[Senate Hearing 112-607]
[From the U.S. Government Printing Office]
S. Hrg. 112-607
DOING BUSINESS IN LATIN AMERICA: POSITIVE TRENDS BUT SERIOUS CHALLENGES
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HEARING
BEFORE THE
SUBCOMMITTEE ON WESTERN HEMISPHERE, PEACE
CORPS, AND GLOBAL NARCOTICS AFFAIRS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JULY 31, 2012
__________
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COMMITTEE ON FOREIGN RELATIONS
JOHN F. KERRY, Massachusetts, Chairman
BARBARA BOXER, California RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania MARCO RUBIO, Florida
JIM WEBB, Virginia JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico MIKE LEE, Utah
William C. Danvers, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
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SUBCOMMITTEE ON WESTERN HEMISPHERE, PEACE
CORPS, AND GLOBAL NARCOTICS AFFAIRS
ROBERT MENENDEZ, New Jersey, Chairman
BARBARA BOXER, California MARCO RUBIO, Florida
JIM WEBB, Virginia MIKE LEE, Utah
JEANNE SHAHEEN, New Hampshire JIM DeMINT, South Carolina
TOM UDALL, New Mexico JOHNNY ISAKSON, Georgia
JOHN BARRASSO, Wyoming
(ii)
C O N T E N T S
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Page
Bond, Jodi Hanson, vice president, Americas, U.S. Chamber of
Commerce, Washington, DC....................................... 22
Prepared statement........................................... 23
Farnsworth, Eric, vice president, Council of the Americas,
Washington, DC................................................. 28
Prepared statement........................................... 30
Menendez, Hon. Robert, U.S. Senator from New Jersey, opening
statement...................................................... 1
Rubio, Hon. Marco, U.S. Senator from Florida, opening statement.. 3
Rooney, Matthew, Deputy Assistant Secretary for Economic Affairs,
Western Hemisphere Burea, U.S. Department of State, Washington,
DC............................................................. 9
Prepared statement........................................... 11
Responses to questions submitted for the record by Senator
Robert Menendez............................................ 45
Responses to questions submitted for the record by Senator
Marco Rubio................................................ 49
Sanchez, Hon. Francisco, Under Secretary for International Trade,
U.S. Department of Commerce, Washington, DC.................... 5
Prepared statement........................................... 6
Responses to questions submitted for the record by Senator
Jeanne Shaheen............................................. 47
Responses to questions submitted for the record by Senator
Robert Menendez............................................ 48
Additional Material Submitted for the Record
Letter from Senator Richard G. Lugar to Ambassador Ron Kirk, U.S.
Trade Representative........................................... 3
Prepared statement of Chevron Corp. submitted by Edward B. Scott,
vice president and general council, Chevron Upstream and Gas... 37
Prepared statement of the Emergency Committee for American Trade
(ECAT)......................................................... 41
(iii)
DOING BUSINESS IN LATIN AMERICA: POSITIVE TRENDS BUT SERIOUS CHALLENGES
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TUESDAY, JULY 31, 2012
U.S. Senate,
Subcommittee on Western Hemisphere,
Peace Corps and Global Narcotics Affairs,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:05 p.m., in
room SD-419, Dirksen Senate Office Building, Hon. Robert
Menendez (chairman of the subcommittee) presiding.
Present: Senators Menendez and Rubio.
OPENING STATEMENT OF HON. ROBERT MENENDEZ,
U.S. SENATOR FROM NEW JERSEY
Senator Menendez. Good afternoon. This hearing of the
Western Hemisphere Subcommittee will come to order.
Welcome to our hearing on the positive trends and serious
challenges of doing business in Latin America. Our goal today
is to examine ways that the U.S. Government can help promote
American businesses and trade opportunities in the region,
while also considering the challenges, including the impact of
a growing Chinese foothold in the hemisphere, trade barriers to
market access, and the impact of weak institutions and
marginally democratic governments in some countries, on
American investments.
It is my view that we have, obviously, been necessarily
distracted by events in the Middle East and around the world
and simply have not had enough emphasis on Latin America. But
it is also my view that we ignore our own hemispheric
neighborhood at our own peril. While most countries in Latin
America have escaped the worst of today's global downturn,
there are too many troubling signs in the hemisphere to ignore.
Our Government has to aggressively engage in the region.
Working with the private sector, it must leverage all available
opportunities to increase trade, promote American companies,
and create jobs in New Jersey, in Florida, and throughout the
hemisphere.
During the last decade, changing economic policies,
globalization, energy discoveries, and myriad other factors in
Latin America have given rise to promising regional economies
with robust exports and an expanding middle class. Not only has
trade between the United States and Latin America expanded 46
percent since 2009, but there are other positive trends like
relative political stability and mostly open international
trade policies in the region that American companies should
take advantage of in the near- to mid-term.
Elected civilian governments encourage foreign investment
and foster economic growth. Brazil, Colombia, Chile, and Peru,
for example, enjoy stable democracies favoring foreign capital
and investment. With 56 million Latin American households
joining a rapidly growing middle class over the last decade,
consumers in these countries enjoy greater buying power and
discretionary spending than ever before, and that is an
opportunity for American industry.
And yet, as positive as these developments are, the region
is not immune to the debilitating effects of a global
recession. The International Monetary Fund recently lowered its
economic growth forecast for Latin America and the Caribbean to
3.7 percent this year, down from 4.5 percent in 2011. A greater
and unfortunately renewed concern is the weakening of
democracies in the hemisphere by leaders who use their elected
offices to grow their power by weakening democratic
institutions, civil society, the rule of law, and independent
media. Investors who fear instability are reluctant to place
their trust and their resources in countries like Venezuela,
Nicaragua, Bolivia, and Ecuador.
The ongoing constitutional crisis in El Salvador provides
an example of the market responding to political instability.
Last week, Fitch Ratings downgraded its economic outlook for
the country from stable to negative.
And in Argentina, the government imposition of 1980s-style
rules to limit market access, failure to pay past debts, and
nationalization of assets without compensation has shocked
investors. It will almost certainly take many years for that
country to recoup the loss of market confidence resulting from
these policies.
Looking at the broader geopolitical picture, China has
taken note of the positive economic and political trends in the
region and has seized the opportunity to find a foothold in the
region while our primary attention has been on events in other
regions around the world. Since 2000, China has made
significant diplomatic and economic inroads in Latin America.
Overall, Sino-Latin American trade has increased from $12
billion in 2000 to over $140 billion today, with China
supplanting the United States as Brazil and Argentina's largest
trade partner. The truth is that deals offered by China are
often too good to pass up. In addition to offering
unprecedented loan terms and investments, China's mercantilist
policies are not conditioned on labor or environmental
conditions, making them in many cases a more attractive partner
than Western investors.
And that brings us to the purpose of this hearing. We are
here to examine existing and future opportunities for American
companies in Latin America. We are here to consider
opportunities for the U.S. Government to promote American
business and trade in the Western Hemisphere, and we are here
with some of the leading experts on Latin American business and
trade to help put both the positive trends and the challenges
we face in the region in clear perspective so that we can move
toward policies that maximize the positive trends and mitigate
the challenges.
So I want to thank all of our panelists for being here, and
let me turn to my distinguished colleague, the ranking member,
Senator Rubio, for his opening statement.
STATEMENT OF HON. MARCO RUBIO,
U.S. SENATOR FROM FLORIDA
Senator Rubio. Thank you. Mr. Chairman, thanks for holding
this important hearing as well.
Just a couple housekeeping items. First, I would ask for
unanimous consent that this letter by Senator Lugar be entered
into the record. It regards to the Government of Ecuador's
mischaracterization of a June 29 United States Trade
Representative's report on the operation of the Andean Trade
Promotion and Drug Eradication Act.
Senator Menendez. Without objection, so included.
[The letter of Senator Lugar follows:]
U.S. Senate,
Committee on Foreign Relations,
Washington, DC, July 18, 2012.
Ambassador Ron Kirk,
U.S. Trade Representative,
Executive Office of the President,
Washington, DC.
Dear Ambassador Kirk: I am writing to express my concerns regarding
the government of Ecuador's mischaracterization of a June 29th United
States Trade Representative's (USTR) report on the operation of the
Andean Trade Promotion Drug Eradication Act (ATPDEA). In order to
maintain their eligibility for U.S. Trade Preferences, the Ecuadoran
government is alleging that the USTR report supports Ecuador's refusal
to comply with court orders issued by an international arbitral
tribunal regarding a ruling that specifies that the Ecuadoran
government was wrong to accuse Chevron of being responsible for
environmental and social harms in the Oriente region of Ecuador, when
in fact the USTR report states the opposite.
According to reports, Ecuador has violated several orders and
awards issued by an international arbitral tribunal, convened under the
United States-Ecuador Bilateral Investment Treaty (BIT) to consider
false claims made against Ecuador. The most recent violation was
regarding a court award dated February 16, 2012. This award is binding
against Ecuador.
To become designated as a beneficiary country, Ecuador had to meet
various Andean Trade Preferences Act (ATPA) statutory criteria,
including not failing to ``act in good faith in recognizing as binding
and enforcing arbitral awards in favor of [U.S. companies]'' Since ATPA
benefits are not an entitlement, a country is not guaranteed to
maintain its status as a beneficiary country.
Senior Ecuadoran government officials have publicly announced that
Ecuador will not comply with the court's awards. Ecuador's President
called the arbitrations involving Chevron an ``atrocity.'' Ecuador's
Attorney General openly condemned the BIT Tribunal for assuming
jurisdiction over Chevron's claims, saying that it could not ``act as a
tribunal that may review judgments issued by the Ecuadorian judicial
system.''
Ecuador has failed to comply with the court ordered awards
promulgated by the BIT Tribunal. Ecuadoran courts and senior government
officials have denounced the award and denied its binding quality. Had
Ecuador engaged in such conduct prior to its designation as an ATPA
beneficiary country, it would not have been eligible for that
designation. Now that it has engaged in such conduct, please explain
what the implications are for Ecuador to maintain its status as an ATPA
beneficiary country.
I look forward to hearing your views.
Richard G. Lugar,
U.S. Senator.
Senator Rubio. And second, just so the folks on the panel
know, I will need to leave probably around 2:30. There is an
Intelligence Committee meeting. It should not take long, and if
we have not concluded here, I will be back. But thank you all
for being here. I appreciate your service, your continued
service to our Nation.
Latin America obviously is a region of strategic importance
to our country, and a prosperous and democratic and stable
Western Hemisphere is crucial to our own safety and our own
prosperity. This importance is only going to continue to grow.
For example, a recent report found that the Western Hemisphere
will become almost totally self-sufficient in the next two
decades when it comes to energy.
As I have said before, the last 3 decades have seen a very
impressive expansion of political and economic freedoms in this
hemisphere. With, of course, the sad exception of Cuba and a
few resurgent authoritarian rulers, Latin American leaders
recognize the legitimacy of free and fair elections, of
promarket economic policies, and there is an unprecedented
cooperation to curb transnational crime. We have seen this in
nations such as Brazil, Colombia, Chile, and Mexico, to name a
few. These countries have expanded the democratic space, and as
a result their governmental institutions have been
strengthened. These countries have opened markets. They have
embraced competition and they have seen the rewards of free
enterprise and of trade.
I urge the administration to take even bolder steps to
consolidate our relations with similar democratic nations in
the region. For example, in the absence of a hemispheric-wide
free trade zone, the Trans-Pacific Partnership offers new
opportunities to integrate the region to the global economy. I
hope the administration will consider putting in place a
mechanism to include as many Latin American countries as
possible into the TPP's economic infrastructure.
For example, they could develop a fast track process to
allow countries with which the United States has free trade
agreements to join the TPP community once these negotiations
are finalized. And at the same time, we can work on expanding
opportunities in the region and we should also resolutely
address the serious challenges that are plaguing the region. A
working democracy and a functioning market economy depends
heavily on a system of checks and balances where institutions
are allowed to independently work their will within a country's
constitutional framework.
In El Salvador, Argentina, Ecuador, Nicaragua, and
Venezuela, we are seeing a disturbing reemergence of
authoritarian elements in the legislative and the executive
branches of government, eager to manipulate judicial
institutions to serve their short-term political interests.
According to the Heritage Foundation's 2012 Economic Freedom
Index, only four Latin American countries--only four--Cuba,
Ecuador, Venezuela, and Argentina--rank as economically
repressed. Not surprisingly, these countries also share the
dubious distinction of being led by either totalitarian or
authoritarian leaders. If left unchecked, this trend will
diminish any good intended efforts to help American businesses
grow and invest in this region.
The U.S. response to this rising authoritarian challenge
should be clear and it should be swift. An American foreign aid
program or trade agreement is a seal of approval. It is a seal
of approval of certain best practices and should only stay in
place based on meeting certain good governance and legal
protections.
I look forward to your testimony and I hope to learn more
about the administration's policies to address the
opportunities and the challenges to American businesses hoping
to invest in trade in this, our region.
Thank you so much.
Senator Menendez. Thank you, Senator, very much.
Let me turn to our first panel. We will hear from Mr.
Francisco Sanchez, the Under Secretary for International Trade,
the U.S. Department of Commerce, who will be joined by Matthew
Rooney, the Deputy Assistant Secretary in the Bureau of Western
Hemisphere Affairs for the U.S. Department of State. We look
forward to your informed thoughts as representatives of two of
the most prominent economic development and promotion agencies
in the U.S. Government on the evolving role of the public
sector in U.S. trade in Latin America and what, if any,
tangible steps are being taken to protect and grow our
historically strong trade ties within the region. I do not know
if you will have it in your oral testimony. Your full written
testimonies will be included in the record, and we ask you to
summarize for about 5 minutes.
I am particularly concerned about some of the challenges
aspects and want to explore those with you. If you do it orally
in your testimony, fine. If not, we will pursue it in
questions.
With that, let me recognize Secretary Sanchez.
STATEMENT OF HON. FRANCISCO SANCHEZ, UNDER SECRETARY FOR
INTERNATIONAL TRADE, U.S. DEPARTMENT OF COMMERCE, WASHINGTON,
DC
Mr. Sanchez. Thank you, Chairman Menendez, Ranking Member
Rubio, members of the subcommittee. I appreciate the
opportunity to testify about the U.S. Department of Commerce's
work to help American businesses thrive in Latin America.
Two years ago, President Obama launched the National Export
Initiative and he set a goal of doubling exports by the end of
2014. The reasoning behind this was simple. Whenever more
American products reach more markets, it strengthens American
businesses and stronger businesses mean more American jobs.
Last year, U.S. exports reached a record $2.1 trillion in
total value, supporting 9.7 million American jobs, and Latin
America was a key to the success. It was the destination of
close to $370 billion in U.S. goods which represents an
increase of 54 percent since 2009.
And there is potential to do so much more. Latin America
has a growing middle class, meaning more customers for U.S.
products. Considerable growth is projected across the region.
Brazil alone will spend billions on infrastructure development
as it prepares to host the 2014 World Cup and the 2016
Olympics. And U.S. companies can and should play a big part in
this growth. As President Obama has made clear, the future of
the United States is closely linked to the future of our
neighbors in Latin America. We are bound by a rich and shared
history, cultural ties, and our proximity. And as we look to
the future, it is critical that we strengthen these ties in a
way that benefits all partners.
Please allow me, if you would, to mention just a few of the
administration's efforts to strengthen regional integration.
Earlier this year, administration officials, including
myself, and private sector partners from across the hemisphere
participated in the Summit of the Americas in Colombia to
create new pathways to prosperity. In June, President Obama
announced that the United States and its partners extended an
invitation to Mexico to join the Trans-Pacific Partnership
trade negotiations.
And at the U.S. Department of Commerce, we colead the U.S.-
Brazil CEO Forum and we lead the U.S.-Brazil Commercial
Dialogue. We do this in order to strengthen the $74 billion
bilateral trade relationship.
In our work with Mexico, we are focused on regulatory
cooperation, intellectual property rights protection, and on
making North American supply chains more efficient through
enhanced border facilitation and infrastructure.
And of course, we work tirelessly to provide a level
playing field so that U.S. businesses can compete.
Our Latin American trade agreements, which cover over 84
percent of our regional trade, do more than just eliminate
tariffs. They provide transparency, predictability, and
recourse where necessary. That is why the U.S.-Colombia Trade
Agreement, which took effect in May, is so important. U.S.
businesses now have unprecedented access to sell their goods in
this important market. And the Commerce Department's Commercial
Service stands ready to link U.S. businesses with opportunities
across the region. Entrepreneurs can call our offices. They can
visit our Web site and we will help them succeed in Latin
America and in the entire global marketplace.
A couple of examples of our Commercial Service's work. In
New Jersey, our Advocacy Center helped ACROW Corporation of
America secure a $15.5 million contract with the Government of
Colombia to provide prefabricated modular steel bridges. And
our Miami office recently provided counseling to Tragar
Brothers, a Florida distributor of oil and gas equipment,
helping them secure several sales to Petrobras and other
Brazilian companies. Successes like this happen regularly, and
the potential is there for even more.
As part of this work, the administration will continue to
collaborate with Congress on critical trade and development
issues. Let me take a moment to thank the Senate Finance
Committee for reporting out a bill that would take care of some
technical corrections on textiles to the US-CAFTA-DR Free Trade
Agreement. It will also help maintain and create jobs across
the United States and Latin America. So I hope that Congress
will pass this bill very soon.
In the end, the goal of the United States and our Latin
American partners is a shared prosperity that is built through
partnership and guided by shared ideals and values.
I want to thank both of you for your leadership in this
part of the world and for the opportunity to testify today. I
look forward to working with you and other members of this
committee as we move forward our commercial relationship with
Latin America. Thank you.
[The prepared statement of Mr. Sanchez follows:]
Prepared Statement of Francisco J. Sanchez
introduction
Chairman Menendez, Ranking Member Rubio, and members of the
subcommittee, thank you for the opportunity to speak before you today
about the Department of Commerce's work to help U.S. businesses succeed
in Latin America.
u.s. exports lead to jobs and opportunities
Two years ago, President Obama launched the National Export
Initiative with an ambitious goal of doubling U.S. exports by the end
of 2014. At the Department of Commerce, we work every day to help make
this effort a success. Whenever more American goods and services reach
more markets and more customers, it strengthens American businesses.
And stronger businesses result in more American jobs.
In 2011, U.S. exports reached $2.1 trillion in total value, an all-
time record. These exports supported 9.7 million jobs, an increase of
1.2 million compared to 2009. As these numbers demonstrate, the work to
boost U.S. exports is having an impact for families, businesses, and
communities. We want to keep this momentum going by maximizing
opportunities available to U.S. firms, large and small, in overseas
markets. That work leads us to Latin America.
the importance of the latin american market
As President Obama has made clear, the future of the United States
is closely linked to the futures of our neighbors in Latin America. We
are bound by a rich and shared history, cultural ties, and proximity.
As we look to the future, it's critical that we strengthen these ties
in a way that benefits all partners.
This is an important effort for U.S. businesses because the Latin
American market is full of great opportunities. Proximity to our fast-
growing neighbors is a clear advantage in the face of global
competition. Looking simply at ocean shipping from, say, New Jersey
ports, U.S. cargoes can reach Colombia in 9 days and Panama in 4 days.
