Secretary Daley and Amb. Barshefsky jointly wrote to the Korean trade minister in an effort to resolve the problem.

Unfortunately, Korea still denies that it has obligations to us and has not responded favorably to our repeated requests that it comply. Consequently, last week USTR submitted a request in Geneva for consultations under the GPA's dispute settlement provisions. We remain hopeful that these consultations will result in a market opening settlement that affirms our rights. Mr. Chairman, this is an area where we must be firm.

Mexican reference pricing -- One of the trade associations participating in our "compliance liaison" program brought to our attention that Mexico requires a bond be posted if the declared value of a good is less than the estimated price. The bond is refunded after Mexican Customs verifies that the product was actually sold at the declared value. Mexican Customs claims it established this practice in an attempt to combat the under-invoicing of imports, but we are concerned it is not in compliance with Mexico's NAFTA and WTO obligations and are working to reverse it. We are concerned this is a growing practice in several regions, and are examining its WTO consistency and impact on U.S. industry.

Central European trade preferences -- Along with USTR and other agencies, we are looking closely at the tariff preferences given to the European Union by Central European countries. We are examining these in the context of our international trade rights and also from the perspective of the requirements of the law under which GSP (Generalized System of Preferences) duty preferences are given to these countries by the United States.

In each of these cases, Commerce, USTR and other agencies are making every effort to obtain full compliance. Our staffs are cooperating very closely. The WTO case on Korea Distilled Spirits which the United States won and which was recently upheld by the WTO appellate body, is an example. The TCC produced for USTR detailed economic analyses of the impact of the Korean taxes to support the U.S. claim that the Korean alcohol (sohju) and U.S. distilled spirits are "like" or "substitutable" products. This analysis was a key element in the successful U.S. case.

MONITORING ACTIVITIES

In addition to working on problems that are uncovered in our compliance activities, we are actively monitoring key agreements. Here again, Commerce, USTR and the other agencies work as a team to identify problems, share information and propose solutions.

Information Technology Agreement -- An extremely important new agreement is the Information Technology Agreement (ITA) negotiation in the WTO which by next January will eliminate duties on U.S. infotech products to 90 percent of the world market -- giving duty-free treatment to over one in every ten dollars of U.S. exports. Working with USTR, the Compliance Center and U.S. industry, our Trade Development analysts are monitoring to ensure that countries actually eliminate duties. Our analysts coordinate reporting activities and provide American companies updated tariff and staging schedules. To verify compliance with the agreement, the industry analysts prioritize the 43 signatories and focus Departmental compliance and monitoring efforts on specific signatories of greatest interest to U.S. Our Trade Development industry analysts consults regularly with the Information Technology Coalition and individual companies. Additionally, we disseminate information regarding the agreement via the Internet, where we maintain a contact list of specialists to respond to inquiries, country tariff and staging schedules, the full text of the agreement, a product landscape detailing covered products, information on U.S. implementation, and links to other web sites providing additional insight.

Anti-Bribery -- Twenty-one years ago, the United States Congress passed the Foreign Corrupt Practices Act (FCPA) --a courageous and farsighted act. Congress also showed its foresight in the 1988 trade bill, which directed negotiating such an agreement in the OECD. This Administration placed a high priority on getting the OECD to bring the world's largest industrialized countries up to the high standard we had been following, and with the strong support of the business community and Congress, we have achieved that goal. Thirty four nations have agreed to enact criminal laws that will follow closely the prohibitions found in our FCPA. So far 12 of the 34 signatories accounting for 60 percent of OECD exports, have deposited their instruments of ratification and the convention entered into force last week.

We will be working with the State and Justice Departments and the Commerce Department's General Counsel to continue efforts to encourage the remaining signatories to ratify the Convention, and will work with the OECD to ensure effective compliance. A particular responsibility of the Trade Compliance Center is producing the annual report mandated by the Senate in ratifying the convention last December. Our first report will be completed by July 1, 1999, and will include descriptions of domestic laws enacted by participants, an assessment of implementation measures taken by countries, an explanation of laws to prohibit the tax deductibility of bribes, and other information requested by the Congress.

