which required trade-offs and had to accommodate Canadian concerns as well as our own interests. The FTA represents the most balanced package that was possible for our negotiators to achieve after two years of intense negotiations involving all levels of both

governments. It is a good agreement which will result in gains for

both countries.

Let me touch on four areas of the FTA I believe are especially important. The most obvious is the elimination of tariffs and other barriers to trade. In the short run this will lead to lower prices and increased trade, thus more jobs and a higher standard of living on both sides of the border.

My second point is that the FTA builds on the liberalized investment environment created by the present Canadian government. This will establish a more certain and transparent investment environment which will benefit investors of both countries.

The third key aspect of the FTA is its coverage of services. The FTA is the first international free trade agreement which deals comprehensively with a broad range of services. In so doing, the U.S. and Canada have explicitly recognized that nations can enjoy the benefits of free trade in these industries just as they can in goods. For example, there are global markets for enhanced electronic services using the telecommunications network and for financial services. These industries are thus particularly well suited to benefit from increased economies of scale that free trade

The fourth aspect of the FTA I want to highlight is energy. The FTA significantly increases our energy security by consolidating the current free-market environment on both sides of the border and prohibiting future discriminatory actions concerning trade in energy.

In negotiating the FTA we attempted to ensure that the FTA would be fully consistent with our international obligations. In our view

it reflects the unique relationship between the U.S. and Canada without disadvantaging third countries unfairly. It does not signal

a retreat from efforts to achieve trade liberalization in multilateral fora. Rather, it establishes useful precedents for multilateral negotiations and encourages trade liberalization worldwide.

The GATT system has served us well for forty years. Trade dramatically increased over this period as tariffs and other barriers were reduced. The world economic environment has changed, however. It is no longer sufficient to have a global system which only covers trade in goods. Services and investment have become increasingly important aspects of international economic activity. We are working in the Uruguay Round to improve the GATT and to expand its coverage to include investment and services. The FTA can serve as a model for these efforts both because of its current provisions and because it can be adapted to a changing environment through consultations and mutual agreement.

Finally, I would like to add a few remarks about the situation in Canada. The power to make or enter into a treaty or agreement belongs exclusively to the Prime Minister and cabinet.

Parliamentary action is not required. The Parliament must approve the implementing legislation, however.

Canada does not have a process comparable to our "fast track" procedure. However, a parliamentary system enforces party discipline and amendments to bills are not made without government approval. We therefore expect the implementing legislation to be passed as submitted. The Canadian Senate, which is controlled by the opposition, also must approve the implementing legislation. appears, however, that there is strong sentiment in that body for

free trade.

It

The Canadian Government has not announced a time frame for approval of the FTA and the implementing legislation. We expect, however, that for domestic political reasons the Canadians will approximate the pace of approval in the U.S.

There is no requirement or formal procedure for the provinces to approve the FTA. Seven of ten provincial premiers have publicly stated their support for the FTA, while three are opposed. There are a few aspects of the FTA that fall under provincial jurisdiction.

However, Article 103 of the FTA commits the Parties to ensure that the provisions of the FTA are given effect by

provincial, state, and local governments.

In addition, PM Mulroney

has made it clear that the necessary steps will be taken to ensure that Canada is in a position to fulfill all FTA obligations as of January 1, 1989. The U.S. must be in a position to do likewise. The Administration was thus much encouraged by the recent agreement with the Congressional leadership to vote on implementing

legislation before the Congress adjourns.

Mr. WOLPE. Thank you very much, Mr. Secretary.

I also understand that Mr. Ralph Johnson, Deputy Assistant Secretary will in fact be the person designated to respond to questions when we turn to the question and answer period.

Thank you very much for your testimony, and we certainly understand your necessity to leave.

Mr. WALLIS. Thank you.

Mr. WOLPE. Now I would like to turn to Mr. Laun, so we do not take any chances in terms of his availability for purposes of the testimony.

STATEMENT OF HON. LOUIS LAUN, ASSISTANT SECRETARY FOR INTERNATIONAL ECONOMIC POLICY, DEPARTMENT OF COM

MERCE

Mr. LAUN. Thank you, Mr. Chairman.

And thank you for the chance to testify on the Canada Free Trade Agreement. And once again, I will, with your permission, summarize briefly.

Mr. WOLPE. Would you all put the microphones a bit closer to you? It is a very sensitive microphone. Mr. LAUN. Okay.

How is that?

Mr. WOLPE. Okay. All right. Thanks.

Mr. LAUN. I support the comments of my colleagues, not only in my role in the Department of Commerce but also as a former businessman who has been involved for many years in U.S./Canadian affairs in several industries.

The long range goal of any free trade agreement is to remove all such barriers to commerce so that exchanges in goods and services, technology, investment will flow freely and without regard to national boundaries.

Such free flow maximizes the efficient use of resources to the net benefit of all who participate in the economies involved whether they are consumer, worker, or investor.

In that sense, the agreement we have reached is a partial one. Perhaps in the eyes of some imperfect because it does not yet address all the barriers or reconcile all the varying points of view.

This agreement, however, does go a very long way forward. By phasing out all tariffs over ten years, it adds an increment of about 10 percent to what can be called our local market.

That increment of opportunity will not only provide the opportunity for American firms but will lower their costs, make them more competitive in the U.S. versus imports as well as exporting overseas to other markets.

The ultimate beneficiaries will be the consumers in both countries who have a greater choice of products produced at lower cost because of a more efficient trading system.

I will discuss two important aspects of the Agreement from the Commerce Department's perspective.

TARIFF PHASE OUT

One is that the FTA phases out tariffs. Dutiable American goods entering Canada now pay an average duty of about 10 percent,