By contrast, a vessel leaving a New Jersey port can take 29 days to
reach China and 35 days to reach Indonesia.
Last year, U.S. merchandise exports to Latin America totaled $367
billion. This represents an increase of 54 percent since 2009, far
greater than the 36 percent increase with the rest of the world. In one
case, annual total merchandise trade with Mexico reached $461 billion
in 2011. In fact, $1.3 billion in goods cross our shared border every
day, almost double that of a decade earlier.
These numbers are clear: Latin America has been a key part of the
U.S. export success story of recent years. Remarkably, there is
potential for even more progress and growth.
commitment to u.s.-latin america engagement
To maximize these opportunities, the President has been firmly
committed to U.S. engagement with Latin America. Earlier this year,
administration officials, including myself, joined public and private
sector partners from across the hemisphere to participate in the CEO
summit of the Americas in Cartagena, Colombia. The gathering provided a
unique opportunity to strengthen old alliances, create new
partnerships, and identify new pathways to prosperity.
Clearly, these partnerships are benefiting all sides, and we've got
to continue to look for new ways to strengthen regional integration.
One notable milestone occurred recently when President Obama announced
that the United States and its partners extended an invitation to
Mexico to join the Trans Pacific Partnership trade negotiations.
the potential of the latin american market
There are a number of factors that make Latin America an
increasingly attractive place to do business. Over time, it has made a
transition toward greater democracy, empowering its citizens with new
opportunities to succeed.
As a result, over the past decade, millions of people have lifted
themselves out of poverty and into the middle class. This amounts to
half of all households in the region, and that number could grow to
three-quarters within 20 years. Brazil, in particular, is projected to
become a top-five global economy in the next 5 years. Countries like
Colombia, Chile, Peru, Uruguay, and Panama. are also predicted to
achieve considerable growth.
Allow me to just give a few examples of the incredible commercial
opportunities in these countries. As I mentioned earlier, Brazil is
projected to become a top-five economy in the future. Air
transportation, telecommunications, oil and gas and mining are all
strong growth sectors. It will spend billions on infrastructure
development as it prepares to host the 2014 World Cup and the 2016
Olympics.
U.S. companies should play a big part in this growth. There are
many unexplored opportunities. Northeast Brazil, for example, is the
country's fastest growing region. Its nine states have a population of
over 53 million, and four of these states will host World Cup matches.
Yet, this area of Brazil has often been overlooked by U.S. firms
looking to invest or export. These are opportunities that businesses
should seize.
Another example is Colombia. The U.S.-Colombia Trade Promotion
Agreement took effect earlier this year on May 15. U.S. businesses now
have unprecedented access to sell their goods in this important market.
Colombia will spend at least $26 billion in the next 4 years on
extensive infrastructure projects that will require: project financing,
public works subcontracting, logistics, construction equipment, air
navigational and port security aids, railway construction,
transportation equipment, security and defense items and services, and
mass transit systems.
meeting the challenges to doing business
While we are encouraged by these new market opportunities, we are
mindful of the challenges facing U.S. companies doing business in the
region. These include inadequate infrastructure, outdated customs
procedures, corruption, nontariff barriers, challenges remaining in
intellectual property rights protection and enforcement, and increasing
competition from China, just to name a few. Commerce is actively
engaged on projects and initiatives to improve the business climates in
these markets, addressing these challenges on several fronts. For
example:
We colead the U.S.-Brazil CEO Forum and lead the U.S.-Brazil
Commercial Dialogue, which tackle trade barriers, share best practices,
and help strengthen our $74.3 billion bilateral trading relationship.
We work with Mexico (and Canada) on regulatory cooperation and
intellectual property rights, and on making North American supply
chains more efficient through enhanced border facilitation and
infrastructure. Clearly, cooperating with our neighbors has helped to
enhance the economic competitiveness of our three countries.
We work with Honduras, El Salvador, and Costa Rica under the
auspices of Pathways to Prosperity to support border management reform
in Central America.
promoting the benefits of trade agreements
Our Latin American trade agreements, which cover over 70 percent of
our regional trade, do more than just eliminate tariffs. U.S. and Latin
American companies benefit from commitments that facilitate transparent
rule-making, predictable legal frameworks, strong intellectual property
rights protections, and regulatory certainty at home as well as in
global markets. Our trade agreements, in a sense, provide a playbook
for small companies about how to operate in these markets--they remove
tariff and nontariff barriers, and provide transparency,
predictability, and recourse.
At the Department of Commerce, we educate the business community,
especially small businesses, on how to take advantage of these new
market opportunities. In addition, we actively monitor our trading
partners' compliance with our trade agreements and assist companies
when they encounter obstacles to doing business.
linking u.s. businesses with buyers overseas and
attracting investment back home
To help American businesses make the most of these opportunities,
our Commercial Services staff--located in more than 100 U.S. cities and
73 countries--stands ready to link American goods and services with
buyers overseas.
Our talented workforce has in-depth knowledge about the export
process, markets, and sectors. Entrepreneurs can call our offices, or
log onto our Website, and we'll help them succeed in the global
marketplace. Our Miami office recently provided counseling to Traeger
Brothers, a Florida distributor of oil and gas equipment, and helped
them secure several export transactions to Petrobras and other
Brazilian companies worth over $87,000.
Our Albuquerque, NM, office recently provided extensive counseling
to the MIOX Corporation, a small manufacturer of onsite water
disinfectant generators, which led to an export sale to Mexico valued
at $3.5 million.
And in New Jersey, we have helped companies like the ACROW
Corporation of America, a client of our Advocacy Center, to secure a
$15.5 million contract with the Government of Colombia to provide
prefabricated modular steel bridges. ACROW competed against a British
company, which received heavy advocacy from the British Embassy in
Colombia, and ACROW believes our assistance was decisive for an open
and transparent procurement process.
Successes like these are occurring regularly, and we will continue
to work diligently to raise awareness, help businesses navigate through
the export process, and ultimately link American-made goods with buyers
overseas.
Our Commercial Services team is also on the front lines of the
SelectUSA Initiative. Housed in the Commerce Department, it is the
first coordinated U.S. Governmentwide effort to promote and support
business investment in the United States. Brazil and Mexico are among
SelectUSA's priority markets in fiscal year 2012 where U.S. and FCS
personnel have engaged in proactive outreach to members of the
international investor community promoting the United States as the
premier destination for capital.
Foreign investment is key to the American economy. U.S.
subsidiaries of foreign-owned firms maintain a stock foreign direct
investment position in the United States of about $2.3 trillion. These
companies employ more than 5 million U.S. workers, which translates to
more than $400 billion in wages, and the goal of SelectUSA is to
attract more investment.
Our team spreads the word about the desirable market conditions in
the U.S. economy, including a hardworking and educated workforce,
relatively low taxes and access to an incredible consumer base. Their
work leads to increased investment, a stronger America, and ultimately
a stronger region.
helping u.s. companies
I want to thank the Senate Finance Committee for reporting out a
bill that would make technical corrections on textiles to the US-CAFTA-
DR free trade agreement and will help maintain and create jobs across
the United States and Latin America.
The correction on sewing thread alone will help support
approximately 1,800 jobs in the United States, Central America, and the
Dominican Republic. U.S. producers are poised to hire more employees
once this package passes. Along with the AGOA Third Country Fabric
provision, these urgent changes would build on two key U.S. trade
initiatives that support trade, investment, and employment in Africa
and the Western Hemisphere.
I urge the Senate to pass this bill immediately.
conclusion
In the end, the goal of the United States and all our Latin
American partners is shared prosperity that is built through
partnership, and is guided by shared ideals and values. Latin America
is home to some of the most dynamic markets in the world. There are
incredible opportunities for U.S. businesses to be a part of this
growth.
The administration is working to help businesses seize these
opportunities by increasing engagement, fighting for a level playing-
field, linking U.S. goods and services with overseas buyers, and
promoting inward investment. These are all ingredients for success. I
look forward to working with the members of this committee to help more
American businesses succeed in Latin America, both today and for years
to come.
Senator Menendez. Thank you, Secretary Sanchez.
Secretary Rooney.
STATEMENT OF MATTHEW ROONEY, DEPUTY ASSISTANT SECRETARY FOR
ECONOMIC AFFAIRS, WESTERN HEMISPHERE BUREAU, U.S. DEPARTMENT OF
STATE, WASHINGTON, DC
Mr. Rooney. Senator Menendez, Ranking Member Rubio, thank
you very much for the opportunity to be here with you today to
discuss the administration's efforts to promote the
competitiveness of U.S. business in Latin America.
As Under Secretary Sanchez has already noted, the Western
Hemisphere is a region of extraordinary opportunity for U.S.
business. Sound macroeconomic management and investments in
health and education by many governments in the region have
facilitated an impressive economic expansion. Since 2002, the
GDP of the region has more than tripled, rising to
approximately $5.5 trillion in 2011.
These developments and numerous others have lifted, as you
have already noted, sir, millions of households into the middle
class. Rising U.S. exports to the region demonstrate that U.S.
companies are already taking advantage of these opportunities.
That is not to say that the region is without its
challenges. Some countries, such as Argentina and Venezuela,
have chosen policies that result in high rates of inflation.
Weakening global demand has caused commodity prices to come off
their highs in recent months, highlighting the risk of
overreliance on a single sector to drive growth. Sustaining
robust economic expansion will require the region to transition
away from commodity-led growth, driven primarily by demand from
China to a more balanced model that is based on rising
productivity. In this context, many countries in the Americas
are coming to see anew the benefit of trading relationships
with countries such as the United States with which they
exchange a broader range of goods and services.
U.S. businesses also face challenges in taking advantage of
the increasing opportunity in the region. For example, a lack
of transparency in certain nations and a threat of
expropriation can discourage investment.
Nevertheless, our highly competitive private sector is well
positioned to overcome these and other barriers and the
administration is working every day to help them. To help U.S.
firms compete against Chinese and other state-owned
enterprises, we are working with the Department of Commerce to
provide better and more easily available information on
business opportunities around the hemisphere, in particular
through the Infrastructure Exports Initiative which focuses on
promoting business opportunities for infrastructure projects in
nine countries worldwide, including Brazil and Colombia in
Latin America.
Last week, Secretary Clinton opened the Latin American IdEA
partnership which we call La Idea, a business plan competition
that will encourage U.S. small businesses to build new business
partnerships with small businesses in Latin America.
La Idea is a piece of a larger initiative that President
Obama launched as he was traveling to the Summit of the
Americas in April to help small and medium-sized businesses
navigate the complexities of international trade. We will link
our extensive network of small business development centers
with similar centers throughout the hemisphere to create the
Small Business Network of the Americas. With over 2,000 centers
in the hemisphere serving more than 2 million small and medium-
sized businesses, linking these centers more closely together
will provide small business owners with an on-ramp to the
global economy. This effort builds further on several years of
work under the Secretary of State's Pathways to Prosperity
initiative in building and developing the small business
development center model throughout Latin America.
We are focused on the fact that women in the region often
face special obstacles to getting their businesses off the
ground. This is why the President launched the Women's
Entrepreneurship in the Americas initiative, WEAmericas, to
promote access to training, finance, and markets for business
women in the region.
Mr. Chairman, Mr. Ranking Member, our businesses have moved
beyond just selling products to Latin America and the
Caribbean. They are working hand in hand to build complete
businesses from supply chains to distribution networks, to
retail partnership. Secretary Clinton's Economic Statecraft
initiative challenges all of us at the Department to focus on
shaping the policy environment so that these partnerships can
thrive.
With this in mind, as Under Secretary Sanchez has already
noted, we are collaborating more closely than ever with Canada
and Mexico on economic issues such as regulatory cooperation
and more efficient borders. We have set up a direct line for
U.S. businesses to talk with our ambassadors and their teams in
the countries throughout the hemisphere to get advice on
navigating the political and economic landscape in each
country.
As you already noted, gentlemen, the Americas hold
tremendous strategic importance for the United States in terms
of energy. In the coming years, the region will supply more and
more of our imported energy as oil producers such as Canada,
Brazil, and Colombia ramp up output and as Mexico, already a
major producer, considers important reforms to enable an
increase in production.
At the summit, a Colombian initiative called Connecting the
Americas 2022, which seeks to enhance electrical
interconnection across the hemisphere and which builds on the
U.S. Energy and Climate Partnership of the Americas initiative
from the last summit, will increase the availability of
reliable and affordable electricity and accelerate development
of renewable energy opening important new markets for U.S.
exports and investment.
We believe that these close economic ties with our partners
in the Western Hemisphere make us more competitive, and second
only to the protection of American citizens living and
traveling abroad, our top priority is ensuring that our
businesses can pursue these opportunities that the region
presents to create jobs and prosperity for the American people.
Mr. Chairman, Mr. Ranking Member, thank you again for the
opportunity to be here today to discuss this important issue. I
look forward to your questions and to working closely with this
committee to promote U.S. economic interests throughout the
hemisphere.
[The prepared statement of Mr. Rooney follows:]
Prepared Statement of Matthew M. Rooney
Chairman Menendez, Ranking Member Rubio, and members of the
subcommittee, thank you for the opportunity to appear before you today
to discuss the administration's efforts promote the competitiveness of
U.S. business in Latin America and the Caribbean.
The Western Hemisphere is a region of extraordinary opportunity for
U.S. business. Sound macroeconomic management and investments in health
and education by many governments in the region have facilitated an
impressive economic expansion. Since 2002, the GDP of the region has
more than tripled, rising to approximately $5\1/2\ trillion in 2011.
Average inflation rates in the region have hovered around 6 percent
since 1997, a far cry from the days of hyperinflation and monetary
crises that stifled investment and ate away at families' savings. In
the last 10 years, fixed capital investment nearly quadrupled and
governments' greater contributions to social safety nets helped
mitigate the negative effects of the 2008-2009 financial crisis.
These developments and many others have paved the way for a 78-
percent increase in the size of the middle class since 1990. The region
now has 128 million middle-class households that have more disposable
income to spend on education, health care services, cars, houses,
consumer electronics, and other amenities that were previously out of
reach. Rising U.S. exports to the region demonstrate that U.S.
companies are already taking advantage of these opportunities, and the
region's growing reservoir of consumer demand will underpin continued
growth in trade and investment flows.
That is not to say, however, that the region is without challenges.
Some countries, such as Argentina and Venezuela, continue to experience
high rates of inflation. Weakening global demand has caused commodity
prices to come off their highs in recent months, highlighting the risk
of overreliance on a single sector to drive growth. Sustaining robust
economic expansion will require the region to transition away from
commodity-led growth, driven primarily by demand from China and other
markets in Asia, to a more balanced economic approach based on
productivity improvements. In this context, many countries in the
Americas are taking another look at the benefit of maintaining diverse
trading relationships with countries such as the United States with
which they exchange a much broader range of goods and services.
Our businesses also face challenges in taking advantage of the
increasing opportunity in the region. For example, the lack of
transparency or a level playing field in certain nations, and the
threat of expropriation or even nationalization greatly discourages
investment. U.S. companies also tell us of the need to overcome or
otherwise compensate for the high barriers to trade faced in Argentina.
We have expressed our concern, both in bilateral and multilateral
settings, over the nature and application of trade-restrictive measures
which adversely affect imports into Argentina. We will also continue to
urge the Argentine Government to normalize relations with all of its
international creditors to improve Argentina's investment climate.
Nevertheless, our highly competitive private sector is well
positioned to overcome these and other barriers and the administration
is working every day to help them do that. To help U.S. firms compete
against Chinese and other state-owned enterprises, we are working with
Commerce to provide better and more easily available information on
opportunities around the hemisphere. State and Commerce are leading the
Infrastructure Exports Initiative, which focuses on promoting business
opportunities for infrastructure projects in nine countries worldwide
including Brazil and Colombia in Latin America. We will host a global
conference that will discuss further how U.S. companies can compete for
these projects more successfully.
As the President and Secretary Clinton have noted, our proximity to
the region gives our businesses a leg up on competitors from other
countries looking to trade with or invest in Latin America and the
Caribbean. But it's not just geographic proximity that matters; it's
also the deep cultural ties that exist between the people of the
Americas. Last week Secretary Clinton underscored this point by opening
the Latin-America IdEA Partnership (La Idea) business competition,
which will serve as a platform to support U.S.-based diaspora groups
who are investing in their communities of heritage in Latin America
with the goal of building new business partnerships between U.S. and
Latin American small and medium-sized entrepreneurs. This initiative
builds on the Caribbean Idea Marketplace, a similar initiative already
underway. The Secretary said it best, when she said that through these
efforts ``We're going to find the best ideas and help them grow into
successful businesses that create value and jobs throughout the
hemisphere.''
La Idea is just one piece of a larger initiative that President
Obama launched in Tampa, FL, en route to the Summit of the Americas.
The addition of our new trade agreements with Colombia and Panama
brings to fruition the vision of an unbroken chain of free trade
agreements extending from the Arctic to Tierra del Fuego. Along with
the benefits of new market access and growth that these agreements
bring, we have a responsibility to help our small and medium-sized
businesses navigate the complexities of international trade to be just
as successful on the global stage as our largest companies. To this end
the President proposed linking our extensive network of small business
development centers with similar centers throughout the hemisphere to
create the Small Business Network of the Americas. With over 2,000
centers in the hemisphere serving more than 2 million small and medium-
sized businesses, linking these centers more closely together will
provide our local business people with an on-ramp to the global
economy. It can start with opportunities to connect our small business
support centers and help individual small businesses make a new sale in
Mexico or find a business partner in Brazil for example. But, as the
Small Business Network of the Americas develops, doing business across
borders will be within reach for more and more of our small and medium
businesses. This effort builds on several years of work under Pathways
to Prosperity in developing the small business development center model
in Latin America. Mexico and El Salvador are leading the way in
adapting this successful U.S. approach to small business promotion to
the realities of Latin America.
On West Commerce Street in San Antonio, TX, there is a great little
business called the Mariachi Connection. In 1995, Josie Benavidez
started the business after she had a difficult time finding a
replacement string on a guitarron for her husband Rene, a music teacher
in the local San Antonio schools. Rene eventually quit his teaching job
to focus full time on building their new business selling Mariachi
costumes, sheet music, dance shoes, and instruments. Since 1999, Rene
and Josie have been getting business advice and training from the San
Antonio Small Business Development Center which has helped them apply
for loans and expand their online business to sell Mariachi products
worldwide. The International Trade Center at the San Antonio SBDC also
worked through the Mexican network of SBDCs to help the Benavidez
family find the right suppliers and expand their sales to Mexico. This
partnership between our SBDCs and Mexico's SBDCs is exactly the kind of
team work the President talked about when he launched the Small
Business Network of the Americas and it is exactly what we need to help
our small businesses create jobs.
Josie is just one example of the entrepreneurial spirit of many
women throughout the hemisphere. But, the fact of the matter is that
women in the region often face significant barriers to getting their
businesses off the ground, no matter how promising they might be. That
is why the President launched the Women's Entrepreneurship in the
Americas Initiative--or WEAmericas--to improve access to training,
finance, and markets for businesswomen like Josie.
These stories illustrate the fact that our businesses have moved
beyond just selling products to Latin America and the Caribbean, they
are now working hand in hand to build complete businesses from supply
chains to distribution networks to retail partnerships. This is one of
the reasons Secretary Clinton has worked to focus our commercial
diplomacy by emphasizing the importance of economic statecraft. She has
elevated the role of economics across all elements of our foreign
policy to more effectively compete in a world where influence is
increasingly measured in economic terms rather than military might.