U.S.-EU Mutual Recognition Agreements (MRAs) --The U.S.-EU MRA went into force in December, and industry estimates it will reduce exporting costs by more than $1.5 billion a year if properly implemented. The agreement covers six industry sectors for which testing and certification requirements are important potential non tariff barriers in the European Union - telecomm equipment, electrical equipment, electronics and aviation equipment, medical devices, pharmaceuticals, and recreational craft. Implementation is complicated in that we must deal not just with the European Commission, but also with the 15 member states. Commerce's Market Access and Compliance unit has started this process, working with other U.S. government agencies. U.S. regulatory agencies began confidence building exchanges with the competent EU authorities to ensure that all national domestic safety requirements for the covered sectors are respected under the MRA. The FDA, FCC and the OSHA met with their counterparts in the EU to establish implementation guidelines. We expect the first U.S. exporters' reports under the MRA to be submitted to the EU in March 1999.

WTO Agreement Monitoring--New members of the World Trade Organization (WTO) enjoy the security of its multilateral trading rules and the commercial privileges granted by other members. In return, we expect new members to live up to the WTO rules and commitments. As part of our efforts to monitor the results of WTO accession negotiations, the TCC conducts top-to-bottom reviews of newer WTO members' implementation of their WTO accession protocols and obligations. Recently, for example, in examining Ecuador's record we found that it had failed to meet some of its obligations. Working closely with USTR, the TCC's analysis was used in consultations with Ecuador to improve its compliance record. Similarly, we monitor countries' implementation of the various WTO agreements such as the WTO Agreement on Customs Valuation, the Agreement on Preshipment Inspection, and the Agreement on Technical Barriers to Trade. When we identify problems, we work closely with USTR, the State Department, U.S. Embassies and industry to seek resolution.

Investment Agreements The Departments of Commerce and State participate in a joint program to ensure that all U.S. Bilateral Investment Treaties (BITs) in force are being properly implemented. To date, twelve BIT compliance reviews have been concluded. Three others are in progress. These reviews complement our longstanding effort to ensure that U.S. investors overseas are protected. Often a company does not have the necessary expertise to gauge whether a BIT violation is occurring, and aggressive monitoring by the U.S. Government can dissuade a treaty partner government from acting in a manner inconsistent with the BIT.

We have focused extensively on performance requirements that are prohibited by the WTO Agreement on Trade Related Investment Measures (TRIMs). We have worked aggressively to combat such practices in Indonesia and have pressed the countries of the Andean Pact to abide by their commitments. We are currently pursuing other possible violations of the Agreement in India and Egypt and are working with U.S. companies to evaluate restrictions in Malaysia. We will be particularly vigilant when, next January, all developing countries are required to remove any non-conforming measures. We have urged member countries to comply with this requirement.

Intellectual Property Rights -- Of course the Department of Commerce provides USTR with extensive assistance on the "Special 301" review to determine whether our trading partners' provide adequate and effective protection of intellectual property rights. But throughout the year, the TCC and country specialists review industry complaints regarding lack of IPR protection for their exports, monitor foreign governments' implementation of the commitments they made in the WTO and other international agreements and support USTR in IPR-related WTO dispute settlement actions. To give you a current example of our monitoring activity, TCC staff created a monitoring plan that is being used both by U. S. Government agencies and the Government of Paraguay to track Paraguay's implementation of the recently-concluded bilateral intellectual property agreement. The monitoring plan tracks each commitment, and allows us to ensure that all the elements of the agreement are being implemented.

Import Monitoring -- In anticipation of potential trade problems arising out of the global financial crises, early last year the Commerce Department established an extensive import monitoring program that closely tracks imports and prices in key import-sensitive sectors, such as steel, semiconductors and auto parts. This program was designed to provide an early warning system that the Administration could use to formulate a swift response to potential import surges.

With respect to steel, we have enhanced our monitoring efforts by obtaining preliminary Census data on steel imports 20-25 days prior to the official release date. Recognizing the importance of receiving this data early, Commerce staff worked with other agencies to develop guidelines that allow the release of the preliminary import data, in limited situations, to the public. Such guidelines were recently adopted and on January 28, Commerce released the preliminary steel import statistics for December. The release of this data allows the steel industry to make decisions based on the most current, reliable information available on steel imports. The January data will be released two days from now.

The import monitoring program has been an extremely useful tool to the Administration. This information is discussed regularly in interagency meetings, and we have used it to guide the administration's policy with respect to steel import surges.

