Thank you for giving me the opportunity to be with you today. It has been an exciting year for me as I have been serving as Chairman of the Subcommittee on International Trade and Finance of the Banking Committee. This new position, as well as my involvement in the President's Export Council, has enabled me to get more involved in the trade issues as they affect Wyoming and this great nation of ours. It has given me numerous chances to meet with the United States Trade Representative (USTR) Ambassador Charlene Barshevsky, who negotiates the trade agreements on behalf of the United States. I have taken these opportunities to impress upon her the unique concerns as they affect Wyoming business and agriculture. Additionally, I will be serving in an advisory capacity to the USTR during the upcoming World Trade Organization (WTO) Ministerial in Seattle at the end of this month.
I'm sure we all understand that trade is important to the growth and prosperity of our state and nation. While I will focus my discussion more on the need to expand market opportunities and access for Wyoming and U.S. exports, I must briefly mention the important role imports play in our country's prosperity. I think this is many times overlooked in the trade debates.
The United States is a land of abundance. We consume more than we can produce for some products, while we produce more than we can consumer for others. This is why a healthy trade of goods and services is necessary for the economic growth of the United States. One of the major contributing factors to the steady growth of the U.S. economy in the past 20 years is the fact that our tariff rates on imported products have been drastically reduced or eliminated. Reduced tariffs give American consumers cheaper products and more choices. In fact, the average U.S. tariff rate on dutiable imports was 59 percent in 1933, compared to less than 5 percent now.
The Smoot-Hawley Act of 1930, a knee-jerk reaction to the economic depression that had just ensued, imposed average U.S. tariffs of 59 percent by 1933. No wonder it took over 10 years for the U.S. to get out of the Great Depression. The American people were strapped for cash in the first place, and then as a result of high tariffs, their purchasing power was drastically reduced. To top it all off, foreign nations retaliated by dramatically increasing their tariff rates on U.S. goods, creating even less demand for U.S.-made products.
I will stop with the history lesson. But just to illustrate how trade is part of our daily life, think about some of the things you own. Where were the clothes you are wearing made? What about your cellular phone? How about your home stereo or television? The toys, gadgets and thing-a-ma-jigs you buy for your children or grandchildren for Christmas? It is likely that if you have bought any of the goods I just mentioned, most of them were imported. Because some of these products can be made more cheaply in foreign countries, you are able to buy them at a lower or more competitive price. This gives you more disposable income, allowing you to increase your consumption or investment in other areas, which in turn spurs the U.S. economy further. We must also keep in mind that many jobs are created as a result of imports. After all, someone has to transport and sell these imported goods, including the main street businesses in Wyoming.
I mention these issues relating to imports because the world is watching what we do, not necessarily what we say. Our treatment of imports does have a bearing on the ability of the U.S. to sell our products and services abroad.
Importance of trade to Wyoming and the U.S.
I mentioned the benefits we receive when products are fairly imported into the United States. Likewise, the importance of exports to Wyoming's economy cannot be overstated. With greater market access to foreign markets the prices of our agriculture products should increase, providing farmers and ranchers with the revenues needed to survive. The soda ash industry of southwestern Wyoming depends heavily on exports to foreign countries. Both U.S. soda ash and agriculture products have faced tariff and non-tariff barriers in various parts of the world. Our soda ash copes with a 70 percent effective tariff going into India. American beef, because some of it contains hormones, has faced market access barriers in the European Union. These barriers to free and fair trade are unacceptable and I will continue to address these issues as your Senator.
A sector that is becoming increasingly important to the U.S. economy is the services industry. The U.S. Department of Commerce estimates that the services industries make up over 77 percent of total private sector economy as measured by GDP. The services industries include telecommunication, transportation, tourism, banking, insurance, intellectual property services such as royalties and professional or technical services.
The service industries are some of the recent success stories in America. The value of U.S. service exports has consistently exceeded that of service imports in recent years. Total service exports in 1997 totaled over $239 billion, while imports totaled $156 billion. That makes a positive balance of trade in services of about $83 billion. Since trade in services will very likely become more important to the U.S. economy in the future, it is necessary that the U.S. gain more market access into other countries.
U.S. services face different export challenges than do goods primarily because most cases of barriers to service trade are non-tariff in nature, such as regulatory and administrative practices. Therefore, it becomes vital to all U.S. service industries that improvements are made to the current General Agreement on Trade in Services (GATS) framework. Any service agreement should be expanded to apply to all services industries, rather than some services receiving liberalization while others continue in the status quo. Greater transparency of the domestic regulations of countries will also provide industry with greater certainty and clarity. Fortunately, the next round of trade negotiations includes services as part of the "built-in" agenda.
As Wyoming looks to the future, it must examine its potential for increased economic growth through the services industry. It must find ways to tap into this growing sector of the American economy.