Through her Economic Statecraft initiative, she has challenged all of
us at the Department to put the concerns of U.S. business at the center
of our thinking and to keep in mind that creating global business
linkages is part of fostering our own economic growth.
To that end, we are collaborating more closely than ever with our
neighbors in North America on economic issues such as regulatory
cooperation and more efficient borders. We have made a downpayment on
carrying out our jobs diplomacy by setting up a direct line for U.S.
businesses to talk with our ambassadors in countries throughout
hemisphere to get advice on navigating the local political and economic
landscape in each country. The inclusion of Mexico and Canada in
discussions on the Trans-Pacific Partnership is a positive development
as we increase our economic integration with the Asia-Pacific region.
We have also engaged with our FTA partners in the hemisphere to develop
a shared understanding of the opportunities and challenges posed by the
economic developments in Asia and the broader Pacific.
The Americas also holds tremendous strategic importance for the
United States in terms of energy. In coming years, the region will
supply more and more of our imported energy as oil producers such as
Canada, Brazil, and Colombia ramp up output and as Mexico, already a
major energy producer, considers important reforms to increase its
production. Building on the emergence of the Western Hemisphere as a
leader in global energy production, the President came together in
Cartagena with his counterparts to launch an initiative called
Connecting the Americas 2022, which seeks to enhance electrical
interconnection across the hemisphere. We believe that this initiative
will, among other things, open broad new opportunities for investment
in electrical generation and transmission and in grid management
technology, all areas where U.S. businesses are highly competitive. It
will also spread electrical power to the 31 million people across the
region who currently lack access to electricity. Connect 2022 will
build on the Energy and Climate Partnership of the Americas to increase
the availability of reliable and affordable electricity. This means
better schools and better education for children, consistent power for
health clinics and hospitals, lower costs for businesses, and increased
opportunity for economic development. It will also help create a
business climate that accelerates development of renewable energy, as
countries swap power with one another to more effectively utilize clean
energy resources where they are available. Realizing the vision of
hemisphere-wide electrical interconnection and increased access to
electricity over the next decade will require government action and
private sector investment--and work is already underway.
We are confident that even closer collaboration with our partners
will help all of the nations of the Americas to compete more
successfully on the global stage. We believe that these close economic
ties with our partners in the Western Hemisphere make us more
competitive in the global economy, and our top priority is ensuring
that our businesses can pursue the opportunities that the region
presents to create jobs and prosperity for the American people.
Mr. Chairman, Mr. Ranking Member, members of the committee, thank
you again for the opportunity to be here today to discuss this
important issue. I look forward to your questions and to working
closely with this committee to promote U.S. economic interests in the
Western Hemisphere.
Senator Menendez. Well, let me thank both of you for your
testimony.
Before I go to questions, let me ask unanimous consent to
have a statement entered by Chevron with reference to their
dispute with Ecuador in which Ecuador has failed to adhere to
the arbitration award issued pursuant to the U.S.-Ecuador
Bilateral Investment Treaty. Without objection, so ordered.
I appreciate both of your testimonies insofar as the
positive aspects and the promise and the opportunity which I
share. But promises and opportunity cannot be fulfilled if
there are a series of challenges that make that investment
largely dubious in terms of transparency, rule of law,
arbitrary and capricious tax changes, intellectual property
right challenges, and a series of issues.
So let me explore some of those challenges with you. Since
you both aptly described the promise, let us talk about some of
those challenges.
You know, property rights are incredibly important. If we
are going to have American companies and citizens make
investments in the region, you want to make sure that those
property rights are ultimately upheld.
The State Department announced in June that the U.S. fiscal
transparency waiver for Nicaragua and the $3 million in
bilateral aid attached to it would not be renewed this year.
And given the blatant disregard for the democratic process
exhibited by President Ortega during last October's elections,
I am not surprised by that announcement.
I am, however, incredibly surprised to hear last week that
the State Department would be renewing Nicaragua's property
waiver, including the $1.4 billion in multilateral loans that
is tied to it.
So if we all agreed back in June that the Ortega
government, which has joined with its ALPA partners to
consistently criticize the United States and regularly abuses
the democratic process to advance its own agenda at the expense
of the Nicaraguan people, did not deserve the renewal of its
transparency waiver, which includes $3 million in bilateral
aid, why would the State Department decide to renew the much
more important property waiver and its $1.4 billion in
multilateral loans? Is that really a message that we want to
send, one, to Nicaragua or for that fact, any other country
backsliding in its democratic responsibilities and in its
responsibilities for property rights?
Mr. Rooney. Thank you, sir.
You are correct. The Secretary did renew the Nicaragua
property waiver, which has been in place, if I am not mistaken,
since section 527 was introduced in 1994. There was a broad
analysis that took place in the process of deciding whether to
renew that waiver, and I think one of the key factors was that
the consultations that we have conducted during the course of
the year on property issues resulted in the past year in a
remarkable number--I think the number was 65--cases being
resolved. I believe that was the largest number of cases that
the Nicaraguans have resolved in any year since. And so we felt
that the property waiver should be renewed.
But we certainly share the concerns that you have expressed
about the conditions of democracy in Nicaragua and will be
watching carefully as we go through the coming year.
Senator Menendez. Well, it seems to me with one hand we
make a decision that clearly the transparency waiver was not
there, but that is a minor amount relatively speaking, $3
million, and then we let $1.4 billion in multilateral loans
proceed. And while I appreciate the number of cases that may
have been resolved in a given period, we still have 337 pending
cases that have not been resolved years later. So I am not
quite sure that we send the right message.
Let me ask you about this. What about--in light of
Ecuador's imposition of a wide range of safeguard duties
against imports and with President Correa's failure to
cooperate with the United States on narcotics trafficking and
actually expelling the U.S. counternarcotics unit from the
coastal city of Manta where it was monitoring drug shipments
headed north to the United States, is the administration
seriously considering extending ATPA benefits to Ecuador?
Mr. Rooney. Thank you, Senator.
As you know, the ATPA is a legislated program. Therefore,
it is not ours to decide whether it should be extended, but
rather the Congress'. That decision is sometime in the future.
So we have not begun to consider it. We look forward to
consulting with you and other Members of the Congress.
Senator Menendez. Is the administration basically
advocating for those extensions?
Mr. Rooney. No, sir. We have not taken any position on
that.
Senator Menendez. You are not taking any position.
Mr. Rooney. We are aware of the concerns that you have
addressed.
Senator Menendez. I would expect the administration would
take a position that would say unless we have a different set
of realities, the administration would be urging us not to
extend it.
Mr. Rooney. We have expressed to the Ecuadorians--and I
believe they have heard that here on the Hill as well--that
that is one of the considerations that will be----
Senator Menendez. Here is my other big question, and
Secretary Sanchez, I would like to hear from you, too, because
you are supposed to be promoting, as you are, U.S. companies.
So we get into trade agreements and a whole host of those
include international arbitration processes by which when there
is a dispute, those international arbitration processes are
supposed to be the final word. So we go through the
international process of arbitration. Ecuador has that with
Chevron. The Dominican Republic has it with Codasa. There is
also about imaging equipment at the ports, incredibly important
to make sure that those ports do not have products or concerns
to the United States in terms of narcotics trafficking which is
an issue in terms of the opportunity for someone to use those
ports to bring a dirty bomb to the United States. You have
Argentina refusing to pay for its bondholders.
So the question is if we are going to have the
opportunities that you both so aptly described be fulfilled,
you have to have a process by which, when you make your
investment and there is a dispute and you agree that the
process to resolve that dispute, for example, is an
international arbitration process and then the award comes down
on behalf of an American company and the country will not abide
by it, then those countries are sending a message to the
international community, certainly to U.S. businesses, this is
not a good place to invest in.
And second, what are we doing to get those countries to
abide by their obligations both under treaties and in these
arbitration awards?
Mr. Sanchez. Thank you, Mr. Chairman.
We share your concerns, particularly with Ecuador and
Argentina. In the case of Ecuador, we share your concern that
there seems to be a lack of commitment on the part of Ecuador
to honor the international arbitration process in investor
disputes. That clearly sends a chilling message to the
investment community. I think part of what happens is when they
pursue these policies, you see the impact in foreign direct
investment. But we have raised this issue at very high levels
with the Ecuadorian Government.
As it relates to ATPA, we are monitoring the situation, and
as the Deputy Assistant Secretary said, it is the prerogative
of Congress to extend ATPA or not. But before we take a
position on it, we are going to continue to consult closely
with the business community, with you, and with other Members
of Congress, as well as to express our very deep concern to
Ecuador with some of the policies they have taken.
With regard to Argentina, Argentina also is sending
messages to both the investor and trade community that are at
best confusing and at worst very chilling. Currently Argentina
is ranked 113th out of 183 countries in the World Bank Ease of
Doing Business Index. And at least part of that rather poor
ranking has to do with some of the issues that you raise. In
that country, we have raised these issues at the very highest
levels. We have been in close consultation with our business
community to understand how this is impacting them. We have
also been in consultation with Argentinean businesses who are
also adversely affected. They are not able to receive inputs
that they need for their manufacturing or for their
agricultural community that they would buy from American
companies.
And finally, we are also collaborating and talking with
other countries that are affected by Argentina's policies in
the region with countries like Mexico, but also beyond the
region with the EU. The EU recently started consultations to
pursue a WTO dispute settlement case, and we requested and were
granted third-party status in those consultations.
So we are approaching this in every way possible to make
sure that countries with these policies that really are not
conducive to commercial engagement understand the full impact
of their actions.
Senator Menendez. I am not confused by the Argentineans. I
appreciate your diplomacy. The Argentineans send a very clear
message. They have protectionist policies. They do not live up
to their responsibilities to pay their debt to bondholders, and
they are acting in ways that clearly send a message not of
investment. I hope that beyond consultation we will seriously
consider filing a WTO case to address the concerns of American
businesses.
Let me turn to Senator Rubio.
Senator Rubio. Thank you, Mr. Chairman.
I want to begin just with Mexico in the aftermath of their
election. The new administration--I think they take in
December. Is that right?
Well, what is the general feeling from the American
business community in terms of opportunities for investment and
growth in Mexico?
One of the things I have been troubled by is, rightfully
so, all the coverage that the violence and the drug problems
there are getting, but there is also this emerging middle class
and consumer class in Mexico that is being created. Not enough
attention is being--there is good news in Mexico.
What is the view of the business community and American
investment community about Mexico moving forward as this new
administration comes in?
Mr. Sanchez. Thank you, Senator Rubio.
The business community, I believe, is very optimistic and
we, too, are very optimistic. We start with a very good
foundation with Mexico. Through NAFTA, our two-way trade has
increased dramatically over the last 14-15 years. Recently, we
and other TPP partners invited Mexico to join TPP, as you so
aptly pointed out in your opening statement.
A lot of what we do, particularly the Department of
Commerce, but also with assistance from the Department of
State, is what I call blocking and tackling. It is not going to
be front page news, but it has an impact on reducing barriers.
So with Mexico in particular, we work very closely on
regulatory cooperation. We try to harmonize regulations. We
work closely with them on standards and in sectors where we
could both benefit, and we have also more recently been working
on trying to make sure we are maximizing efficiency
particularly at the border for supply chain efficiency, making
both countries more competitive vis-a-vis the world.
So I think the business community is very optimistic and we
are going to continue to engage in ways that strengthen that
commercial relationship.
Senator Rubio. Just as an aside but I think related to
Commerce--and I know it is a topic that is different, and I
would hope we can look at it through the view of Commerce
because I think it is related to Commerce. One of the things I
always get when I meet with officials from the Mexican
Government is the frustration that we have not developed a
workable guest worker program akin to what they have with
Canada or some other countries. And I do not expect you to have
an answer for that today, but I think that does have a Commerce
element to it which is pretty strong and that we should explore
moving forward.
The second question I think is for both of you and it is
about Paraguay who has been in the news recently for,
obviously, some of their issues that have happened with the
constitution. But it is a country that I am surprised there is
not more engagement with. Maybe you could describe to me what
the American business community's view toward Paraguay is. My
meetings and conversations with folks from there show a
tremendous openness and quite frankly an invitation for
American investment and a strengthening of our links and our
relationships with Paraguay.
Mr. Rooney. Thank you, Senator.
As you have noted, Paraguay has been through a tumultuous
few weeks. We have been pleased at the reaction of the
Organization of American States. We feel that their mission
down there was constructive and we have a way forward toward
their elections.
We have, as you may know, had a series of engagements over
the last several years with Paraguay to try to seek a closer
trading and economic relationship with that country. We,
through USTR, have been working with them to make sure that
they are getting the most out of the privileges that they enjoy
under GSP. We have worked with them through an MOU that we
signed a couple of years ago to try to help them improve their
protections of intellectual property rights, which we see as
not only of interest to U.S. exporters but also the key to an
innovation-driven economic growth path for Paraguay. But we are
certainly open to deepening those trade and economic
relationships to the extent possible.
Mr. Sanchez. Senator, we support efforts by the American
business community to engage commercially with Paraguay through
our office in Buenos Aires and our commercial office stands
ready to help American companies that are interested there.
On the policy side, we have worked closely with Paraguay on
Pathways to Prosperity specifically in facilitating border
facilitation for the more efficient and secure movement of
goods, so I think there are opportunities there.
Of course, recent events make the business community
somewhat nervous. The business community likes certainty. But I
am hopeful that this is a short-term problem. And we will
continue to work with any American business interested in
commercial engagement there.
Senator Rubio. Well, just as an aside, I would say that for
the business community, they should actually be somewhat
encouraged by what happened in Paraguay. It happened via a
constitutional order. You did not have the army leaving its
barracks and marching on the capital. You had the Senate
conducting its rightful role. People may not like the outcome,
but they basically followed the law and the way the law was
created. And I think it actually is a case for certainty as
opposed to one where the army was in the streets and people
were being jailed. So I actually think people should be
encouraged that the rule of law prevailed even if they may not
like the outcome.
The last question is about El Salvador, and I am very
concerned about that. As I said in my opening statement--and I
know that the chairman--I think last week you met with some
folks and I think you made your views on it very clear. And
unfortunately, I was not able to make that meeting so I would
hope to use this forum just to say that our foreign aid
programs are a seal of approval. They are a stamp of approval.
And I think that if you are going to give that kind of money
and assistance to a country and its government, you have a
right to insist on only wanting to give aid for countries that
meet certain benchmarks.
I was relatively pleased with some of the progress being
made in El Salvador and their cooperation with us on a number
of things like Afghanistan and some of the regional bodies and
then deeply disturbed recently by this unconstitutional action
by the FMLN and their political coalition they put together in
their national assembly to create this constitutional crisis.
As you know, they now have two Supreme Courts, two sets of
Supreme Court Judges.
Apart from how it endangers--and let me be clear. It does
endanger the economic aid programs that we have, and I think
moving forward, I want to be clear that I will make that an
issue. I do not speak for anybody else other than to say that I
do not think moving forward that we can continue to push
forward on some of these aid programs if this is the kind of
government and this is the kind of governmental actions that we
are going to see.
But apart from the aid things, maybe you could describe
briefly how the business community feels or may soon feel by a
country that has certain leaders or so-called leaders that are
putting together these kinds of coalitions to do these kinds of
things. I imagine it is not good for business, but how bad is
it, and if it plays and continues to play out, how troubling is
that particularly as you see a country that has turned over the
issue to an extra-national body to decide, one by the way
dominated by Sandinistas who are not exactly the model of free
enterprise and democracy?
Mr. Sanchez. Senator, you raise very valid concerns. The
constitutional crisis in El Salvador is certainly of concern to
us at the Department of Commerce and, I believe, to the
business community. You will have a panel following us very
soon that will be able to express directly how they feel.
But again, business seeks certainty, and the constitutional
crisis does not promote certainty. It raises a lot of troubling
questions.
On another point, we have been working closely with El
Salvador to help them try to create a fertile business climate,
and I believe that this runs contrary to that. So I hope that
the Government of El Salvador can resolve this soon because it
is in their interest to do so.
Mr. Rooney. If I may, Senator. Thank you.
Mr. Sanchez, we certainly share those concerns and we have
made clear those concerns directly to the Salvadorian
Government in San Salvador. Ambassador Aponte has spoken to
President Funes and other Salvadorian leaders recently to make
clear, as you have noted, that a political solution to this
crisis needs to be found that respects transparency, good
governance, and separation of powers. We have been encouraged,
as I think you have, in the last few days by a recent movement
toward a political solution, but I think that Salvadorian
leaders are clear that a solution that is not in accord with
separation of powers and good governance does call into
question our assistance programs.
Senator Menendez. Thank you, Senator Rubio.
Let me just ask one or two more questions to you.
Mr. Secretary, you mentioned in your opening statement the
CAFTA-DR perfecting legislation that I supported in the Finance
Committee and had a colloquy with the majority leader on the
floor today, and I believe that sometime later today or
tomorrow, there will be an effort to move those, along with
AGOA and other elements.
But I do hope that you take the message back, as well as
Secretary Rooney, that while I am all for creating economic
opportunity and jobs in the DR and in the CAFTA region, as well
as in the African countries, that we need to be concerned about
creating jobs here in the United States. And it is totally
unacceptable that a U.S. manufacturer has to pay a 13.5-percent
tariff for the same imported cotton material that a foreign
country under these trade agreements gets to send in for zero--
zero. So how is it that an American manufacturer can compete?
They cannot. And so in my own State, there are hundreds of jobs
at stake. There are over 10,000 jobs.
So I hope the administration is going to work with us
toward the cotton and wool trust funds which existed under the
law, expired, and at least created the level playing field that
you have mentioned you want in other respects for the
hemispheric trade. We need that same level playing field here.
Is that something that we can get the administration to
focus on?
Mr. Sanchez. The short answer is ``Yes.''
Let me first thank you for your support for the US-CAFTA-DR
fixes. That will help create jobs both in those nations and
here. So it is very important. We appreciate your support.
I am well aware of the issue you raise. In my office, we
have the Office of Textile and Apparel, OTEXA, and I look
forward to working with you, your staff, and constituent
companies to see how we could help them on this particular
issue or any other issues that they have in supporting their
manufacturing efforts.
Senator Menendez. Let me ask you in a broad context about a
concern I have here. I look at the Dominican Republic, just by
way of example. They have in our international arbitration an
award on Codasa which was building a road there, has U.S.
investors in it, and they are not willing to fulfill the
international arbitration decision which ruled in favor of the
company.
We have another company with American investors that has a
contract actually ratified by the Dominican Congress to do x
ray of all of the cargo that goes through the ports, which have
been problematic and for which in the past narcotics have been
included in those cargo, and they do not want to live by that
contract either.
You have some of the other countries that I have mentioned
today with arbitration awards that have gone against them, and
yet they do not want to live by that.
Well, what are we willing to do--maybe, Mr. Secretary, this
might be more of your bailiwick. But what are we willing to do
with our directors at the IDB, IMF, and other entities? Because
it just seems to me that if you do not send a message that you
cannot with impunity go ahead and violate those trade
agreements and arbitration awards, which you agreed to as a
process, and then
still have us voting for you to get moneys for a variety of
purposes,
then you know what? If those countries can get away with that,
they will. And that puts American companies at a tremendous
disadvantage.