Subsidies Agreement -- Under the Subsidies Agreement, U.S. industries have a remedy through the WTO against foreign subsidies that affect their business in markets other than the United States. The WTO Subsidies Agreement establishes multilateral disciplines on subsidies and provides mechanisms for challenging government programs that violate these disciplines. The ITA is fully engaged in monitoring compliance with this agreement. In 1997, ITA created a new Subsidies Enforcement Office dedicated to identifying possible violations of the WTO or U.S. trade law and helping U.S. producers combat unfair competition in the United States and foreign markets due to subsidies. Since its inception, the Subsidies Enforcement Office has counseled a wide variety of industries concerned about foreign subsidies and has compiled a comprehensive database of foreign government subsidy practices. As we noted in the Annual Subsidies Enforcement Report sent to Congress on February 1, this information is now available on ITA's web site.

The Subsidies Enforcement Office has worked closely with USTR on several prominent WTO cases involving subsidies, such as the Indonesian autos case. That case resulted in a favorable panel decision and the elimination of subsidies to the Indonesian auto industry that undercut the ability of our auto producers to enter the Indonesian market.

When the financial crisis began to spread last year, a number of U.S. industries, particularly the steel and semiconductor industries, expressed concern that foreign governments would resort to subsidies in an attempt to export their way out of the crisis. Commerce's Subsidies Enforcement Office responded by expanding its activities and working closely with USTR to evaluate industry concerns about possible new subsidies abroad. As a result of these activities, the U.S. government has actively engaged countries that have announced new programs before their implementation to seek changes.

One area of particular importance to the steel industry where these efforts have made a difference has been Hanbo Steel. In response to a complaint from U.S. steel producers alleging that Hanbo Steel, a Korean mini-mill, had been provided government subsidies, Amb. Barshefsky and Secretary Daley engaged the Korean Government in detailed consultations. In addition, President Clinton raised concerns about Hanbo in his meeting with Korean President Kim Dae Jung here in Washington. Through these efforts, the Administration obtained written assurances from the Korean Government that it will not support or direct others to support Hanbo.

Hanbo has now temporarily shut down production of hot-rolled sheet. We also have received assurances that the Hanbo creditors and the independent agent managing the sale of Hanbo will take all steps necessary to ensure a market-driven sale. We continue to monitor these assurances. These Korean Government undertakings constitute the most timely, direct, and commercially meaningful means to address our industry's concerns about Hanbo.

The Administration also expanded the steel dialogue to encompass broader concerns about the Korean steel industry - in particular, regarding the privatization of POSCO, the world's largest steel producer. Our goal is to ensure that this company is fully and expeditiously privatized. Effective privatization of POSCO would help ensure that its pricing, production, and other business decisions are made at arm's length from the Korean government, thereby addressing industry concerns about POSCO's operations. During his trip to Korea in November, President Clinton urged President Kim Dae Jung to ensure that subsidies are not being provided to the steel and semiconductor industries. Through all of these efforts, the Administration is working to ensure that U.S. companies face fair competition, both in U.S. and overseas markets, and that American workers get a fair shake.

Antidumping Agreement -- Commerce closely monitors the laws and proceedings of its trading partners to make certain their actions are consistent with the WTO Antidumping and Subsidies Agreements. To this end, Commerce has assisted exporters in identifying the procedural and technical requirements they must meet in responding to foreign antidumping duty investigations.

By keeping a close eye on how other nations enforce their trade laws, we can hold our trading partners accountable. For example, if a case is not being handled in a transparent manner, this could be a violation of the WTO Antidumping or Subsidies Agreements. When the U.S. discovers a potential WTO violation, it acts quickly to consult with the offending trade partner to effect a resolution of our exporters' problem. In many cases, we first consult informally with the offending trade partner. However, when we have been unable to reach a mutually satisfactory resolution, the Administration has pursued dispute settlement proceedings before the WTO.

The United States last year requested the establishment of a WTO panel in the antidumping duty case initiated by Mexico against U.S. exports of high fructose corn syrup. To assist U.S. companies in other antidumping investigations initiated by Mexico, U.S. officials met with U.S. exporters of live cattle, fresh and frozen beef, and bond paper. The United States continues to examine carefully Mexico's antidumping actions against U.S. steel companies. The United States in 1998 contested before the WTO Committee on Antidumping Practices Argentina's failure to complete an antidumping investigation of U.S. fiber optic cables within 18 months, as required under the WTO Antidumping Agreement. Meanwhile, U.S. officials have undertaken bilateral discussions with trade officials of the European Commission on cases filed by the EC against U.S. exports of certain polymers and on a certain type of capacitors. The United States also continues to monitor closely the first antidumping investigation by the People's Republic of China against U.S. exports of newsprint initiated in December 1997.

