FINAL

Mr. Chairman, I am pleased to be here today both because the subject of today's hearing is extremely important, and because it is a rewarding experience to have the opportunity to appear before the Committee for which I worked for 14 years. I have a prepared statement that I ask be placed on the record and also some shorter remarks to make at this time.

The IMF and Treasury have the principal responsibility for monitoring countries' performance under all aspects of their IMF programs. The Department of Commerce is principally concerned with recipient countries' compliance with trade commitments.

The Commerce Department's Market Access and Compliance unit (MAC), which I head, monitors for countries' compliance with their overall trade commitments taken both bilaterally and multilaterally. As part of this effort, working closely with the Treasury and USTR we also monitor trade related obligations assumed by countries as part of their IMF programs.

We monitor compliance with trade commitments in a number of ways, including consulting with trade associations and other industry contacts. We reach out to smaller companies through, for example, our trade complaint hotline on the internet. Talking to U.S. exporters active in these countries helps ensure an accurate readout on how the trade related aspects are being implemented. We also get reports from State's economic officers and our own foreign service commercial officers in countries abroad.

Through Import Administration's Subsidies Enforcement Office, the Department of Commerce also monitors government directed lending and financial assistance that may represent market-distorting subsidies.

The four countries being discussed today, Brazil, Indonesia, Korea, and Thailand, are of major importance to the U.S. trade position. In fact, the three Asian countries -- Thailand, Korea, and Indonesia now rank as the 9th, 10th, and 11th largest country deficits in our trade, and together our trade balance with them worsened by $15 billion last year -- about one-third of the total deterioration in our trade position.

It was overwhelmingly the loss of our exports to these countries that led to the deficit rise, not an increase in imports from them. Thus what happens to their economies and to further trade liberalization is extremely important to our future export prospects.

Looking at the situation as a whole, I am pleased to be able to say that generally they are doing a good job. They are implementing their trade related commitments, and progress they are making in the broader aspects of their recovery programs is encouraging as well. Both the specific commitments and the general increase in transparency and the stronger working of market forces will, we believe, give American exporters a more level future playing field in these countries.

I also want to note that there are some conditions in the IMF stabilization programs that discipline subsidies, including the removal of government-directed financing, export subsidies and special tax exemptions. Such practices have been found to be subsidies in past countervailing duty cases.

Let me touch briefly on each of the four countries, starting with Korea.

Korea has begun to implement economic reforms on a scale unimaginable before the crisis and the arrival of the Kim Dae Jung administration. If reforms are carried out fully, together with genuine corporate restructuring that reduces capacity and increases transparency, Korea should succeed in moving the economy away from a system of government direction toward one of greater openness and stronger market orientation.

For example, we have seen progress in phasing out the import diversification program, in simplifying or removing import certification procedures, and in opening some services to foreign participants.

Though Korea is certainly improving, some of the old protectionism still remains. A prime example relates to construction of the new $6 billion Inchon International airport--the largest in Asia. Korea is not allowing U.S. companies to compete fairly for contracts on this project.

Though not a part of Korea's IMF commitments, we believe its restrictive actions here are inconsistent with its WTO commitments in the Government Procurement Agreement. We have made repeated efforts to get them to comply but have been unsuccessful. Last month we decided to work with USTR to initiate consultations under the WTO dispute settlement procedures.

We also continue to monitor for subsidy practices such as government-directed lending. One area where these efforts have made a difference has been Hanbo Steel, a privately-owned Korean mini-mill, which U.S. firms alleged had been provided with government subsidies.

Through intensive 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 Hanbo will be sold in a market driven sale.

Turning to Indonesia, that country has implemented or made progress in many of its trade-related commitments. It has done this by 1. eliminating some monopolies and cartels. 2. embarking on a program to privatize state enterprises. 3. reducing export taxes. 4. dismantling joint marketing boards, liberalizing its distribution sector, instituting tariff reductions across the board, and the phasing out of licensing restrictions. We are impressed with Indonesia's efforts to this date in reforming its trade regime.

With respect to Thailand, the IMF-supported economic reform program has been broadly successful in stabilizing the economy. While Thailand's IMF program does not include very many trade-related commitments, the Thai government's efforts to pass economic reform legislation is of particular interest to our commercial relationship. Privatization is a key objective of Thailand's reform program, and over time, U.S. exports to Thailand should benefit from the sale of various state enterprises.

Brazil, which ranks 4th among countries with which the United States has a trade surplus, took several measures last year to help it weather the Asian crisis. These included a modest increase in tariffs, restricting import financing, and re-instituting some previously dormant import licensing requirements. None of these actions appear to violate Brazil's WTO obligations. Moreover, most U.S. companies we spoke to last year indicated that the measures had little effect on their exports. However, complaints from U.S. industry are increasing this year, and we are closely evaluating them against Brazil's trade obligations.

A new IMF agreement for Brazil was announced just yesterday. While I have not seen any details yet, in its initial agreement last year, Brazil committed to continue policies of trade liberalization and agreed not to impose trade restrictions that might be inconsistent with its WTO commitments. Our monitoring indicates last year's commitments are being fulfilled.

Mr. Chairman, in concluding my remarks, let me say that the recent IMF programs have featured a greater market opening focus than we have seen in past years; and we are impressed with their effect. Countries take their IMF commitments seriously, and usually implement them. We think this is such a positive benefit that we would like to see the IMF give all due consideration to such trade and market opening steps in future programs that may be necessary.

Treasury has committed to notify Commerce and USTR of upcoming country programs at an early stage and we look forward to working with USTR in advising on trade-related aspects as appropriate.

A stable financial architecture in Asia and throughout the world is key. At the same time, however, the Administration will be vigilant to prevent backsliding or reneging on trade-related obligations.

There is one problem, though, which I would like to bring to the Committee's attention since this Committee is our authorizing committee. For several years, the Congress has underfunded Commerce's role in monitoring and compliance with trade agreements, and has not provided the resources sought by the Administration. The consequence has been a shrinkage in the amount of staff we have been able to apply to this very important function.

The President's budget proposal for FY 2000 seeks to remedy this situation seeks an increased budget for Market Access and Compliance, including the creation of a "strike force" oriented particularly to the problems faced by small and medium-sized firms. I commend the budget initiative to your attention, for adequate funding for access and compliance will pay dividends in increased exports.

Thank you, Mr. Chairman.