Mr. Rooney. Thank you, Senator.
I think, without specific reference to the Dominican
Republic, but in other cases we have in fact done that.
Senator Menendez. Well, then I hope you are going to look
at the Dominican Republic. We are happy to provide you with the
information.
Mr. Rooney. As the cases unfold, we certainly look at all
those tools. In other cases we have voted against loans, for
example, to Argentina as a policy matter in light of their
increasingly protectionist policies. We withdrew Argentina's
GSP benefits as a result of its failure to pay its arbitral
awards in two cases involving U.S. companies that filed
petitions with the U.S. Government. So those tools are
certainly on the table, and as these cases unfold, we do not
hesitate to use them.
Senator Menendez. One last question. As part of its
ascension to the TPP negotiations, Mexico recently issued
guidelines that would allow finally for implementation of its
NAFTA obligation to provide regulatory test data protection for
innovative biopharmaceuticals, something that is very important
in my State which is the medicine cabinet to the world. I
believe this is an important step toward strengthening Mexico's
IPR regime and to ensuring trade partners comply fully with
their obligations.
I have been informed, however, that the Mexican Government
does not intend to provide the protection for biologics but
only small molecule medicines.
If this is indeed the Mexican Government's position, it is
very troubling, as complying with its NAFTA obligation was one
of the preconditions for its entry into TPP. Does the
administration have a view regarding the appropriate scope of
regulatory data protection under the terms of the NAFTA treaty
and what the U.S. Government intends to do in terms of advocacy
in this regard?
Mr. Sanchez. Yes. Thank you, Mr. Chairman.
We were pleased that Mexico issued a regulation. However,
we are continuing to look closely at it. On its face, the
regulation does not appear to exclude biologics, but we
continue to work very closely with the industry and we will
consult with the Mexican Government to express our strong
interest in biologics not being excluded. I would say, though,
at this point on its face, the regulation does not exclude
biologics.
Senator Menendez. And my concern--I understand when
something is not excluded, it does not mean that it is
included. And so I hope our advocacy would be to ensure that it
is included because that would be part of Mexico's NAFTA
obligations here, and if we are going to extend TPP, then we
have got to make sure that as a foundation we have that which
has already been agreed to with the United States to be
fulfilled.
Mr. Sanchez. Our advocacy will be in very close
consultation with our industry, as well as with you and your
office.
Senator Menendez. Thank you both very much for your
testimony. We appreciate it and look forward to continuing to
work with both of you.
Mr. Sanchez. Thank you, Mr. Chairman.
Senator Menendez. As our two witnesses depart, let me call
our second panel which shifts to the private sector and examine
some of the barriers and obstacles to increasing trade presence
in the region. We are fortunate to have with us two excellent
panelists: Eric Farnsworth, the vice president of the Council
of the Americas; and Jodi Hanson Bond, the vice president of
the Americas Division at the U.S. Chamber of Commerce.
So, we appreciate your presence. We ask you to summarize
your testimony to about 5 minutes or so. Your full testimony is
going to be included in the record. Since I am Cuban, it means
that ladies go first. So Ms. Hanson Bond.
STATEMENT OF JODI HANSON BOND, VICE PRESIDENT, AMERICAS, U.S.
CHAMBER OF COMMERCE, WASHINGTON, DC
Ms. Bond. Thank you, Chairman Menendez.
My name is Jodi Bond and I am vice president of the
Americas at the U.S. Chamber of Commerce.
The U.S. Chamber of Commerce is the world's largest
business federation, representing the interests of more than 3
million businesses of all sizes, sectors, and regions, as well
as State and local chambers and industry associations.
Thank you for the opportunity to speak to the subcommittee
about some of the opportunities and challenges for the United
States and its business community in the Americas today.
Let me begin by underscoring the strategic importance of
the Americas to the United States. The Western Hemisphere
accounts for over 44 percent of all U.S. goods exports, about
$650 billion
all together, and 12 of our 20 free trade partners are from
this hemisphere.
Nevertheless, widespread rule of law challenges, in
particular, hold back the economic dynamism of the hemisphere.
In light of this pressing problem, 2 years ago, the U.S.
Chamber of Commerce established the Coalition for the Rule of
Law in Global Markets, which has highlighted five factors--
transparency, predictability, stability, accountability, and
due process--that we believe are needed for a sound legal
environment for business. We have found that where these five
factors are present investment thrives, economies grow, jobs
are created, and prosperity follows. Where they are absent
corruption thrives, informality reigns, investment dollars
flee, and tax revenues plummet.
One case in point is Argentina, a country that has enjoyed
impressive growth over the last decade, but whose unorthodox
economic policies have contributed to a continuing boom/bust
cycle. Many of our member companies have been invested in
Argentina for decades. There they find a rich culture, a highly
skilled workforce, and an educated and cosmopolitan consumer.
Yet, we are concerned about policies making it extremely
difficult for them to do business; policies like nonautomatic
import licenses and import/export balancing requirements which
we believe to be WTO-inconsistent.
We have similar concerns about Ecuador where both the
Departments of State and Commerce have noted weaknesses in the
judicial system, concerns that we understand were echoed in a
recent letter from Senator Lugar to U.S. Trade Representative
Kirk. That weakness has at times been exploited to take
advantage of foreign investors, including U.S. companies.
Making matters worse, Ecuador has stated its intention to
terminate the U.S.-Ecuador Bilateral Investment Treaty and has
denounced preexisting binding arbitral awards.
We are greatly concerned that if met with indifference by
the international business community, this conduct sets a
dangerous precedent for other countries. Indeed, a disturbing
level of contagion has already been evident with governance
lapses in the business environment seeming to go hand in hand
with breakdowns in broader political governance as recently
seen in El Salvador and Nicaragua, for example.
Further, we are alarmed by the rapid spread of illicit
commerce in the region, a global scourge that by some accounts
now equals 10 percent of global GDP. To address this issue, we
need to work with our partners like Panama whose otherwise
strategic geography unfortunately attracts the bad actors as
well as the good.
Still, there are several things the United States should do
to maintain a regional leadership presence. First, champion
expanded Latin America presence in TPP. Next, reinforce
cooperation with our North American partners, Mexico and
Canada. And, promote regional priorities such as security,
trade facilitation, and rule of law with our hemispheric
partners.
More specifically, in the southern cone, the U.S. Chamber
is advocating for an already ambitious agenda with Brazil to
increase our substantial $70 billion trading relationship. We
believe the time is ripe for the United States and Brazil to
explore a bilateral economic partnership agreement that not
only includes traditional market access but new areas of
economic and commercial cooperation in the areas of energy,
infrastructure, and trilateral cooperation such as preference
programs with poorer countries like Haiti. The Chamber's
Brazil-U.S. Business Council has helped make such a partnership
possible by working to resolve the irritants to our trade
relationship on issues like ethanol, orange juice, spirits,
GSP, and cotton, and it should be noted that we can do the same
with the Government of Argentina with respect to its market
access priorities on lemon and beef if Argentina engages in a
constructive dialogue.
To conclude, Mr. Chairman, we are at a pivotal point in our
relationships in the Western Hemisphere because the economic
forecasts are strong and the region is in a growth mode. There
is still ample opportunity for the United States to lead, but
if we do not, it is certain that our partners are looking
elsewhere because Latin America is not sitting still.
Thank you.
[The prepared statement of Ms. Bond follows:]
Prepared Statement of Jodi Hanson Bond
Thank you, Chairman Menendez, Ranking Member Rubio, and
distinguished members of the Subcommittee on Western Hemisphere, Peace
Corps and Global Narcotics Affairs. My name is Jodi Bond, and I am vice
president for the Americas at the U.S. Chamber of Commerce. The U.S.
Chamber of Commerce is the world's largest business federation,
representing the interests of more than 3 million businesses of all
sizes, sectors, and regions, as well as State and local chambers and
industry associations.
I am pleased to speak today about doing business in Latin America,
more specifically the opportunities and challenges that our member
companies face in this hemisphere on a daily basis.
the strategic importance of the americas
First, it is crucial to underscore the importance of Latin America
to the United States of America. As our hemispheric neighbors, the
countries of Latin America are strategically important, but they also
represent a vital market for U.S. exporters and importers.
While many policymakers in Washington are focused on an Asian-pivot
and look east for new trading partners, the reality is that in 2011 the
nations of this hemisphere purchased 43.7 percent of U.S. goods
exports--nearly as much as the United States exported to East Asia
(24.9 percent) and Europe (22.2 percent) combined.\1\
Furthermore, with the importance increasingly placed on the BRIC
countries--Brazil, Russia, India, and China--it is easy to overlook the
fact that the United States exports more to Mexico than to all the BRIC
countries combined. Even in growth terms, the $55 billion in additional
U.S. export sales to Mexico over the past 2 years is identical to the
combined growth in U.S. exports to the BRICs in that same period.\2\
What makes the markets in the Americas so strategic relative to
other regions is that with the imminent implementation of the U.S.-
Panama Trade Promotion Agreement, the United States will have free
trade agreements with countries forming an unbroken chain from Canada
to Chile. These 12 free trade partners not only share the U.S.
perspective on the need for an open, rules-based multilateral trading
system, but also account for 87 percent of U.S. goods exports to the
hemisphere or more than 38 percent of U.S. total goods exports.
Overlaying these trade policy successes is a much-improved economic
performance by many countries of the hemisphere. Broadly speaking, the
region weathered the 2008-2009 global financial crisis better than many
other regions, illustrating the success of macroeconomic reforms over
recent decades. For 2012, the United Nation's Economic Commission on
Latin American and the Caribbean (UN ECLAC) forecasts 3.7 percent
growth for the region as a whole, following growth of 4.0 percent in
2011. Many individual countries have fared much better: Recent FTA
partners Panama and Peru, for example, are forecast to grow 8.0 percent
and 5.7 percent, respectively, in 2012. Meanwhile, Mexico, with 4.0
percent forecasted growth, is now luring back production previously
lost to China, which through deeply integrated North American value
chains is contributing to job creation here in the United States.
challenges persist: the need for legal certainty
Notwithstanding that rosy picture, doing business in Latin America
continues to present serious challenges. Most significantly,
shortcomings related to rule of law are prevalent in a number of
countries, resulting in a deficit of legal certainty for the business
environment and collectively holding back the influence and dynamism of
the region in global trade. To help address these concerns, the U.S.
Chamber of Commerce has established a Coalition for the Rule of Law in
Global Markets, which has noted five factors that determine the ability
of any business to make good investment and operating decisions, and
thereby have a reasonable expectation of returning a profit in any
given market:
(1) Transparency: Laws and regulations applied to business
must be readily accessible and easily understood.
(2) Predictability: Laws and regulations must be applied in a
logical and consistent manner regardless of time, place, or
parties concerned.
(3) Stability: The state's rationale for the regulation of
business must be cohesive over time, establishing an
institutional consistency across administrations, and free from
arbitrary or retroactive amendment.
(4) Accountability: Investors must be confident that the law
will be upheld and applied equally to government as well as
private actors.
(5) Due Process: When disputes arise, they must be resolved
in a fair, transparent, and predetermined process.
We've found that where these factors are present investment
thrives, economies grow, jobs are created, and prosperity follows.
Where they are absent, corruption thrives, informality reigns,
investment dollars flee, and tax revenues plummet.
Argentina
A case in point is Argentina, a country that has enjoyed impressive
growth over the last decade, yet whose long-term prospects are dimmed
by policies that limit opportunities for further expansion, and appears
to be heading for a repeat of the boom-bust cycle that has been a
hallmark of the Argentine economy. In efforts to address macroeconomic
challenges resulting at least in part from the country's self-imposed
inability to access international capital markets, Argentina has
engaged in a systematic effort to reduce exports into and capital flows
out of its market. The resulting series of byzantine and nontransparent
regulatory measures make Argentina one of the most difficult places in
the world for companies to do business even as they seek to contribute
to Argentine job creation and growth. The informal manner in which
these policies have been implemented contributes to an environment of
increasing uncertainty for business. Moreover, the measures themselves
in some cases--and certainly in their application--raise questions of
compliance with international trade obligations, as well as of due
process under domestic law.
One such measure is Argentina's February 2012 ``Advance
Import Affidavit'' (Declaracion Jurada Anticipada de
Importacion, or ``DJAI'') requirement, which effectively
requires companies to seek advance approval before they may
import goods into Argentina.
A related hurdle to trade is the nonautomatic import
licensing regime that Argentina maintains on a wide variety of
imported goods. WTO rules require members to process
applications for these licenses within 60 days; a time limit
that Argentina has consistently ignored.
A third issue pertains to Argentina's de facto trade
balancing requirements, whereby companies have been required to
balance their imports into Argentina with an equivalent level
of exports.
Other companies have been pressured to relocate
manufacturing facilities to Argentina altogether as a
prerequisite for continuing to do business there.
We are also concerned with Argentina's newly adopted patent
examination guidelines, which appear to significantly restrict
patent subject matter eligibility and appear to prohibit or
severely restrict patenting of deserving inventions, such as
polymorphs, new formulations, etc. These guidelines are not
consistent with WTO Agreement on Trade-Related Intellectual
Property Rights (TRIPS) standards and also raise significant
concerns regarding incentives for innovation in Argentina.
Finally, Argentina has flaunted contractual and treaty
obligations through confiscation of private property and open
disregard for binding international arbitration rulings,
contributing further to the breakdown of legal certainty.
By all reports the majority of these steps have been taken in an
atmosphere of coercion and behind an ever-present threat of retaliation
against both companies and their individual executives. Most, if not
all, of these measures appear to be inconsistent with either WTO rules
and/or the U.S.-Argentina Bilateral Investment Treaty. In fact, the
European Union has made a formal request for consultations with
Argentina at the World Trade Organization, later joined by the United
States and a number of other countries. The EU's consultation request
sets out a variety of potential WTO claims, including claims under
Articles III (national treatment) and XI (elimination of quantitative
restrictions) of the General Agreement on Tariffs and Trade 1994
(GATT); a claim under the WTO Agreement on Trade-Related Investment
Measures; a series of claims under the WTO Agreement on Import
Licensing Procedures; and individual claims under the WTO Agreement on
Agriculture and the WTO Agreement on Safeguards.
At the very least, we believe that these policies do not exhibit
behavior of a responsible global trading partner and a member of the
G20, as the ranking member of this committee noted in a recently
introduced resolution.
Ecuador
A second country that has raised grave rule of law concerns is
Ecuador. As the U.S. Department of Commerce recently noted in its Doing
Business in Ecuador report, ``fundamental weaknesses in Ecuador's
judicial system and the rule of law are major challenges in doing
business in Ecuador.'' Further, the U.S. Department of State's 2011
Investment Climate Statement on Ecuador identifies, ``systemic weakness
in the judicial system and its susceptibility to political or economic
pressures constitutes important problems faced by U.S. companies
investing in or trading with Ecuador.''
Specifically, as noted in a recent letter from the U.S. Chamber's
Senior Vice President for International Affairs, Myron Brilliant, to
U.S. Trade Representative Ron Kirk, the Government of the Republic of
Ecuador has not been acting in good faith in recognizing as binding and
enforcing arbitral awards. Not only has Ecuador withdrawn from the
World Bank's Convention on the Settlement of Investment Disputes
between States and Nationals of Other States and stated its intention
to terminate the U.S.-Ecuador Bilateral Investment Treaty (BIT), it has
also failed to comply with the preexisting order of an international
arbitration tribunal convened under Article 6 of the U.S.-Ecuador BIT
and administered by the Permanent Court of Arbitration in The Hague,
``(whether by its judicial, legislative, or executive branches) to take
all measures necessary to suspend or cause to be suspended the
enforcement and recognition within or without Ecuador'' of the $18.2
billion judgment by Ecuadoran courts against the Chevron Corporation.
The Government of the Republic of Ecuador has flouted this and other
BIT awards, with President Correa himself denouncing the panel's
findings.
We regret that both the judicial and executive branches of the
Government of the Republic of Ecuador have publicly denounced the
arbitration award and stand silently by while efforts are made to seek
foreign enforcement of the judgment, most recently in Canada and
Brazil, in direct violation of the international tribunal's ruling
award. Ecuador's disregard for international standards of justice and
its own treaty obligations not only represents a breach of its BIT
obligations to the United States, but sends a negative message to the
global business community contemplating making investments in Ecuador.
Contagion
These recent actions by Argentina and Ecuador--let's not forget
Venezuela and Bolivia too--set a dangerous precedent for other
countries in the region and around the world. In fact, a disturbing
level of contagion has already been evident around the hemisphere as
these countries have undermined the rule of law with impunity.
Frequently, these governance lapses in the business environment seem to
go hand in hand with breakdowns in broader, political governance--as
recently seen in El Salvador's institutional crisis and Nicaragua's
Special Law 364, which deprives American companies being sued in
pesticide litigation of basic due process rights.
Furthermore, we are alarmed by the rapid spread of illicit commerce
in the region, a global scourge that by some reports now equals 10
percent of global GDP. This illegitimate traffic is a source of funding
for transnational criminal organizations involved in narcotics and
human slavery; is a source of substantial funding for terrorists; robs
governments of tax revenues; undermines public health and safety
objectives; and undercuts legitimate businesses, the formal sector, and
its employment base. The corrupting influence of this trade reinforces
a negative cycle that makes it still more difficult to combat, so it's
critical that we seize on opportunities to address the problem. One
such is the implementation of the Panama free trade agreement, where we
have an opportunity to build on that new partnership to strengthen
collaborative efforts to halt illicit commerce through Panama's
critical global trade hub. The absence of effective efforts to curb
illicit trade in and through Panama and its free trade zone, in spite
some efforts by Panama's customs service, is not only undermining
Panama's stated desire to become a trusted trade and financial hub
bridging the Pacific economy to the Caribbean and Atlantic economies,
but it is adversely implicating the rule of law, good governance and
national security. No time should be wasted in encouraging progress on
this front which would complement and reinforce bilateral efforts
already underway to address other forms of illicit activity.
Furthermore, we have found that many within the region recognize the
importance of addressing this scourge given its undesirable effects.
what's next?
These challenges to doing business in many of the countries,
including with key trading partners; the relative strength of Latin
America's economies; and the impressive network of U.S. free trade
partners in the region, mean simply that our work is not done. Our
trade and investment ties can be deepened, our partnerships can be
reinforced, and our shared values and interests reaffirmed.
The U.S. Chamber of Commerce serves as the Executive Secretariat to
the Association of American Chambers of Commerce in Latin America and
the Caribbean (AACCLA). Twenty-three American Chambers, or ``AmChams,''
in 21 countries make up this grouping that work together on a common
policy agenda in support of U.S. economic engagement in the hemisphere.
The U.S. Department of State through Secretary Clinton's economic
statecraft policy has explicitly recognized the AmCham network
worldwide as a key to U.S. economic success. Here in the Americas, we
are proud to serve the strongest network of AmChams anywhere in the
world.
Our work with AACCLA and the AmChams supports and informs all of
our shared policy goals in the hemisphere from market access and trade
facilitation, to rule of law, enforcement of existing trade agreements,
strong intellectual property protections, sustainability, and corporate
social responsibility. Together, we fought for congressional approval
of the free trade agreements with Colombia and Panama--as we did before
for Chile, CAFTA-DR, and Peru--and together we are forging ahead to
modernize customs processes, improve commercial infrastructure, and
reinforce the rule of law throughout the hemisphere.