Commerce keeps a list of current and past foreign AD/CVD actions filed against U.S. exporters, which is maintained on the Import Administration web-site. The list provides U.S. exporters with updated information collected from U.S. and foreign embassies worldwide. U.S. companies and the U.S. government can better determine whether cases are being handled in conformity with applicable bilateral and multilateral agreements by reviewing events in the investigations as they occur.

FAIR TRADE LAWS AND STEEL

Fair Trade Laws --Although the focus of this hearing is on trade agreements and compliance before I leave the subject let me say Commerce will always vigorously enforce the fair trade laws. Over the years, these laws have proven to be extremely effective in addressing unfair trade practices involving a wide array of goods, including steel products, semiconductors, capital goods, and agricultural products. We currently enforce more than 300 antidumping and countervailing duty orders, including more than 100 on steel products from a variety of countries. In addition, in 1998 we initiated 47 antidumping and countervailing duty investigations.

Over the past several years, Commerce has been working on several sets of regulations that reflect our strong commitment to offsetting unfair trade practices. In November, we released final countervailing duty regulations that will guide our analysis and calculation of foreign subsidies.

Our final regulations are designed to enhance strong enforcement of the trade laws, and send an important signal to our trading partners that we will not tolerate the subsidization of imports that harm our industries and workers. One area where we have strengthened our subsidy rules concerns the government's provision of equity to an unhealthy company. In order to fully offset the benefit of such a subsidy, we have adopted a final rule that treats the entire amount of the equity infusion as a grant.

In the past year, we have taken some important steps to enhance overall enforcement of the fair trade laws. For example, we are addressing import surges more quickly that may occur once a petition is filed or there is public knowledge that it will be filed. The mechanism for addressing this issue under our law is called critical circumstances. While there are strict legal requirements, such a finding allows for the imposition of duties up to 90 days before a preliminary dumping determination, which otherwise would be the starting date for relief. Last year, we issued a policy bulletin on critical circumstances which laid out Commerce's policy in this area and made clear that, under the statute and regulations, a preliminary critical circumstances determination could be made prior to the preliminary dumping determination, as long as all of the statutory criteria were met. Pursuant to this policy, last November we issued an affirmative preliminary finding of critical circumstances in the dumping investigations of hot-rolled steel from Japan and Russia. I would emphasize that our policy on critical circumstances is not specific to the steel cases. We will apply this policy whenever it is relevant and appropriate to do so, in light of the statutory criteria and the facts before us in a particular case.

Last week, we issued preliminary determinations in the antidumping investigations on hot-rolled, flat-rolled, carbon-quality steel products from Brazil and Japan. These determinations were made an unprecedented 25 days early, part of the Administration's comprehensive action plan on steel. Although expedited, these investigations have been conducted fully in accordance with U.S. law and our international obligations.

As a result of these determinations, importers will now have to pay cash deposits or post a bond on imports of these products, in some cases as far back as mid-November. The antidumping margins on imports of hot-rolled steel products from Japan ranged from 25.14 to 67.59 percent and for Brazil from 50.66 to 71.02 percent. In addition, the Department found subsidy rates on imports of hot-rolled steel products from Brazil ranging from 6.62 to 9.45 percent.

We are also conducting an antidumping investigation on hot-rolled steel products from Russia. Yesterday, we reached two tentative agreements with Russia on steel trade. The first suspends the hot-rolled steel investigation and the second is a broader agreement that will limit exports to the United States on virtually all other steel products. These proposed agreements are structured to provide effective relief to the U.S. industry and steel workers from the surge in Russian steel imports.

JAPAN

Let me turn now to Japan, which poses special challenges. While concrete progress has been made over time under the deregulation initiative, and in areas such as medical technology, semiconductors, and banking and securities, there are real problems in other areas such as construction and flat glass. Last year, our $64 billion bilateral deficit was near record levels, and we experienced a disruptive surge in imports of steel from that nation that is harming our industry and workers and which is completely unacceptable. We have told Japan this must end and their exports must revert to pre-crisis levels or we will act.