Challenges to Trade in the 21st Century
Now I will discuss what I believe to be some of the major challenges facing trade in the next 25 years. Some of these issues are likely to be discussed in the upcoming Millennium Round of WTO trade negotiations.
First, electronic commerce, or e-commerce, has become an extraordinary growth area in a matter of just a few years. E-commerce has changed the way people conduct their lives and business operations, not only in the U.S., but throughout the world. This new "e-economy" has created new companies such as "e-bay", "E-trade", and "amazon.com." These and other large and small companies are quickly taking advantage of this new market opportunity by providing goods and services via the Internet. As a result, consumers are benefitting by getting more choices, lower prices, convenience and customized service.
Business models are also being changed by the e-commerce revolution. Inventories can be reduced, along with operating costs. Small businesses in Wyoming have the potential to access a much larger market if they go on the Internet. We must also realize that the Internet presents the real possibility of shutting down our main street businesses as people choose to do their shopping in the privacy of their homes rather than face-to-face.
How the U.S. and other countries deal with the increase in trade via e-commerce will determine its rate of growth. The issues include whether e-commerce should receive tariff-free treatment, and whether software delivered electronically should be treated as a good or service.
Another immediate and significant challenge to trade in the 21st century is the WTO dispute settlement procedure. The number of trade disputes between nations has risen steadily every year since the creation of the WTO dispute settlement body in 1995. The increase in cases is beginning to cause a strain on WTO resources, which must be addressed.
Countries have generally complied with WTO rulings within the 15-month period allowed. However, several high-profile cases, such as the beef hormone and banana cases, have not been fully resolved and retaliation has ensued. Compliance by violating member countries could be improved by requiring decisions by the WTO dispute settlement body to clearly state what actions must be taken to correct the violation.
A third significant challenge will be how WTO members deal with the varying trade relief measures, such as antidumping laws, of member countries. These laws are commonly referred to as competition, or anti-trust, policies. Until the mid-1990s, the European Union, the U.S., Australia, and Canada were among the very few that had dumping relief laws in place. Developing countries are now starting to implement antidumping laws similar to ours. It is entirely possible that we will perceive these laws as increasingly discriminatory towards U.S. companies and products. This does not mean that we should eliminate our trade relief measures, such as our Section 201 and Section 301 laws used to counter the injurious dumping of products into the U.S. market. There have been some legitimate filings for relief, but also some protectionist filings. We just need a common sense approach to reduce these inter-country discrepancies and to prevent the building up of non-tariff barriers in the name of "unfair trade."
The last two remaining challenges to trade I have identified are how to address environment and labor issues. Labor and environmental groups are calling for inclusion of core labor and environmental standards in any trade agreement. As recently as yesterday, Vice President Gore, to avoid environmental protests at the Seattle WTO Ministerial, announced the U.S. will require environmental impact reviews before it signs new trade agreements. This action, in effect, could prevent any trade agreement from ever being negotiated in the future, and threaten the ability of our exporters to maintain historical markets. This action alone, will have a chilling effect on the upcoming WTO negotiations in Seattle. The Vice President has singlehandedly yanked the rug out from under our trade negotiators.
The United States is already bogged down with environmental reviews that are used stop economic growth and promote a reengineering of global land use. These reviews have already cost taxpayers billions of dollars and have done little to improve the environment.
As long as environmental standards are applied consistently to both foreign and domestic firms, it should not matter at what level these standards are placed by the individual countries. Trade liberalization for any country raises the standard of living for its citizens, who in turn expect a better quality of life. The quality of life they demand will likely include higher environmental and labor standards. I do not believe that workers in a developing country should have to choose between cleaner air and a job, or OSHA standards and providing food for their children.
The U.S. has always been a leader in trade negotiations. The challenges I listed above are significant, but with strong U.S. leadership they can be addressed. We must also continue to focus on market access for U.S. goods and services facing barriers to entry in foreign markets. Additionally, it is important to capitalize upon the advantage we already have in the services industries by making improvements to the current General Agreement on Trade in Services (GATS) framework.
The U.S. must resist protectionist measures in order set the example for other countries. Also, linking labor and environmental standards to trade with other nations will only serve to create a loophole that would allow the erection of new barriers against imports. Labor standards tend to be tighter in the EU and Canada than in the U.S. Therefore, if labor standards are linked to trade, it could prove harmful to U.S. trade with the EU and Canada, two of our largest export markets. There is no need to link environmental standards to trade because each country is allowed to place environmental protections on its citizens so long as it is applied consistently upon both domestic and foreign firms.
We must remember that America sets the world example when it comes to democratic ideals, free-market policies, regulatory standards - you name it. Trade is no exception. Knowing this, we should provide responsible leadership on trade issues. Just as we expect foreign countries to allow U.S. products and services to gain fair access to their markets, foreign countries expect to gain fair market access to the U.S. market. These principles of fairness for both our businesses and foreign businesses, along with continual efforts to expand market access for U.S. goods and services abroad, will help encourage a better worldwide trading system.