We do so in close collaboration with key partners in and out of
government. For instance, we are currently working with the Inter-
American Development Bank on, among other things, a trade facilitation
project that will identify private sector-led priorities for trade
facilitation in Central America and the Dominican Republic. Likewise,
we work closely with the U.S. Department of State to support and foster
public-private dialogue, facilitating the Secretary's Global Business
Conference in February, for instance.
Most recently, we had the opportunity to host the U.S. Department
of State and delegations from 9 of the 12 U.S. free trade partner
countries in the hemisphere for a discussion that set the scene for
next steps among like-minded countries on subjects such as trade,
workforce development, and rule of law. This included an important
conversation about rationalizing the trade liberalization that has
already taken place--what my colleague, Dr. Jose Raul Perales, and
others have described as the ``spaghetti bowl of free-trade
agreements.'' \3\
What the dialogue made clear is that our partners in the hemisphere
welcome U.S. leadership. But they are not going to wait for it. For
instance, the Pacific Alliance, an accord signed by Chile, Colombia,
Mexico, and Peru, plans to remove barriers not covered under existing
bilateral free trade agreements, such as those relating to the movement
of people, establishing a bloc that accounts for more than 35 percent
of Latin America's GDP. Another example is the Integrated Latin
American Market (MILA), an attempt to create the largest stock exchange
in the South American Continent by creating a common regional stock
exchange between Chile, Colombia, and Peru; and the Central American
Electrical Interconnection System (SIEPAC), a planned interconnection
of the power grids of six Central American nations.
Hemispherically, three forward-looking options are commonly
discussed in trade policy circles: (1) linking the current trade
agreements through the various chapters such as rules of origin; (2)
bringing the rest of the hemisphere into the fold by negotiating free
trade agreements with the other countries in the hemisphere; or, (3)
completing what we view as the next generation trade agreement, the
Trans-Pacific Partnership, with a workable accession model that will
attract additional parties.
While the U.S. Chamber supports all of the aforementioned
hemispheric initiatives, there are also a number of lower profile
initiatives which offer this hemisphere significant opportunities for a
competitive edge:
North America
The U.S. Chamber is pursuing parallel initiatives to achieve world-
class land borders with Canada and Mexico as well as ensuring that both
countries are parties to the next generation trade agreement, the
Trans-Pacific Partnership (TPP). Through our U.S.-Mexico Leadership
Initiative, the U.S. Chamber is bringing corporate statesmanship to the
fore in the bilateral relationship with Mexico. With partners such as
AmCham Canada and the Canadian Chamber of Commerce, the U.S. Chamber
continues working to enhance the largest bilateral trading relationship
in the world between Canada and the United States.
In both countries, the United States was able to secure important
reforms in the process of TPP entry. For instance, we were encouraged
by the passage of Canadian copyright legislation, which represents a
step in the right direction toward a solid intellectual property regime
in Canada. Likewise, the recent publication by Mexico's COFEPRIS of
guidelines on regulatory data protection goes a long way to represents
progress toward addressing longstanding concerns about IP protection in
Mexico by of the U.S. IP R&D-based pharmaceutical industry. We are
optimistic about the opportunity to secure further gains and modernize
those partnerships in the TPP negotiations.
Central America and the Caribbean
The U.S. Chamber is highlighting the success of the U.S.-Central
America-Dominican Republic Free Trade Agreement (DR-CAFTA) while
working to ensure that all parties are keeping their commitments. The
Chamber is also promoting regional security and the rule of law,
supporting preference programs, expanding the network of AmChams in the
region through the creation of new AmChams in countries such as
Barbados, promoting trade facilitation and customs modernization
through a joint IADB-U.S. Chamber Trade Facilitation Advisory Group,
and working within the law to constructively expand legitimate trade
and travel with Cuba.
Andes
The U.S. Chamber continues to champion regional trade agreements,
trade facilitation, security, and the rule of law through programming
with key officials, along with trade coalition leadership. In the
Andean region, we are increasingly seeking opportunities to promote
member companies and facilitating government procurement opportunities
in growing markets such as Colombia and Peru while combating
protectionism in Ecuador and Venezuela.
Southern Cone
The U.S. Chamber is pursuing a more ambitious trade agenda with
Brazil to increase an already substantial trading relationship of more
than $70 billion in goods in 2011.\4\ Through the Chamber-affiliated
Brazil-U.S. Business Council--the leading advocate for the trade and
investment relationship between the United States and Brazil--we have
worked hard to reduce the irritants to our trade relationship,
including on ethanol, orange juice, spirits, GSP, and cotton; still, we
have much to do to enhance our prospective economic ties between our
countries.
In this context, we believe the time is ripe for the U.S. and
Brazil to begin exploring the idea of an encompassing Bilateral
Economic Partnership Agreement that not only includes traditional
market access, but also new areas of economic and commercial
cooperation such as energy, infrastructure, and innovative trilateral
cooperation mechanisms including trade preference harmonization for
poorer countries in the hemisphere such as Haiti, technical assistance
related to food and energy security, and disaster prevention and
response.
In addition to our work on Argentina, where as we have with Brazil
we stand ready to work with the government on its market access
priorities for Argentine products such as lemon and beef, the U.S.
Chamber is enhancing already strong partnerships with the
administration in Chile, and we are alert to opportunities to expand
U.S. trade relationships with Paraguay and Uruguay.
conclusion
On all these fronts, U.S. Government leadership is key, and we
greatly appreciate the efforts of this subcommittee, as well as the
full committee, and particularly Chairman Menendez and Ranking Member
Rubio. Working together, we believe that we are at a pivotal point in
our relationships with the Western Hemisphere and that we have an
opportunity to cement the partnerships that have been fostered by this
committee for so long. If we fail to act, however, it is certain that
our partners will be looking elsewhere. Latin America is not sitting
still.
----------------
End Notes
\1\ U.S. Department of Commerce, TradeStats Express-National Trade
Data, http://tse.export.gov/TSE/TSEReports.aspx?DATA=NTD.
\2\ U.S. Department of Commerce, TradeStats Express-National Trade
Data, http://tse.export.gov/TSE/TSEReports.aspx?DATA=NTD.
\3\ Jose Raul Perales, ``The Hemisphere's Spaghetti Bowl of Free-
Trade Agreements,'' Americas Quarterly, April 30, 2012, http://
www.americasquarterly.org/perales.
\4\ U.S. Department of Commerce, U.S. Census Bureau/U.S. Bureau of
Economic Analysis NEWS, February 10, 2012, http://www.bea.gov/
newsreleases/international/trade/2012/pdf/trad1211.pdf.
Senator Menendez. Thank you.
Mr. Farnsworth.
STATEMENT OF ERIC FARNSWORTH, VICE PRESIDENT, COUNCIL OF THE
AMERICAS, WASHINGTON, DC
Mr. Farnsworth. Thank you, Mr. Chairman. Good afternoon. It
is a real privilege to be with you here today, and while it is
not necessarily the focus of this particular hearing, I did
want to thank you up front for your comments in the July 23rd
Washington Post in support of regional democracy and human
rights. And we also join you and the other members of the
subcommittee in mourning the untimely and, indeed, tragic loss
of Oswaldo Paya in Cuba.
As Cuba illustrates, challenges remain in the hemisphere.
The good news is that long-term trends overall are positive.
The region is coming into its own with sustained economic
growth, poverty reduction, and an expanding middle class,
democratic governance, and more confident engagement in
international affairs. We have already heard a lot about that
today. Economies have stabilized and strengthened due to
concerted reform efforts.
At the same time, the past several years have presented a
favorable external environment for Latin America's economies
due in large measure to China's rise and appetite for raw
materials. This new reality has important economic, foreign
policy, and commercial implications, including the conduct of
business in the region. And I would like to focus my brief
comments on this aspect today.
By exporting to China, much of the region was able to avoid
recession during the recent global economic crisis. Rather than
being a cause of economic disaster, Latin America has proven to
be an engine of economic recovery. This is a positive and
noteworthy change. Of course, growth across the region is now
slowing as China decelerates, the United States struggles with
tepid recovery, and Europe remains embroiled in its own
financial crisis. At the same time, not all countries are
alike. Those relying on commodities exports have done well and
will continue to do so until they do not. In other words,
nations that have become overly reliant on commodities will be
negatively impacted by a slowdown if they have not use the
recent years of solid growth to diversify into value-added
production.
In the meantime, imports of cheaper manufactured products
from China have inundated Latin America and the region is
under-
going a process of deindustrialization whereby the percentage
of manufactured products compared to primary goods is actually
decreasing.
China's activities in Latin America on the investment side
are also having an impact. In the first instance, much-promised
investment has not yet materialized. Still, investment is
flowing and it is rapidly increasing, particularly in those
sectors including energy, mining, agriculture, and
infrastructure where China feels the need to lock in access. Of
particular interest is energy, and the trend is accelerating as
proven energy reserves expand from Brazil's deep water to shale
gas in Argentina to coal in Colombia.
What we are seeing in Latin America, as well as in Africa
and East Asia, is that the Chinese investment model differs
from others. In the first instance, the initial asset purchased
by Chinese entities is generally underwritten by the Chinese
Government, thereby allowing Chinese investors to outbid their
Western counterparts as a matter of routine. Chinese entities
often pay a premium beyond market values for their purchases in
order to lock in assets. Indeed, the price that CNOOC just
offered for Canada's Nexen, its biggest overseas energy deal,
is at a 60-percent premium.
Once an investment is confirmed, Western investment values
of job creation in the local economy, technology and management
transfer, corporate governance, respect for labor rights,
environmental protection, anticorruption, and corporate social
responsibility are not necessarily priorities. This can
unfairly put United States and other companies at a
disadvantage by lowering the costs of Chinese production vis-a-
vis the competition.
But there are larger implications as well. Efforts to
promote labor and environmental reforms through sound business
practices and formal trade agreements such as you have
championed, Mr. Chairman, are undermined when Chinese
businesses are not expected to operate under the same
prevailing conditions. Multilateral lending agencies that
promote financial reforms and good governance become less
relevant if borrowing nations can receive funds from China
without conditionality. China's huge purchases of commodities
and provision of credits on favorable terms allow regional
leaders the political and economic flexibility to postpone
reforms that would be consistent with open market, democratic
governance, and the rule of law.
With this in mind, the United States must do a better job,
I believe, contending for the region, and you have spoken about
that in your opening statement. We need a more strategic
approach.
In the first instance, the United States would do well to
deepen further our economic relations with Canada and Mexico,
nations that engage in common business practices with the
United States and Europe, as partners in the promotion of a
common agenda.
More broadly, we need to reactivate an ambitious economic
and trade partnership agenda for the hemisphere. The Trans-
Pacific Partnership is a meaningful start but needs to be
reenvisioned as a strategic initiative for the Americas, not
just Asia. It should be expanded to include Colombia and Panama
at a minimum and over time explore the possibility of including
other likeminded nations. A focus on energy partnership in the
Americas would also be appropriate, as would a stronger focus
on regional financial markets integration and activities that
promote trade and investment generally, including rule of law.
The battle for the soul of Latin America continues, and the
United States must engage in a positive, proactive manner to
offer the region a vision for cooperation consistent with our
values.
So, Mr. Chairman, I want to thank you again for the
opportunity to testify before you this afternoon, and I look
forward to your questions.
[The prepared statement of Mr. Farnsworth follows:]
Prepared Statement of Eric Farnsworth
Good afternoon, Mr. Chairman and members of the subcommittee. It is
a privilege to be with you today. As you know, the Council of the
Americas (``Council'') is a leading policy voice on Latin America, the
Caribbean, and Canada. For almost 50 years, our mandate has been to
promote democracy, open markets, and the rule of law throughout the
Americas. Thank you for the invitation to appear before you.
The headlines about Latin America routinely focus on threats to
democracy along with violence and insecurity. These are certainly
pressing issues. But the reality is that Latin America has changed
significantly both politically and economically and, while challenges
remain, overall trends are positive. On the whole, the region is coming
into its own, with sustained economic growth, poverty reduction and an
expanding middle class, democratic governance, and more confident
engagement in international affairs. In large measure, economies have
stabilized and strengthened due to concerted efforts to reform
financial systems, manage inflation, reduce debt, and open them to
trade and investment.
china's quest for commodities is changing economic realities in the
americas
China's rise and its consequent impact on the global commodities
trade has been a strong driver of this recent economic growth,
particularly in the commodities exporting nations located primarily in
South America, and it is here that I want to focus the weight of my
comments. These nations were largely able to avoid recession during the
global economic crisis which began in 2008 due to China's sustained
commodities demand. In fact, China is now the top trade partner of
Brazil, Chile, and Peru, and the second trade partner of Argentina.
Rather than being a cause of global economic disaster as often happened
in the past, Latin America, along with Asia, has proven to be an engine
of economic recovery.
This is certainly a positive change. Of course, growth across the
region is now slowing as China decelerates, the United States struggles
with tepid recovery, and Europe remains embroiled in its own financial
crisis. At the same time, not all countries are alike; Mexico and
Central America do not have the same commodities export profile as
South America does. Nonetheless, those relying on commodities exports
have done well, although nations that have become overly reliant on
commodities will be negatively impacted by China's slowdown unless they
used the recent years of solid growth to diversify into value-added
production. Efforts to address the skills gap between students
graduating today and the demands of modern labor markets, implement
policies designed to create a new climate for innovation, promote labor
market flexibility, and encourage small and medium-sized businesses as
an engine of job creation, among other initiatives, must be expanded,
as the Council of the Americas identified in a report presented to
governments at the Cartagena Summit of the Americas in April.
In the meantime, imports of cheaper manufactured products from
China have inundated Latin America, and the region is undergoing a
process of deindustrialization whereby the percentage of manufactured
products compared to primary goods is decreasing. Parts of Latin
America with strong links to China are actually moving down the value
chain, rather than up. Brazil just signed an accord with China at the
Rio+20 meeting which attempts to address the imbalances built in to
that important emerging trade relationship. Conversely, the trade
relationship that most Latin American nations have with the United
States is much more evenly balanced, supporting, rather than
potentially undermining, value-added production and broad-based
economic development in the region.
China's activities in Latin America on the investment side are also
having an impact. In the first instance, much of the promised
investment has not yet materialized, leading to unmet expectations.
Still, investment is flowing and it is rapidly increasing, particularly
in those commodities sectors including energy, mining, and agriculture,
where China feels the need to lock in access to the supplies which have
sustained its economic takeoff. Of particular interest is energy, where
China has been an active participant in Venezuelan, Ecuadorean, and
other projects, for example. Chinese investment is accelerating as
proven energy reserves expand rapidly and dramatically across the
Americas, from the deep water off Brazil to shale gas in Argentina.
This is a global phenomenon and China's energy interest in the Americas
is not limited to Latin America; just last week, for example, CNOOC
announced its biggest overseas energy deal, agreeing to purchase
Canada's Nexen energy company for over $15 billion.
This theme will only become more pronounced in coming years. As
China's authoritarian rulers seek political legitimacy not from the
ballot box but rather from sustained economic growth and an improving
quality of life for its 1.4 billion citizens, while maintaining a
multitrillion dollar hard currency war chest, continued access to the
raw materials worldwide that fuel production is seen in Beijing as a
national security issue. Investments are made accordingly, with
implications for doing business in the Americas.
all investments are not made equal
The Chinese model of investment differs from others. In the first
instance, the initial asset purchase by Chinese entities is frequently
underwritten by the Chinese Government, thereby allowing Chinese
investors to outbid their Western counterparts as a matter of routine.
Chinese entities often pay a premium above market value for their
purchases, in order to lock in assets. Indeed, the price offered for
Nexen is a 60-percent premium.
Once an investment is confirmed, Western investment values of job
creation on the local economy, technology and management transfer,
corporate governance, respect for labor rights, environmental
protection, anti-corruption, and corporate social responsibility are
not necessarily priorities. This can unfairly put U.S. and other
companies at a disadvantage by lowering the costs of Chinese production
vis-a-vis the competition.
But there are larger implications here, as well. Since the end of
the cold war, Latin America has advanced significantly to promote
democratic governance. Progress has been uneven to be sure, but it is
unquestionably in the U.S. interest to promote this path. Open market
democracies that broadly share values tend to make the best long-term
partners of the United States in the promotion of shared interests.
China's entry into the Americas has complicated this effort, not just
in the conduct of business but also in the conduct of foreign policy.
For example, efforts to promote labor and environmental reforms
through sound business practices and formal trade agreements are
undermined when nations sign agreements with China that do not include
similar provisions, and Chinese businesses are not expected to operate
under the same prevailing conditions. Multilateral lending agencies
like the World Bank, IMF, and Inter-American Development Bank that
promote financial reforms and good governance become less relevant if
borrowing nations can receive funds from China without conditionality.
China's huge purchases of commodities and the provision of credits on
favorable terms allows regional leaders the flexibility to postpone
necessary economic and policy reforms consistent with open market,
democratic governance, or to take actions that harm the investment
climate.
a competitive commercial environment calls for a more strategic
approach
China's interest in the Americas will only grow. This means that
the United States must do a better job contending for the region. We
need a more strategic approach.
In the first instance, the United States would do well to deepen
further our economic relations with Canada and Mexico, nations that
engage in common business practices with the United States and Europe,
as partners in the promotion of a common agenda that share common
values. Mexico, for example, is resisting the protectionist temptation
to which others in the region are succumbing, and has been a clear
voice for open markets even in the face of market turbulence.
More broadly, we need to reactivate an ambitious economic and trade
partnership agenda for the hemisphere. The Trans-Pacific Partnership is
a meaningful start, but needs to be reenvisioned as a strategic
initiative for the Americas, not just Asia. It should be expanded right
away to include Colombia and Panama at a minimum, and, over time,
explore the possibility of including like-minded non-Pacific coast
nations in Latin America. Other initiatives to improve the regional
business climate would include stronger emphasis on energy partnership
in the Americas, and efforts to promote regional financial markets
integration as well as the rule of law. From a bilateral perspective, a
dual tax treaty with Brazil would be one of the most effective things
we could do to promote trade and investment with Latin America's
largest market.
The battle for the soul of Latin America continues, and the United
States must engage in a positive, proactive manner to offer the region
a vision for cooperation consistent with our values. China's entrance
into the Americas has changed the game. A reenergized approach to the
region is required.
Senator Menendez. Well, thank you both for your testimony.
I appreciate it. You have sort of squared off different
sections of this issue. So let me pursue it in that regard.
Ms. Hanson, was the Chamber at the Summit of the Americas,
and if so, what were your takeaways from the Summit of the
Americas as it relates to business executives in terms of their
advocacy, their views, their concerns within the hemisphere?
Ms. Bond. Thank you, Mr. Chairman.
Yes, the U.S. Chamber was present. And, in fact, leading up
to the Summit of the Americas, the U.S. Chamber was asked by
the OAS to provide private sector recommendations to the
summit, and to do so, we put together a survey to identify the
priorities in the hemisphere of our companies to give some
feedback. We are happy to say that the results were provided to
each member of the Presidential delegations that were at the
summit and I would be happy to submit a copy of these findings
for the record.