The trade problem with Japan cannot be explained away simply by pointing to the current Japanese recession. A major reason has been, and remains, lack of market access. The Administration recognized this very early, and has concluded 35 trade agreements with Japan since 1993. Several of our trade agreements have proven very successful -- notably the cellular phones, medical technology and semiconductor agreements. Unfortunately, other agreements have yielded disappointing results that have not succeeded in remedying the market access problems they were designed to address. Some of these agreements have been undermined by continuing anticompetitive practices in the Japanese economy or by overly narrow interpretations by Japan of the agreements' provisions.

Japan has been recalcitrant in some cases. In certain sectors, Japan will not take the necessary steps to make our agreements work. Glass, insurance, construction, and computers are key examples. In others, it is contemplating measures which could make matters much worse. Pharmaceutical pricing and changes in medical device reimbursement procedures are examples. Let me look briefly at some our major agreements in which Commerce has a leading role. It gives a good picture of where we stand and what we are doing.

At our January 28-29 meeting to review results in the medical and pharmaceutical area, we noted progress in certain areas such as product approval, but we also stated clearly that reference pricing for pharmaceuticals would impede the introduction in Japan of innovative drugs -- our industry is the most innovative in the world -- and that reference pricing, in any form, is not compatible with innovation nor with our bilateral deregulation initiative. We told Japan that introduction of such legislation would raise very serious bilateral problems and we will continue to oppose such a system in any form. We also made clear that the system to reimburse medical devices should not be changed until provisions are made to reward innovative products.

Regarding construction, although U.S. firms have won some significant contracts, they are low in value. The most recent annual data show foreign design and construction firms won only $50 million dollars in contracts -- half of the previous year's figure and less than one percent of Japan's $250 billion public works design/construction market. U.S. constructions firms are among the best in the world and are globally competitive. Outside of Japan, U.S. firms have about a 20 percent share of the global market.

Subsequent to the Special Consultations on the U.S.-Japan Construction Agreements on January 27-28, Secretary Daley stated he was "seriously disappointed" by the continued lack of opportunities in Japan's construction market. During the consultations, Japan made two proposals that may increase the number of design/consulting procurements open to foreign firms, but rejected our request to eliminate restrictions on joint venture formation for construction projects. Because of our serious concerns in this sector, I have proposed to Japan that I chair the U.S. side of the 1999 annual construction review tentatively scheduled for July in Tokyo.

Autos and parts comprise the largest single factor in our bilateral trade deficit. Our 1995 U.S.-Japan Automotive Framework Agreement, U.S. implementation of which is co-led by Commerce and USTR, contains a number of measures intended to open the automotive vehicle and parts markets in Japan. Some of these measures call for specific actions to be taken by the Japanese Government with concrete deadlines. The Agreement called for Japan to study its regulatory system and to respond to requests by foreign vehicle and parts manufacturers with the goal of improving market access.

Japan should take additional steps to open its vehicle and parts markets, particularly in the area of deregulation. Accordingly, in the annual review of the Agreement last October we presented to Japan a series of proposals aimed at further opening and deregulating this important market. The current economic difficulties in Japan do not justify any backtracking on their commitments. In fact, further deregulatory and other market-opening measures would enhance competition and help strengthen the economy. We are holding working level consultations to follow up on our deregulatory and market opening proposals the Japanese Government must undertake to open the Japanese market to U.S. and other foreign manufacturers.

Finally, let me say that I think that results under the U.S.-Japan Flat Glass Agreement have been disappointing. The agreement has achieved progress in energy standards affecting glass use and in model projects featuring U.S. glass. But the main objective of the agreement, opening Japan's closed distribution system, has not been achieved. U.S. industry market share in Japan's $4.5 billion glass market is about two percent, compared to approximately 10-30 percent in other countries' flat glass markets.

Japanese firms freely admit U.S. glass is technically superior and less expensive than Japanese glass even after it is shipped across the ocean, but exclusionary business practices within the industry and keiretsu ties between suppliers and customers have combined to prevent the success of U.S. firms in Japan. We continue to press Japan to take open its distribution system, and have recently submitted several proposals to our Japanese counterparts to achieve this objective. Ambassador Fisher will be discussing this issue next week in Tokyo.

Japan is in a serious recession. The Japanese Government has formulated an economic recovery program, and we deeply hope it works. But recession is no reason for Japan not to live up to its trade obligations to further open and deregulate its market, or to do its part to absorb imports from recovering nations.

It is a responsibility Japan must meet. Things must change. Japan must accelerate its structural reform program, fix its financial sector, and open its domestic market to greater competition.