The key findings were that the obstacles were primarily in
the areas, in the short term, focused on the rule of law, and
in the long term, the state of the education system within the
hemisphere.
That said, where the CEO summit is concerned, I think it
was a complete success. It really filled that space for
hemispheric interaction between the private sector and regional
governments. And we would be proud to work with the OAS, the
IADB, and the U.S. Government to ensure that this space
continues.
Senator Menendez. So in that regard, was the interaction
with the private sector in Latin America, with the governments
of Latin America, with the Chamber's interaction in this
initiative?
Ms. Bond. Correct. Actually our CEO, Tom Donohue, was at
the summit and we had several other hemispheric CEOs. We took a
delegation of about 15 CEOs from U.S. companies and other
countries did as well. Canada and all of Latin America were
represented as well at the summit with about 400 business
leaders with the opportunity to interact with the different
heads of state and ministers.
Senator Menendez. The reason I asked that question is
because I wonder whether there is an opportunity to make the
private sector within Latin America an advocate for some of
these transparency, rule of law issues that we as a government
would want to see by getting the private sector to be an
advocate within their countries for opening up the doors to
greater investment and trade. Do you believe there is an
opportunity for that to be realized?
Ms. Bond. Absolutely. As I referred to in my testimony, we
established the Coalition for the Rule of Law to focus on the
areas where we have had experience where these countries can
actually do better to attract investment. And yet, through our
network of American Chambers of Commerce in Latin America, of
which there are 23 in this hemisphere, we have the opportunity
to message and be a voice on rule-of-law issues with those
local AmChams.
Senator Menendez. Let me ask you, Mr. Farnsworth. You
talked a lot about China, and it is a concern certainly to me.
It seems to me that the Chinese are clearly, in one of its
priorities, after Latin American mineral resources. And within
the context of seeking those resources, I understand their
enormous appetite for them. But how much are the Chinese
exporting to Latin America? You mentioned a little bit of that.
Are there specific trade sectors in which find ourselves in
very severe competition with them in the hemisphere?
Mr. Farnsworth. Yes, it is a really good question.
The first thing to understand is what China is doing in
Latin America is very consistent with what China is doing with
the rest of the world, in Africa and East Asia. And in fact,
they are relatively late to the game in Latin America. Their
presence there has really only been, in the modern era anyway,
less than 10 years since the first visit of Hu Jintao in 2004.
Since that time, the engagement has dramatically increased. But
even today, U.S. exports and trade with the region still
outnumber the amount of trade that China is doing with the
region by a factor of 4 to 1. So we have to keep it in
perspective. It is still relatively small, but it is certainly
growing and it is becoming much more of a competitive factor.
Clearly China's interest is in the commodities of Latin
America. And again, it is very consistent with their global
outreach. They see this as consistent with their national
growth strategy which is very consistent with the need to keep
the political legitimacy of the Communist Party and the rulers
in Beijing. And to the extent that that growth depends on
inputs of commodities globally, they are going to look wherever
they can to find those commodities, and that is what they are
doing in Latin America.
So at one level--I do not mean to oversimplify it, but they
do not really care what is going on in Latin America per se.
They care about what Latin America can sell to them, and in
return what
the Chinese have done is what they have done in other parts of
the world. It is a classic mercantilist strategy. You bring in
the resources from outside, you add value, and you sell them
back to the countries in question or, in China's case,
globally.
And in fact, what we are seeing is this is actually
impacting Latin America's development in a negative way because
while the producers of natural resources and agriculture and
mining and energy are doing quite well and that has really
underwritten Latin America's recent economic growth, the
manufacturers in Latin America are telling a different story
particularly in Brazil, particularly in countries that are well
along the way to development because their competition is
directly from Chinese manufacturers. And so the story is a
little bit more complicated, but one can, I think, clearly say
that what the Chinese are doing is more of a traditional
mercantilist model.
They are beginning to understand the negative impact that
that is having in Latin America in terms of development, in
terms of their political position, in terms of what it means
with relations in terms of the United States. But that is an
evolutionary process. Again, they have really only been
involved in the region for a short period of time, and it will
be interesting to see how that evolves over time.
One other quick thing I would add is that the Latin
American governments are not unaware of this. In fact, at the
Rio Plus 20 meeting in June just last month, Brazil and China
signed an agreement, an economic cooperation agreement, which
was specifically designed to try to bring more into balance the
trade relationship so that without reducing the sale of
commodities to China, nonetheless, the Brazilians are now going
to try to increase the sale of manufactured products to China.
And that is the real growth area that they are trying to
develop.
Senator Menendez. Let me just pursue one more thing on
China. China has made some rather large loans, for example, to
Brazil and Venezuela particularly in their energy sectors. Do
you have any sense of whether those loans are being repaid in
oil, and if so, then does that give China an advantage in
setting the price for oil it is receiving and placing American
companies at a disadvantage?
Mr. Farnsworth. Yes, again, very good and important
question.
The short answer is it depends on which country. Venezuela
and Ecuador, yes, it is in petroleum products. Argentina, it is
more in terms of agriculture. It just depends on what the
country has that China wants. But in the energy sector, what we
have seen is large loans that will be paid back over time in
energy. Generally those contracts are written so that the price
of the energy is at market prices, and so from that
perspective, because the energy market globally will rebalance
and readjust, it is not that China is taking additional energy
off the market. It is the same amount of energy, and they are
going to use energy no matter where they get it from. So at a
certain level, it is not being anticompetitive with U.S.
companies.
It does have several implications, though. One is that it
allows countries like Venezuela to frontload a lot of populist
spending. So what we have seen, for example, is the government
in Caracas is now amping up or juicing the Venezuelan economy
in advance of the October elections. This is something that
without a lot of disposable income, if you want to put it that
way, they would be unable to do. So it does have certainly
political implications, No. 1.
And No. 2 is what it means is it commits the Venezuelan or
Ecuadorian or other populations to a relationship with China
for the longer term that if conditions in their own countries
happen to change, they are still committed to those for the
long term. So it is almost like that old TV commercial from the
1970s. ``You can pay me now or pay me later.'' It does not
matter. The Chinese are not going to care what sort of
government is in power, whether it is democratic or
authoritarian or whatever. They want to get paid back in
energy. So what the governments now are committing to do is
they are committing their populations to wealth transfer down
the road in advance of that payment up front.
And then the final thing I would say is to the extent that
it allows the Chinese Government to, shall we say, get
preferential consideration for their companies in bidding for
specific energy projects whether they be in Venezuela or
Ecuador or somewhere else, that would have an anticompetitive
feature in terms of United States companies and frankly other
companies internationally.
So it is a multifaceted thing, but I think the thing to
really remember is that by giving a lot of money to the region
without a lot of conditionality, what the Chinese presence is
doing in the region is really enabling governments who might
not want to pursue the path or the course that the United
States and other Western economies might otherwise like to see
or encourage, that gives the flexibility for some of those
other leaders to pursue a different course.
Senator Menendez. In doing so, it increases the possibility
that issues in countries--Venezuela, for example--involving
democracy, transparency, freedom of the press can be
perpetuated.
Mr. Farnsworth. Yes, absolutely.
Senator Menendez. And that continues to be a challenge to
the United States.
Let me ask you one final set of questions. I put it to both
of you. Even though Ms. Hanson focused on it, I would like to
hear both of your perspectives. You talked about those five
elements of transparency, predictability, accountability, due
process, and I forget the fifth one. But they are all, in
essence, to some degree within the rule-of-law process.
If you had two or three actions that you would like to see
the U.S. Government pursue so that all of those principles
would be a broader reality in the hemisphere so that we would
have greater investment opportunities to be realized, what
would you want to see the U.S. Government do in pursuit of
that?
Mr. Farnsworth. Well, sure, thank you, Mr. Chairman, again
for the opportunity.
I think there are several things.
First of all, we want to encourage positive actions by
ensuring that a strong relationship with the United States
brings rewards. So in the context of trade agreements or
activities, whether it is through CAFTA-DR, which we have
talked about, NAFTA, some of the other trade agreements, to
ensure that those are working for the people, not just of the
United States and also of the region, but to make sure that
these are developing the economies in a way, including our own
certainly, I think that is very positive. So you have to have
benefits to being a friend of the United States. I think that
is point No. 1.
I think point No 2, there are a number of tools that we
have. We talked a little bit about it in the first panel. Some
have been applied to certain countries and some have yet to be
applied. I think we need to do a better job understanding what
tools we really have available because this is a globalized
environment and ultimately countries do not respond to the
United States necessarily in the same way as when we were the
only actor in the Western Hemisphere or the primary actor in
the Western Hemisphere. And again, this is where China is
changing the example.
But I do think there are instances whereby a country, for
example, Ecuador, which has been talked about, may be in breach
of international investment obligations, and I think at that
point the United States is well within our rights to have a
look at unilateral preferences that we may have granted over
time, whether it be trade or investment or access to loans at
the IFI's or MCC assistance, not necessarily for Ecuador
because they do not have a program. But the point being that we
have a number of programs that we can take a look at and
certainly ATPA and GSP preferences are part of that. So one has
to take a look at those aspects. So you certainly have a carrot
and a stick.
I think we need to focus a lot on--the piece that I do not
think we have done a great job on is focusing on carrots in
terms of really working with the Mexico's and the Colombia's
and the Peru's and the Chile's of the world to try to build out
that broader economic agenda. And I would really encourage that
as a real priority for us.
Ms. Bond. Thank you very much, Mr. Chairman.
I do believe we do concur with Eric that we need to
strengthen the United States ability to have some say in these
regions by the fact that we need to enforce our trade
agreements and we need to ensure that there is reason for other
countries to be trading with the United States. We need to have
the opportunity to be able to convey with messaging what it is
that U.S. businesses provide to these countries when they are
doing business overseas, that there is the opportunity to
strengthen these two-way ties because the fact of the matter
is, U.S. companies are the businesses that any country should
want to be doing business in their country. The fact is that
U.S. companies localize like none other. We create partnerships
on the ground in countries where we do business.
In fact, I referenced the OAS study in which we gave some
private sector inputs to--over 90 percent of the U.S. companies
that we surveyed do some form of corporate social
responsibility. The fact is that localization in these markets
is part of a long-term business strategy for growth, and we
would love it if the U.S. Government could work with us more
fastidiously to message that out to these governments, that
there is more promise and opportunity that comes from doing
business with U.S. businesses.
Further, we would also like to strengthen international
arbitration organizations. I outlined some of this in my
testimony and would like to further call attention to what we
are doing with regard to our work through the Coalition for the
Rule of Law.
And then also, we would like to build out the private
sector mechanisms with which we communicate with governments
using our AmCham network as the basis to be communicating these
fundamental elements of engagement in these countries with
regard to rule of law. I think that we have made some strides
with economic statecraft to the degree that we have many U.S.
ambassadors who are conducting calls with the business
community. We have had some test pilot calls and we would like
to see more of that messaging occur with our embassies overseas
and our AmChams.
Senator Menendez. Thank you both for your answers and your
testimony.
I agree with you, Mr. Farnsworth, that carrots could be
enhanced and we should. I have a sense, however, that we have a
reticence, when we have exhausted the carrots, not to use the
stick, and that is problematic because carrots do not come in
unlimited supplies. And so in that balance, I am afraid that
sometimes--I do not know why--we seem to have a reticence to
pursue the authorities that we have and the leverages that we
have in different ways that I hope to pursue more aggressively
through the committee in terms of understanding and getting the
Government to be focused on that.
And then I do think that to the extent that we are spending
money in the hemisphere, rule-of-law programs and efforts to
strengthen the rule of law is incredibly important because at
the end of the day, you can have all the investments in the
world, but if your investments are arbitrarily and capriciously
taken, if you have the equivalent of our IRS changing, after
major investments are made, tax treatment of those investments,
if you have international arbitration awards that still cannot
be honored, then you have an environment in which all the
potential does not get realized either for American companies
or, for that fact, the citizens of the hemisphere who would
benefit from those investments in all the ways that Ms. Hanson
has spoken about and we believe also exist.
So I look forward to continuing this conversation with both
of you and others in the days ahead.
With the thanks of the committee, this hearing will have
the record open for another 2 days. Anyone who wishes to submit
a question--I would urge our panelists to answer them as
expeditiously as possible.
And with that, this hearing is adjourned.
[Whereupon, at 3:25 p.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Prepared Statement of Chevron Corporation Submitted by Edward B. Scott,
Vice President and General Counsel, Chevron Upstream and Gas
Chevron Corporation (``Chevron'') appreciates the opportunity to
submit the following statement for consideration by the Senate
Committee on Foreign Relations Subcommittee on the Western Hemisphere,
Peace Corps, and Global Narcotics Affairs on the challenges posed by
doing business in Latin America.
Chevron's perspectives on the issue of doing business in Latin
America are informed by our global reach, with interests in over 100
countries, including Latin America. We are a leading international oil
company, based in San Ramon, California, and with major operations and
investments in the world's most important and politically diverse oil
and gas producing regions. We also have extensive international
investments in refining, fuels and lubricants. Other interests range
from chemical production and mining to energy research. Further, we
operate power facilities and are the world's largest producer of
geothermal energy.
Investment protection through Bilateral Investment Treaties (BITs)
is an important tool to help ensure investment protection to U.S
economic interests overseas. These protections are vital to protect
U.S. interests abroad, presenting real impacts to the economy and
energy security, both globally and domestically.
Investment protection is an issue with real-world implications. A
substantial portion of Chevron's overseas investments are made in
countries without high-quality investment protection agreements with
the United States, even as many of these countries pursue investment
agreements with other trading partners. Sustained progress toward a
comprehensive investment protection regime is necessary to both reduce
the risk associated with overseas investments and to ensure that U.S.
companies are not disadvantaged against foreign competitors whose
investments are protected by such agreements. High-quality investment
protection agreements, along with measures to promote good governance
and the rule of law, are indispensible to provide a level playing field
for U.S. companies operating abroad. They ensure that we have the tools
available should we be subject to expropriation or nationalization of
our assets, and help ensure equitable solutions to legitimate disputes
between investors and host governments.
Our comments in this statement, however, will focus on the
significant and ongoing difficulties Chevron has faced in the Republic
of Ecuador, including challenges brought on by Ecuador's failure to
honor its Bilateral Investment Treaty obligations with the United
States. These difficulties center on collusion by the Republic of
Ecuador in a private lawsuit brought in Ecuador against Chevron rife
with incontrovertible evidence of fraud that resulted in a fraudulent,
$18.2 billion legal judgment against Chevron. Chevron has been forced
to bring an action under the U.S-Ecuador Bilateral Investment Treaty
(``BIT'')--an instrument initially read by this very body's parent
committee in 1993--to preserve its rights by obtaining an award staying
enforcement of the fraudulent judgment. Ecuador, however, has ignored
the award of the BIT tribunal ordering Ecuador to prevent enforcement
of the fraudulent judgment. Due to its inaction, Ecuador has encouraged
enforcement of the fraudulent judgment in direct contravention of the
BIT tribunal's award. This committee should insist upon a strong U.S.
response to Ecuador's failure to meet its obligations to the United
States under the BIT.
the consortium in ecuador
From the 1970s until the concession expired in 1992, a subsidiary
of Texaco Inc., Texaco Petroleum Company (``TexPet''), participated
with Ecuador's state-owned company Petroecuador in an oil-producing
consortium in Ecuador. Since 1992, Petroecuador has been the sole
operator in the former concession areas, and TexPet has had no further
role in oil production in Ecuador. In 1995, TexPet and Ecuador agreed
that TexPet would remediate specific consortium sites assigned by the
government in proportion to TexPet's 37.5 percent minority ownership
share of the consortium, and the Republic of Ecuador and Petroecuador
granted TexPet an immediate release of all environmental liabilities
arising out of the consortium operations that were not included in that
scope of work. In 1998, after TexPet spent $40 million to complete the
work at the designated sites, and after numerous government inspectors
tested and certified that the sites were properly remediated, the
Republic of Ecuador granted TexPet and all related corporate entities a
full and final release from any and all environmental liability on
public lands arising from the consortium operations.
As a result of the 1995 and 1998 agreements, Petroecuador assumed
all remaining liabilities arising out of the former consortium's
operations. Petroecuador acknowledges that it has not cleaned up its
share of the consortium operations, and in fact has continued
operations in the former concession area with a widely acknowledged
record of operational and environmental mismanagement, averaging some
three oil spills per week since 2000.
the lago agrio litigation
In 2003, private plaintiffs' lawyers filed a lawsuit in Lago Agrio,
Ecuador against Chevron--but not Petroecuador--seeking $6 billion in
damages for environmental impact to public lands. A court-appointed
expert, Richard Cabrera, filed a report in April 2008 (the ``Cabrera
report'') that suggested Chevron was liable for between $7 and $16
billion in damages, a number he increased in a supplemental report in
November 2008 to $27.3 billion. On February 14, 2011, relying heavily
on the Cabrera report, the Ecuadorean court ruled against Chevron and
ordered the company to pay $18.2 billion in damages.
evidence obtained through discovery sanctioned by
u.s. courts documents fraud against chevron
Chevron has long maintained that the lawsuit was politicized in
Ecuador and that it was being denied due process. Events in the last
few years have revealed a massive fraud being perpetrated on Chevron by
the plaintiffs' lawyers, the Government of Ecuador, the plaintiffs'
experts, the court-appointed damages expert, and even the Ecuadorian
judge assigned to the case. The fraud includes the plaintiffs' lawyers'
ghost-writing the supposedly ``independent'' Cabrera report, falsifying
documents, fabricating evidence, and even drafting the court's judgment
in their favor.
Throughout the case, the plaintiffs' lawyers made concerted efforts
to conceal their fraud, including repeatedly lying about their
involvement in drafting the Cabrera report, concealing documents that
revealed the truth, creating bank accounts for secret payments to
Cabrera, setting up separate e-mail accounts and using aliases to hide
sensitive communications about their authorship of the Cabrera report
and other matters, among other efforts.
Seven U.S. courts around the country have recognized the fraud
occurring in Ecuador against Chevron. The District Court in the
District of New Jersey, for instance, held that the plaintiffs'
lawyers' actions could not constitute ``anything but a fraud on the
judicial proceeding.'' The Western District of North Carolina wrote
that ``what has blatantly occurred in this matter would in fact be
considered fraud by any court.'' The District of New Mexico stated that
the plaintiffs' lawyers have engaged in ``corruption of the judicial
process, fraud, attorney collusion with [Cabrera], inappropriate ex
parte communications with the court, and fabrication of reports and
evidence.'' The District for the Southern District of California
further wrote that there is ``ample evidence in the record that the
Ecuadorian Plaintiffs secretly provided information to Mr. Cabrera, who
was supposedly a neutral court-appointed expert, and colluded with Mr.
Cabrera to make it look like the opinions were his own.''
the fraudulent judgment against chevron
Despite the evidence of fraud, in February 2011, the Ecuadorian
court issued a judgment awarding the plaintiffs and their allies $18.2
billion in damages. However, the Lago Agrio plaintiffs' own admissions
and forensic evidence proves that it was the plaintiffs'
representatives, rather than the trial judge, who drafted the Lago
Agrio judgment. Internal communications from August 2008 and onward
show the plaintiffs' representatives discussing their intent to ``start
the work with the new judges.'' The plaintiffs' representatives
discussed ``developing a judgment that will be enforceable in the U.S.
and elsewhere'' by becoming ``involved in the preparation of the final
submission and proposed judgment.''