CHINA

Our trade policy and compliance efforts must also address the unacceptable discrepancy between China's exports to the United States that have grown at an average annual rate of 25 percent for twelve years and China's imports from the United States that have grown at an annual rate of only 10 percent -- resulting in a $57 billion U.S. trade deficit last year, second only to our deficit with Japan. The best solution to these problems would be a commitment by the Chinese to WTO accession on a commercially meaningful basis. We are hopeful that the upcoming visit of Premier Zhu Rongi will provide impetus to Chinese negotiators to develop the needed solid WTO package that provides genuine market access and adherence to WTO principles and rules.

But while we continue on this process, we must push for the full measure of the trade rights for which we have already bargained. This includes the 1992 Memorandum of Understanding on Market Access. Importantly, Mr. Chairman, China promised in the 1992 agreement that

it would not maintain import substitution programs or policies. Here we have some significant concerns. We intend to pursue these concerns vigorously, while we simultaneously continue to support and work for China's commercially meaningful accession to the WTO.

For example, the Department is reviewing the concerns raised by the American Natural Soda Ash Corporation alleging Chinese import substitution measures keep out U.S. soda ash even though it is of superior quality and much less expensive than domestic production. Though soda ash is America's largest inorganic chemical export and we are the world's major supplier, hardly any can now be sold in China.

Restrictions on soda ash are but one example of a growing list of market barriers on the rise in China. In preparation for the 12th session of the U.S. - China Joint Commission on Commerce and Trade (JCCT) held last December, Secretary Daley requested that Ambassador Sasser provide an update on new market access barriers. He provided a list of eight new restrictions, including those imposed on the procurement of telecommunications equipment and services, power generation equipment, retailing operations, pharmaceutical pricing, and soda ash as mentioned above. These restrictions and their impact on U.S. -China commercial relations figured prominently in Secretary Daley's discussions with Chinese Trade Minister Shi Guangsheng who co-chaired the JCCT with the Secretary.

The JCCT, established in 1983, is a government-to-government forum that meets throughout the year at senior and working levels to enhance senior level dialogue on U.S.-China commercial relations. Particularly through the working groups, we will be continuing our discussions on market restrictions as a means of seeking the progress in our trade relations that is more important than ever to our overall relationship with China. Without progress, we face coping with a growing source of irritation.

At our urging during the JCCT, on February 11th China's Ministry of Trade, other Chinese agencies, the Amcham in Beijing and other industry groups convened a meeting of industry on both sides to air concerns about the rising number of business impediments in China. While these discussions were useful, we are seeking agreement with the Chinese to hold government-to-government discussions on these restrictions in the hope of resolving a number of them prior to Premier Zhu's visit. Secretary Daley will be urging progress on these restrictions and much greater commercial cooperation in infrastructure during his upcoming multi-agency infrastructure mission to China March 28-April 1. We want to make progress on specific projects of interest to U.S. firms as well as on issues affecting market access in infrastructure over the long term.

DO WE HAVE THE TOOLS TO MAKE THE AGREEMENTS WORK?

Having given the Committee a description of what the Commerce Department is doing in terms of monitoring and seeking compliance with our trade agreements, and an overview of some of the specific problems on which we are now working, I would like finally to turn to an assessment of foreign compliance, and whether we have the tools we need to do the job.

The Clinton Administration has entered into about 270 trade agreements. These agreements have greatly increased market access for American companies and have given U.S. exporters an expanded set of trading rights. There is no question that American exports have benefitted greatly as a result and that in many ways the playing field is more level than it was. But there is also no question that compliance on the part of foreign governments is neither uniform nor complete. Ensuring our trade rights requires systematic follow-up on our part. In the course of this effort, we have found, and are working on, compliance problems. I enumerated some earlier in my statement, and I anticipate that as we continue to work with American companies we will find more.

Sometimes we are able through our compliance effort to resolve problems without having to take them to dispute settlement and enforcement. An example was the success our Market Access and Compliance staff had last year in resolving a labeling problem that halted exports of beer to Mexico by several U.S. brewers. Working cooperatively with the Mexican Government we were able to have the NAFTA-inconsistent regulation reversed, and within weeks of the emergence of the trade barrier the problem was resolved and the beer began flowing to Mexico again -- restoring about $14 million of exports at an annual rate.