Moreover, forensic experts have testified that numerous passages in
the judgment are contained verbatim in the plaintiffs' lawyers'
internal documents, documents that were never filed in the proceeding,
and cite data from the plaintiffs' lawyers' own private database, which
was never submitted in the court record. The judgment throughout also
incorporates plaintiffs' lawyers unique citation and punctuation
styles.
Despite overwhelming evidence of fraud in the judgment, an
intermediate appellate court affirmed the decision on January 3, 2012.
On January 20, 2012, Chevron filed an appeal to Ecuador's National
Court of Justice, the nation's highest court, where it remains pending
even while plaintiffs seek enforcement of the judgment in third
jurisdictions.
chevron's arbitral award under the u.s.-ecuador
bilateral investment treaty
In light of the tainted judicial process in Ecuador--which was
glaringly obvious even before final judgment was rendered in February
2011--Chevron initiated an arbitration against Ecuador in September
2009 under the U.S.-Ecuador BIT. In the arbitration, Chevron submitted
claims that Ecuador violated its obligations under settlement and
release agreements with Chevron's subsidiary, obligations under the
BIT, and obligations under other applicable international law by
failing to accord fair and equitable treatment in the Lago Agrio
litigation.
As the Lago Agrio trial reached its conclusion, Chevron perceived a
serious risk that the court would issue a final judgment in plaintiffs'
favor, and that the plaintiffs' lawyers would attempt to enforce the
fraudulent judgment in countries throughout the world. In light of this
risk, Chevron asked the BIT arbitration tribunal to award interim
measures to preserve the status quo and prevent the arbitration from
becoming an ineffective exercise. Specifically, Chevron asked the
tribunal to instruct Ecuador to prevent any final judgment in the Lago
Agrio litigation from becoming enforceable pending the conclusion of
the arbitration in which the very conduct of that litigation was at
issue.
On February 16, 2012, the BIT Tribunal issued an award directing
Ecuador ``(whether by its judicial, legislative, or executive branches)
to take all measures necessary to suspend or cause to be suspended the
enforcement and recognition within and without Ecuador of'' the Lago
Agrio judgment, as well as the appellate judgments upholding it. The
BIT Tribunal specified an obligation of result upon Ecuador: ``in
particular, without prejudice to the generality of the foregoing, such
measures to preclude any certification by the Respondent [Ecuador] that
would cause the said judgments to be enforceable against [Chevron].''
As anticipated, the plaintiffs' lawyers filed enforcement actions
to collect upon the fraudulent judgment. They filed collection actions
in Canada on May 30, 2012, and in Brazil on June 27, 2012. They have
also suggested they will seek enforcement in 30 other countries,
including in Venezuela or in Panama, where oil tankers pass through the
Panama Canal.
ecuador's disregard of the arbitral award against it
Despite the BIT Tribunal's award, Ecuador has failed to ``act in
good faith in recognizing as binding and enforcing'' the award. It has
not taken any measures, let alone ``all measures necessary'' to prevent
the Lago Agrio judgment from becoming enforceable. In fact, the
combined actions of Ecuador's judicial and executive branches have gone
in the opposite direction, facilitating rather than suspending
enforceability of the judgment.
Ecuador had multiple opportunities to take action consistent with
its obligation under the BIT Tribunal's award, but it failed to take
any of them. Among other steps, Ecuador could have declared, through an
opinion by a government official or its courts, that enforcement of the
Lago Agrio judgment is suspended, or it could have ordered through its
courts or otherwise that the judgment is not enforceable under
Ecuadorian law pending the outcome of the BIT arbitration. Moreover,
now that the plaintiffs have initiated enforcement actions in Canada
and Brazil, Ecuador could advise the courts in those countries that the
judgment's enforcement must be considered suspended in light of the BIT
Tribunal's award.
Ecuador has taken none of these or any other actions that would
cause the Lago Agrio judgment to be suspended. On this basis alone, it
must be concluded that Ecuador has failed to act in good faith to
recognize as binding and to enforce the award of the arbitral tribunal.
But Ecuador has not just passively allowed the plaintiffs to seek
enforcement of the Lago Agrio judgment, it has actively facilitated
that initiative. On two occasions, on February 17 and March 1, 2012,
Ecuador's courts expressly denounced the BIT Tribunal's award, and in
orders dated March 21 and 28, 2012, the appellate court granted the
plaintiffs' request for a declaration that the appellate decision has
the force of res judicata. These declarations contradict the arbitral
tribunal's directive in its award that Ecuador take all measures
necessary to suspend the enforcement and recognition of the Lago Agrio
judgment and the affirmances of that judgment.
Finally, senior officials in the Government of Ecuador, including
President Correa, have actively encouraged plaintiffs to seek
enforcement of the Lago Agrio judgment by denouncing the arbitration
tribunal. President Correa himself went so far as to call the arbitral
proceeding a ``monstrosity.'' In some countries such statements might
be dismissed as empty political rhetoric. But in Ecuador, given the
susceptibility of the judiciary to political influence (a fact
acknowledged by the U.S. Department of State) statements by the
President and other senior officials encouraging the court to take
particular action cannot be so easily dismissed. Such statements are a
blatant interference with the judicial process, which in this case,
amounts to a breach of Ecuador's obligation to recognize and enforce
the arbitral tribunal's interim award.
ecuador's failure to meet its obligations to the united states under
the bit requires a strong u.s. response
Ecuador's contempt for its obligations under the BIT poses a
serious policy concern for the United States and demands a strong U.S.
response. The United States should take aggressive action to emphasize
the importance the United States attaches to our BIT partners
respecting their obligations to the United States under bilateral
investment treaties. Without such action, the United States would
signal to all our BIT partners that we do not take their
responsibilities under the BIT seriously, potentially undermining the
value of our network of bilateral investment treaties throughout the
world.
The administration has already taken some modest action. In a June
29, 2012, report on the operation of the Andean Trade Preference Act
(``ATPA''), the administration noted its concerns with Ecuador's
commitment to its BIT obligations resulting from the BIT Tribunal's
award to Chevron. A key criterion for eligibility to receive
preferences under the ATPA is that beneficiary countries must ``act in
good faith in recognizing as binding or enforcing an arbitral award''
in favor of U.S. investors. In light of this criterion, the
administration stated that it will be closely monitoring Ecuador's
compliance with U.S. preference program requirements.
conclusion
The past several years has seen several countries embrace more
modern trade liberalization policies essential to compete in the
today's global marketplace. This is evidenced by the number of Free
Trade Agreements now in place, each with investment chapters similar to
BITs and serving to bolster U.S. investors' confidence and the
corresponding U.S. job creating exports to support those investments.
The investment rules outlined by these Free Trade Agreements and the
U.S. Bilateral Investment Treaty program are vital tools in the broader
USG effort to ensure a level playing field for U.S. investors operating
overseas. Failure to enforce these rules undermines their effectiveness
and puts U.S. overseas operations at risk. We encourage the
subcommittee to highlight the importance of the BIT program and to
ensure that the USG takes all measures to ensure that countries abide
by their treaty obligations. Thank you for considering Chevron's views
on these important matters.
______
Prepared Statement of the Emergency Committee for
American Trade (ECAT)
The Emergency Committee for American Trade (ECAT) welcomes today's
hearing and the subcommittee's examination of U.S. commercial and
business relations with Latin America. Founded in 1967, ECAT is an
organization of the heads of leading U.S. international business
enterprises representing all major sectors of the American economy.
Their annual worldwide sales exceed $3.0 trillion and they employ more
than 6.4 million persons. ECAT's purpose is to promote economic growth
through the expansion of international trade and investment. ECAT has
been highly active on U.S.-Latin America trade and commercial relations
since its founding, including by serving as Secretariat to the U.S.
Business Coalition for Central America Trade, which supported the
negotiation and implementation of the U.S.-Central America-Dominican
Republic FTA (CAFTA-DR), as well as being a strong advocate for the
North American Free Trade Agreement (NAFTA), the U.S.-Chile Free Trade
Agreement (FTA) and the U.S.-Peru, U.S.-Colombia and U.S. Panama Trade
Promotion Agreements (TPAs). ECAT has also been a strong supporter of a
vibrant bilateral investment treaty program in Latin America, as well
as of mutually beneficial trade preference programs, including the
Caribbean Basin Initiative, the Caribbean Basin Trade Partnership Act
and the Andean Trade Preference Act. ECAT presently serves as the
Secretariat to the U.S. Business Coalition for TPP which represents
U.S. agricultural producers, manufacturers, and service providers that
seek a comprehensive, ambitious and high-standard outcome from the
Trans-Pacific Partnership (TPP) negotiations, which already include
Chile and Peru and will soon include Mexico.
Fostering greater business opportunities through international
trade and investment are important priorities because they
significantly improve the lives of the American people. Participation
in international commerce not only sustains many American jobs, it
raises the pay scales for millions of workers and saves the average
American family thousands of dollars per year. Workers at companies
engaged in global commerce earn, on average, almost one-fourth more
than those working in U.S. firms only engaged domestically.
International trade and investment also create new opportunities that
help sustain and build jobs in the United States and boost higher rates
of productivity, helping to promote economic growth in the U.S. market.
Many of our companies seek the growth in markets overseas--which can
generate 40, 50 and even 70 percent of our U.S. companies' global
revenues. And all Americans benefit from the lower prices, inflation,
and interest rates that international trade helps generate.
Expansionary international trade and investment policies are also
important for the United States to continue to serve as the world's
leading example for achieving economic success and prosperity through
openness, free-market principles, the rule of law and economic
engagement. The United States successful international engagement in
Latin America is important economically and as part of broader American
leadership and other national objectives in our hemisphere.
Expansion of U.S. trade and investment in the Western Hemisphere
strongly contributes to the growth of the U.S. economy. About one-fifth
of all U.S. trade is with the countries of Latin America. Two-way goods
trade between the United States and Latin America grew more than 700
percent from $107.1 billion in 1990 to more than $762 billion in 2011.
U.S. goods exports to the region equaled $358.7 billion, representing
nearly 25 percent of worldwide U.S. goods exports. The stock of U.S.
investment in Latin America has more than doubled, from $586 billion in
2000 to $1.2 trillion in 2011.
This submission reviews three key aspects of the U.S. commercial
relationship with Latin America: (1) opening markets through
comprehensive trade agreements; (2) the Andean Trade Preference program
in light of U.S.-Ecuadorian relations; and (3) other challenges in the
business climate in Latin America.
i. comprehensive trade agreements promote important benefits,
but more work is needed
A. Existing FTAs/PAs in Latin America
The United States has engaged in a relatively active program to
advance commercial relations with several countries in Latin America
through comprehensive free trade and trade promotion agreements--so-
called FTAs and TPAs. The United States has five agreements with 10
Latin American countries in force and an additional agreement, with
Panama, expected to be implemented shortly. Chile and Peru have been
actively participating in the TPP negotiations, and Mexico has been
invited to join those negotiations.
LATIN AMERICAN COUNTRIES WITH AN FTA/PA IN FORCE WITH THE UNITED STATES
------------------------------------------------------------------------
Entry into force
------------------------------------------------------------------------
Mexico (NAFTA)............................ 1994
Chile..................................... 2004
El Salvador (CAFTA)....................... March 1, 2006
Honduras (CAFTA).......................... April 1, 2006
Nicaragua (CAFTA)......................... April 1, 2006
Guatemala (CAFTA)......................... July 1, 2006
Dominican Republic (CAFTA)................ March 1, 2007
Costa Rica (CAFTA)........................ January 1, 2009
Peru...................................... February 1, 2009
Colombia.................................. May 15, 2012
------------------------------------------------------------------------
U.S. FTAs/TPAs in Latin America represent more than half of the
total U.S. FTA/TPA countries. Each of these FTAs/TPAs has provided
important benefits to U.S. businesses. Overall, U.S. trade with the
nine countries with which the United States has had FTAs in force for
more than 1 year has expanded significantly after the entry-into-force
of those agreements:
U.S. goods exports to Mexico grew between 1993 and 2008,
from $41.6 billion to $151.2 billion. Following the recent
economic downturn, U.S. goods exports to Mexico grew from
$128.9 billion in 2009 to $197.5 billion in 2011. With respect
to services, U.S. services trade with Mexico has increased from
$19.2 billion in 1994 to $39.6 billion in 2011.
U.S. goods exports to Chile increased by 348 percent between
2003 and 2008, increasing from $2.7 billion to $12.1 billion.
Following the recent economic downturn, U.S. goods exports to
Chile increased from $9.4 billion in 2009 to $15.9 billion in
2011, nearly six times higher than the pre-FTA level. With
respect to services, U.S. services trade with Chile has
increased from $1.65 billion in 2003 to $3.75 billion in 2010.
U.S. goods exports to the six CAFTA-DR countries grew nearly
30 percent between 2006 and 2008 to approximately $25.4
billion. Following the recent economic downturn, U.S. exports
grew from $20 billion in 2009 to $30.2 billion in 2011.
In just the first year after the U.S.-Peru TPA's entry-into-
force, U.S. exports to Peru increased from $6.8 billion to $8.3
billion.
U.S. services trade with Latin America has grown from $63.3 billion to
$105.7 billion from 2005 to 2010 (although services data are only
available for a small number of Latin American countries).\1\
---------------------------------------------------------------------------
\1\ Sources: U.S. Department of Commerce, Trade Stats Express
(http://tse.export.gov); Bureau of Economic Analysis, (www.bea.gov).
---------------------------------------------------------------------------
More broadly, the implementation of FTAs/TPAs provides a wide range
of benefits that improves the ability of U.S. firms in every sector of
the U.S. economy to improve their business relations with these
countries, creating important commercial opportunities for the benefit
of U.S. fanners, manufacturers, service providers and their workers.
Some of the key benefits that these FTAs/TPAs provide include the
following:
Making U.S. farm and manufactured goods more cost
competitive by cutting tariffs and redtape.
Eliminating a wide range of nontariff barriers to U.S.
agricultural, goods and services exports and sales.
Eliminating barriers to and protecting U.S. investment
overseas, both of which are vital to bring and sell goods and
services in foreign markets.
Eliminating barriers to U.S. participation in overseas
procurement markets that provide important new business
opportunities for a wide range of U.S. industries.
Protecting copyrights, patents, trademarks, and trade
secrets for the benefit of a wide range of U.S. food and
agricultural, manufacturing, medical, technological, scientific
and artistic industries.
Improving transparency and anticorruption rules so that U.S.
industries can compete on a more-level playing field.
Providing binding dispute settlement to ensure full
implementation of each country's commitments.
B. Improving U.S. FTAs/TPAs in Latin America
While FTAs/TPAs have provided important benefits, the United States
needs to move forward in a number of ways.
1. Ensure Implementation of Existing FTAs/TPAs. Once an agreement
is negotiated, it must be implemented by each party and enter into
force. In this regard, ECAT strongly supports the full implementation
and entry-into-force ofthe U.S.-Panama TPA.
Once the agreement has entered into force, it is important that the
United States ensure that its provisions continue to be fully
implemented. The clearer and deeper commitments contained in U.S. FTAs/
TPAs and their binding dispute settlement help ensure strong
implementation processes.
2. Modernize FTAs/TPAs. While the United States has had its most
active FTA/TPA negotiations in Latin America, there is still more work
to be done in terms of modernizing the coverage of the existing FTAs/
TPAs; connecting them together into a larger; more commercially
meaningful unified market and expanding them to other potential FTA/TPA
partners. The ongoing TPP negotiations aim to accomplish several of
these objectives by linking agreements with Chile, Peru, and soon
Mexico with a larger Asia-Pacific agreement that will also tackle such
important new issues as supply-and-production chain connectivity and
cross-border data flows and set a high bar on key issues, such as the
protection of intellectual property and investment. These negotiations
also seek to include other potential partners in the region to increase
the coverage and connectivity of U.S. FTAs/TPAs. From ECAT's
perspective, it is vital that the TPP negotiations continue apace,
reach a comprehensive, high-standard and enforceable outcome in all key
areas and provide for the entry of other major U.S. partners in Latin
America that can meet the high-standards.
ii. andean trade preference act not working to improve
u.s.-ecuadorian commercial relationship
ECAT has been a strong supporter of U.S. preference programs with
our Latin American neighbors, including the Generalized System of
Preferences (GSP) that benefits many Latin American nations, the
Caribbean Basin Initiative (CBI) as expanded by the Caribbean Basin
Trade Partnership Act (CBTPA), and the Andean Trade Preference Act
(ATPA). The GSP and CBI/CBTPA programs benefit numerous countries and
are in force until September 30, 2019, and September 30, 2020,
respectively.
While ATPA has produced important benefits since its creation in
1991, particularly in helping diversify the economies of Peru and
Colombia, it is now a program that has only one beneficiary--Ecuador.
Both Peru and Colombia have successfully graduated from ATPA with the
entry-into-force of their trade agreements with the United States.
Bolivia was removed as a beneficiary country on December 15, 2008, for
failure to meet the counternarcotics eligibility criteria. As a result,
Ecuador is the only beneficiary of this program.
ECAT is very concerned about several fundamental areas where
Ecuador is not meeting the ATPA eligibility requirements. In
particular, ECAT is concerned with Ecuador's systemic problems with
regard to the basic rule of law and failure to protect intellectual
property. Overall, ECAT is very concerned about continued breaches of
the basic rule of law that are occurring in Ecuador, particularly with
respect to foreign investors and foreign investment, contrary to the
ATPA eligibility requirements, most notably the prohibitions on
eligibility in section 203(c)(2) to address circumstances where a
country:
(2)(A) has nationalized, expropriated or otherwise seized
ownership or control of property owned by a United States
citizen or by a corporation, partnership, or association which
is 50 percent or more beneficially owned by United States
citizens,
(B) has taken steps to repudiate or nullify--(i) any existing
contract or agreement with, . . . a United States citizen or a
corporation, partnership, or association, which is 50 percent
or more beneficially owned by United States citizens, the
effect of which is to nationalize, expropriate, or otherwise
seize ownership or control of property so owned . . .
(3) if such country fails to act in good faith in recognizing
as binding or in enforcing arbitral awards in favor of United
States citizens or a corporation, partnership, or association
which is 50 percent or more beneficially owned by United States
citizens, which have been made by arbitrators appointed for
each case or by permanent arbitral bodies to which the parties
involved have submitted their dispute.
19 U.S.C. 3202(c) (2) and (3).
U.S. and other foreign businesses continue to experience firsthand
expropriation and the repudiation of contracts in the energy,
construction and other industries that hurt U.S. industry and their
workers. Not only is Ecuador taking such actions, it is simultaneously
seeking to terminate the U.S.-Ecuador Bilateral Investment Treaty (BIT)
that is essential to provide an independent and neutral forum to review
Ecuador's actions.
More broadly, there is a lack of governance that spans the
Ecuadorian economy. ECAT is concerned about continued breaches of the
basic rule of law that are occurring in Ecuador, particularly with
respect to foreign investors and foreign investment. As found by the
State Department in its annual human rights report on Ecuador released
in April 2011, there are concerns with ``corruption and the denial of
due process within [Ecuador's] judicial system.''