At other times we are unable to bring about compliance without having to turn to the dispute settlement mechanisms. The TCC's effort to obtain fair access for U.S. companies wanting to sell to the huge Korean airport construction market is an example. After months of seeking Korean compliance short of resorting to dispute settlement, it has proven necessary to ask for WTO dispute settlement consultations. We remain hopeful that these consultations will result in a market opening settlement that affirms our rights. We have provided all our analyses, case information, and other data to USTR and we look forward to working with USTR as this process moves ahead.

The important thing is that American companies and workers, and the public at large, recognize that we are vigorously seeking and pursuing compliance. There are certainly cases in which we are not getting the full measure of what we bargained for, and we want to find and resolve as many as we can. But I want the Committee to recognize that in the vast majority of cases, we are finding that most countries entered into trade agreements with the expectation that there are mutual benefits, and that they generally are attempting to live up to their commitments. We do not see a general pattern of entering into agreements and then disregarding them.

A particular area of concern, however, is Japan. While Japan has done a good job of implementing many agreements, a number have been implemented in a manner falling far short of the effort needed to actually provide the market access that was anticipated. What is particularly distressing is when agreements are implemented by doing the minimal possible. The ironic thing is that these market opening agreements are actually just the thing Japan needs to spur internal competition and greater efficiency in the domestic economy. I would venture to say that if studies were done in Japan about how well the economy was doing in various sectors, they would find our trade Japan is considerably better off in medical devices, cellular phones and the other areas where agreements have succeeded. Japanese consumers and producers, just as in other countries, always benefit from more open competition.

This leads me to my final area of thought: do we have the tools we need to bring about compliance with our trade agreements?

Resources -- Within the last two years we have placed an increased emphasis on compliance, and we are getting results. But there is still more we could do. For several years, the Congress has tended to look at the Commerce Department's trade role as being principally export promotion. The appropriations process has generally provided sufficient funding to allow us to do an excellent job in this area. But for several years, Congress has consistently provided considerably less funding to our Market Access and Compliance unit than has been requested in the President's budget.

Despite the need to monitor compliance with 35 Japanese agreements and work on a growing number of market access complaints by U.S. companies, our Japan staff has fallen from 18 to 8 in the past eight years. Our China staff declined from 9 to 4. Our European Union office, which has just assumed the enormous new task of compliance with the $1.5 billion Mutual Recognition Agreement, is down from 11 to 6. In his FY 2000 budget the President has requested an increase of 11 people for increased market access resources and 9 people for a compliance "Strike Force" that would concentrate on opening markets for U.S. firms, especially small and medium-sized firms. I commend this budget initiative to this Committee's attention, for adequate funding for access and compliance will pay dividends in increased exports.

Tools -- We need to have strong and effective tools to help us in the effort to ensure compliance. Frankly, the better and more effective the tools that are available to us, the better the agreements and the quicker the compliance. It is that simple. We are pleased at with the Administration's decision to reinstitute Super 301 and Title VII procedures by Executive Order. This enables the Trade Representative to identify U.S. trade expansion priorities and discriminatory foreign government procurement practices and to cite significant foreign trade barriers which should be identified as priority foreign country practices and those countries that are not in compliance with obligations under the World Trade Organization's Agreement on Government Procurement, the NAFTA chapter on government procurement or other agreement or countries that maintain a significant and persistent pattern or practices of discrimination against U.S. products or services in their government purchases.

As Secretary Daley noted last week, Super 301 and Title VII have been effective tools in identifying foreign unfair practices and encouraging their removal. At the Department of Commerce, we intend to ensure that U.S. firms and workers reap the benefits of the trade agreements which we have negotiated. We will work with USTR to ensure that we identify the most significant trade barriers affecting U.S. goods and services exports and that we are taking effective actions to address them.

There is, however, one area that is very troubling; and it is not one for which I currently have a proposal or a solution. That is the area of private sector anti-competitive practices that act as trade barriers. Japan is the example that comes to mind, but it is not the only country. And in that regard I am looking forward to reviewing the recommendations of the private sector International Competition Policy Advisory Committee, the Justice Department, and the Federal Trade Commission as well as suggestions from the members of the Committee and other members of Congress.

Thank you for the opportunity of allowing me to present my views, and I look forward to your questions.

Attachments:

1. Excerpt from The Exporter magazine, March 1998

2. Listing of all agreements in the Trade Compliance Center TARA database