U.S. businesses have also continued to see Ecuador's repudiation of
its legal obligations to U.S. investors and a politicization of the
judicial system. The rating given to Ecuador by Transparency
International on its annual Corruption Perception Index \2\ and the
2012 World Bank Governance Indicators rating \3\ both reinforce this
deteriorating rule oflaw situation, with the World Bank's rating
declining further in recent years.
---------------------------------------------------------------------------
\2\ Transparency International, Corruption Perception Index 2011,
accessed at: http://cpi.transparency.org/cpi2011/results/.
\3\ World Bank, Aggregate Governance Indicators (1996-2010),
accessed at:http://info.worldbank.org/governance/wgi/sc_chart.asp.
---------------------------------------------------------------------------
Ecuador's treatment of Chevron Corporation also raises serious
concerns with its eligibility under the ATPA, particularly the
requirement that beneficiary countries respect arbitral awards. On
February 16, 2012, the arbitration tribunal hearing Chevron's investor-
state claims against Ecuador issued its ``Second Interim Award on
Interim Measures'' in which it directed Ecuador to ``take all measures
necessary to suspend or cause to be suspended the enforcement and
recognition within and without Ecuador of the judgments'' in the so-
called Lago Agrio litigation, in which Chevron is the principal
defendant. Despite this clear direction, which expressly applied to all
parts of the Ecuadorian State ``whether by its judicial, legislative or
executive branches,'' Ecuador's courts have denounced the BIT and have
granted Ecuadorian plaintiffs' request to give the Ecuadorian appellate
decision the force of res judicata. These statements and decisions
flatly contradict the arbitral tribunal's Second Interim Award. There
is a high level of concern that the Ecuadoran Government may continue
taking steps to permit enforcement of the tainted Lago Agrio judgment.
Given these basic gaps in the rule of law and its treatment of
arbitral awards, ECAT urges that Ecuador be removed from eligibility
for the ATPA program and that the ATPA program be allowed to lapse.
iii. addressing other business challenges in latin america
Another key area of focus is addressing U.S. business challenges
with Brazil and Argentina.
A. Argentina
Argentina maintains very high tariffs on many import categories, as
well as substantial nontariff barriers that significantly impede U.S.
business activities in Argentina's market. Most notably, in 2011,
Argentina increased its use of nonautomatic import licensing and other
policies to pursue an import-substitution policy (requiring either
exports or the use of local content in products manufactured in
Argentina in return for the ability to import products into Argentina).
Hundreds of goods also need an import license. On the basis of these
procedures, imports are systematically delayed or refused entry on
nontransparent grounds. As of February 2012, Argentina also requires
importers to submit a sworn customs and excise statement in advance of
importing goods, which has delayed imports while awaiting government
approval. In March 2012, the United States and several other WTO
members raised concerns over the WTO-compatibility of Argentina's
actions. The European Union requested WTO consultations with Argentina
on these practices in May 2012. The United States requested to join
these WTO consultations on June 11, 2012.
Also of substantial concern is Argentina's treatment of investors
and arbitration awards, which resulted in Argentina's suspension from
GSP in March 2012.
B. Brazil
There are numerous areas where there could be improvement in the
U.S.-Brazil economic and commercial relationship. In particular, ECAT
would like to see Brazil move forward on key international commitments
and negotiations, starting with:
Joining the World Trade Organization (WTO) Information
Technology Agreement (ITA) and Government Procurement Agreement
(GPA).
Beginning Bilateral Investment Treaty (BIT) negotiations to
provide a more stable and attractive environment for foreign
investment.
Negotiating a Bilateral Tax Treaty.
Several ongoing disputes remain in the U.S.-Brazil trading
relationship, with U.S. concerns including the existence of major
nontariff barriers, such as license, registration and similar barriers;
domestic preferences and localization requirements including on oil and
gas equipment; tax incentives for domestic information technology;
nontransparent and discriminatory government procurement practices;
unscientific barriers to agricultural trade; and investment and other
barriers. There are also significant concerns over Brazil's record on
the protection of intellectual property rights.
conclusion
ECAT welcomes the opportunity to provide these comments and
welcomes working with the Subcommittee to advance a strong and
beneficial commercial relationship in Latin America.
______
Responses of Deputy Assistant Secretary Matthew Rooney to Questions
Submitted by Senator Robert Menendez
Question. After the State Department announced that it would not
renew the U.S. fiscal-transparency waiver for Nicaragua, and the $3
million in bilateral aid attached to it, the Department contradicted
its own position, extending Nicaragua's property waiver, including $1.4
billion in multilateral loans tied to that waiver. What kind of a
message are we sending when you make a sound decision highlighting the
lack of transparency only to undercut your stance by approving $1.4
billion in loans to a nontransparent government? You cited a number of
unnamed factors that went into this questionable decision.
Can you provide the American taxpayer and the Senate with a
more logical explanation of your decision to extend the
property waiver and $1.4 billion in loans to Nicaragua?
Answer. We believe that encouraging Nicaragua's long-term
development as a democratic, prosperous, and stable partner is our
overarching national interest. At the same time, we want to support
Americans whose property has been expropriated and resolve those cases
as quickly as possible. With these goals in mind, we analyzed the
issues cited in your question under applicable legislation.
The decision regarding the issuance of the property waiver to
Nicaragua was made on the basis of the fundamental U.S. national
interest in seeing our citizens indemnified. The Government of
Nicaragua made progress in resolving U.S. citizen property claims
during the 2011-2012 waiver year, settling 65 U.S. citizen claims
belonging to 31 U.S. citizens registered with the Embassy. This is the
highest total number of resolved claims since the beginning of
President Ortega's administration in 2006. We believe that granting the
property waiver for Nicaragua will encourage its government to continue
resolving U.S. citizen claims in the future. We appreciate your
concerns about the international lending that Nicaragua receives, but
would note that the United States does not have the voting weight in
institutions like the Inter-American Development Bank to block loans.
Under the circumstances, we believe that IDB and other multilateral
loans that support development projects that are in our and the
Nicaraguan peoples' interest, meet these institutions' high standards,
and provide sufficient development impact, also promote our broader
objectives in Nicaragua. Moreover, the Inter-American Development Bank
has successfully tightened the conditionality of loans to encourage
greater transparency, and we will use this leverage to push for greater
transparency in sectors impacted by future loans.
Granting the waiver will also allow us to continue engagement with
Nicaragua on other issues of strategic interest, including trade and
investment under the Central America-Dominican Republic Free Trade
Agreement, our economic and social development assistance programs
aimed at improving the lives of the Nicaraguan people, and our joint
efforts to combat narcotrafficking.
We have not waived fiscal transparency restrictions because we
remain concerned that the Nicaraguan Government has not demonstrated
progress in pursuing transparent governance. We are working to ensure
that the Nicaraguan Government understands the benefits, not just in
terms of U.S. assistance but in terms of improved governance in the
interest of the Nicaraguan people, of a more transparent budgetary
management approach.
Question. Does the administration believe that Andean Trade
Preference Act privileges should be extended for Ecuador in light of
ongoing investment disputes between American companies, Ecuador's
breach of the BIT, and lack of cooperation on narcotics trafficking?
Answer. The administration has not yet a taken position on whether
it supports an extension of the Andean Trade Preference Act (ATPA)
program beyond July 2013, as that will depend on Ecuador's performance
in a number of areas we are monitoring.
Extension of Ecuador's benefits under ATPA is a congressional
prerogative. The administration will continue to monitor developments
concerning Ecuador to ensure that it is complying with the ATPA
eligibility criteria and will continue to work with Congress on issues
relevant to the operation of the program.
Question. Sempra Energy is a U.S. energy company with
infrastructure investments here in the United States and in Mexico--
investments that provide jobs and energy security in both countries. A
Sempra LNG facility in Ensenada has unfortunately been subject to years
of harassment by local courts, politicians, and the police. We
understand that the State Department has worked in cooperation with
Sempra to address these ongoing problems.
Can you describe the steps that the State Department has
taken to help this American company that is trying to help both
the people of Mexico and the United States find energy
security?
Answer. Energia Costa Azul (ECA), which comprises a liquefied
natural gas (LNG) terminal near Ensenada, Mexico, is a wholly owned
subsidiary of Sempra Energy. Individuals purporting to represent local
landowners have enlisted the support of state and local officials in
Baja California, including the Mayor of Ensenada, in advancing
allegations that the plant violated land acquisition and environmental
rules and that it is improperly sited. On the basis of these
allegations, the Mayor of Ensenada attempted to close the plant in
February 2011. At that time, then-U.S. Ambassador to Mexico, Carlos
Pascual, contacted then-Mexican Secretary of Government, Francisco
Blake Mora, on this issue and federal and state authorities intervened
to stop potentially dangerous disruptions to the terminal's operations.
The plant remained in operation and is still operating today.
Sempra maintains that all of its activities were carried out in
strict accordance with Mexican law. However, ECA opponents continue to
seek monetary awards from Sempra in Mexican courts.
The U.S. Government continues to monitor the situation and
maintains contact with Sempra Energy. Ambassador E. Anthony Wayne met
Sempra Mexico's chief executive officer on August 3 to discuss the
situation. The company has not asked us for any intervention or support
recently, but we stand ready to be helpful as requested.
______
Responses of Under Secretary Francisco Sanchez to Questions Submitted
by Senator Jeanne Shaheen
Question. The ongoing failure to pay past debts by the Government
of Argentina remains a significant concern, especially as Argentina is
a current member of the Group of 20 nations. Argentina's unwillingness
to live up to its responsibilities to pay current bondholders
undermines the credibility of the global marketplace.
In my home State of New Hampshire, the Republic of Argentina has
refused to settle debts owed by Caja National de Ahorra Y Seguro (CAJA)
to the TIG Insurance Company (TIG). I have written a number of letters
to the Argentinian authorities urging them to settle these outstanding
debts. The legitimacy of TIG's claim was validated by two final U.S.
District Court judgments in 2001 and 2002, and the company has
subsequently made five settlement offers to which the Argentine
Government has never responded.
Will you continue to emphasize the importance of resolving
outstanding debt issues between the Argentinian Government and
American debt holders? What are we doing to encourage Argentina
to settle these debts in a fair and efficient matter?
Answer. The United States believes that it is in the mutual
interest of Argentina and the United States that Argentina resolve its
longstanding overdue obligations to all its creditors. Normalizing its
relations with all of its international creditors will help improve
Argentina's investment climate and its access to international capital
markets.
The U.S. Government is working on resolving these issues on every
level. In Cannes last year, President Obama discussed with President
Fernandez de Kirchner the need for Argentina to normalize its
relationship with the international financial and investment community,
and he urged Argentina to clear arrears to U.S. Government agencies in
full and as soon as possible. Senior administration officials have used
every opportunity to reinforce the President's message.
The Department of Commerce has supported U.S. Government efforts to
encourage Argentina to meet its obligations to its creditors. Most
recently, in May 2012, Under Secretary Sanchez raised this issue with
Vice President of Argentina Amado Boudou and Ambassador Jorge Arguello
and expressed the importance of Argentina's action on the debt and
trade issues affecting the bilateral relationship.
Additionally, on March 26, 2012, the White House announced
President Obama's decision to suspend Argentina's eligibility for the
Generalized System of Preferences (GSP) program. The suspension of
Argentina's GSP eligibility is based on a finding that the Argentine
Government is not in compliance with the statutory GSP eligibility
criteria set by Congress. Specifically, the Argentine Government has
failed to act in good faith in recognizing as binding or in enforcing
arbitral awards in favor of two U.S. companies rendered under the
United States-Argentine bilateral investment treaty and the Convention
on the Settlement of Investment Disputes between States and Nationals
of Other States.
Clearing its Paris Club arrears, honoring final International
Centre for Settlement of Investment Disputes (ICSID) awards, and
settling remaining issues with bondholders would send a strong signal
that Argentina wants to pursue a positive bilateral relationship.
Question. The European Union recently started consultations to
pursue a WTO dispute with Argentina.
What actions--if any--is the U.S. Government considering
with respect to similar WTO actions against Argentina? What
more can we do to urge Argentina to meet its responsibilities
inherent to members of the WTO?
Answer. Argentina granted the U.S. request to participate in the
EU's consultations with Argentina as a third party in Geneva July 11-
12, pursuant to the EU's request for consultations. We requested to
participate in order to have a better understanding of Argentina's
various import licensing measures.
On August 21, 2012, the United States also requested consultations
with Argentina concerning certain trade restrictive measures. If these
consultations fail to resolve this matter, we would consider whether
the United States should proceed to request the establishment of a WTO
dispute settlement panel.
The measures affect U.S. exporters broadly, and companies across
various sectors support the initiation of dispute settlement
proceedings. The measures at issue include import licensing
requirements for goods imported into Argentina that have the effect of
restricting imports from the United States. Argentina often requires
importers to agree to undertake trade balancing commitments in exchange
for authorization to import goods under these licensing measures.
Prior to requesting consultations, the United States had expressed
serious concerns, both bilaterally to the Government of Argentina and
in various fora of the WTO, about measures maintained by Argentina that
appear to restrict imports.
______
Responses of Under Secretary Francisco Sanchez to Questions Submitted
by Senator Robert Menendez
Question. The protection of labor rights and the environment are
fundamental tenants of prosperity here in the United States and
overseas. Can you tell us how the administration plans to address the
important issues of labor and environmental protection in the Trans-
Pacific Partnership? If there is resistance to robust environmental and
labor protections in this agreement, how is the administration working
to address these issues?
Answer. The Obama administration is committed to a free trade
agreement (FTA) model that recognizes the interests of workers and
places them on an equal footing with commercial interests. Much
progress has been made in recent years to ensure good labor laws and
better enforcement of those laws by our trading partners. The Trans-
Pacific Partnership (TPP) provides the opportunity to continue that
progress and strengthen our efforts to ensure that all workers benefit
from expanded trade. Strong labor provisions are a priority for the
Obama administration. We are working with the other TPP parties to
develop a robust labor chapter that ensures protection in law of
internationally recognized labor rights, including the International
Labor Organization's fundamental labor rights, ensures effective
enforcement of labor laws, and provides the means to hold the TPP
parties accountable.
The Obama administration has also made it a top priority to include
robust trade-related environmental provisions in the TPP and to build
upon previous FTAs to ensure strong environmental obligations,
enforcement of these obligations, and to place these on equal footing
with commercial obligations in the agreement. The administration also
views the TPP as an opportunity to seek innovative environmental
commitments in key areas related to trade, such as conservation of
wildlife, forests and fisheries. We have made concrete proposals in
this area and are working very hard with the other TPP parties to
develop robust environmental provisions.
Question. Innovative health products and services protect the
health of Americans and our friends abroad while promoting economic
growth by supporting innovative companies and high quality jobs. How is
the administration working to protect IPR for innovative health
products, including data protection for biopharmaceuticals, in the
Trans-Pacific Partnership? Are you going to ensure that our TPP
partners provide robust protections to enable our companies to invest
in new lifesaving products like biopharmaceuticals? Have new TPP
partners, including Mexico, assured you that they will protect
intellectual property for health products?
Answer. The administration sees biologic drugs as are a vital area
of pharmaceutical innovation, now and in the future. Our goal for the
Trans-Pacific Partnership is to seek 21st century Intellectual Property
standards that stand alongside current U.S. trade agreements in the
region, such as the U.S.-Korea Trade Agreement. Mexico and Canada have
assured us that they understand the high level of ambition of the TPP
for intellectual property rights. We are currently reviewing
stakeholder submissions elaborating on concerns in both markets,
including concerns related to biologic drugs, to inform our further
engagement through the TPP negotiations.
Question. The administration submitted a request to the WTO on 7
June 2012 to join EU consultations with Argentina on ``measures imposed
by Argentina on the importation of goods.'' Have you begun these
consultations, and if so, can you provide examples of any specific
progress made with Argentina on the WTO which would protect American
exports from unfair and illegal trade restrictions in Argentina? Will
the administration submit an independent request to the WTO to address
trade issues with Argentina?
Answer. Argentina granted the U.S. request to participate in the
EU's consultations with Argentina as a third party in Geneva July 11-
12, pursuant to the EU's request for consultations. We requested to
participate in order to have a better understanding of Argentina's
various import licensing measures.
On August 21, 2012, the United States also submitted its own
request for consultations with Argentina concerning certain trade
restrictive measures. These consultations have not yet been held. If
consultations fail to resolve this matter, we would consider whether
the United States should proceed to request the establishment of a WTO
dispute settlement panel.
Question. Does the administration believe that Andean Trade
Preference Act privileges should be extended for Ecuador in light of
ongoing investment disputes between American companies, Ecuador's
breach of the BIT, and lack of cooperation on narcotics trafficking?
Answer. The administration has not yet a taken position on whether
it supports an extension of the Andean Trade Preference Act (ATPA)
program beyond July 2013. Ecuador is the only remaining beneficiary of
the ATPA.
While it is the responsibility of Congress to consider whether to
reauthorize the ATPA program, the administration will continue to
monitor developments concerning Ecuador to ensure that it is complying
with the ATPA eligibility criteria and will continue to work with
Congress on issues relevant to the operation of the program.
______
Responses of Deputy Assistant Secretary Matthew Rooney to Questions
Submitted by Senator Marco Rubio
Question. In September 2011, Assistant Treasury Secretary Marisa
Lago assured the Congress that the United States would oppose most
World Bank and Inter-American Development Bank loans to Argentina and
urge other countries to do the same. The administration was responding
to congressional concerns that Argentina has consistently ignored U.S.
court judgments against it and failed to pay what it owes American
investors. Unfortunately, the United States does not have sufficient
voting power in those institutions to block loans on its own, and the
loans continue to flow to Argentina.
Do you agree that the United States should continue to
oppose multilateral loans to Argentina until Argentina fully
honors its commitments to American investors?
In addition to oppose multilateral loans to Argentina, what
other measures has the administration taken to persuade
Argentina to fully honor its commitments to American investors
under international law?
What steps is the administration taking to persuade other
countries to join the United States in opposing multilateral
loans to Argentina?
Answer. The Department of State has worked closely with agencies
across the U.S. Government to encourage the Government of Argentina to
clear its debts to U.S. taxpayers and other Paris Club creditors, honor
final awards of International Centre for Settlement of Investment
Disputes (ICSID) arbitration panels, and resolve remaining issues with
private bondholders as soon as possible.
In September 2011, the Department of the Treasury initiated a
policy to oppose all future lending to Argentina by the IDB and World
Bank, with the exception of loans for programs targeting the very poor.
The U.S. representatives at the multilateral development banks have
engaged with other board members on our voting stance and have seen a
growing number of them taking similar positions.
In March 2012, the administration suspended Argentina's eligibility
for the Generalized System of Preferences (GSP) program. The suspension
of Argentina's GSP eligibility is based on a finding that the Argentine
Government has failed to act in good faith in recognizing as binding or
in enforcing arbitral awards in favor of two U.S. companies rendered
under the United States-Argentine bilateral investment treaty and the
Convention on the Settlement of Investment Disputes between States and
Nationals of Other States.
The Department of State strongly supports these appropriate steps,
and in our bilateral discussions, including at the highest levels, we
repeatedly raise our concerns about Argentina's failure to fulfill its
obligations to U.S. creditors. We will continue to urge Argentina to
resolve these issues.
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