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partners in the world, next door neighbors, the closest of

friends and allies

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cannot liberalize their trading relationship,

what hope do we have of success in Geneva?

The question on both sides of the border should be: "Will this Agreement make my country a better and more prosperous place to live a decade or a half century from now?" The objective answer to that question will be a resounding yes!

We must keep our eyes squarely on the long-range benefits for each nation as a whole. This Agreement will help both Americans and Canadians enter the 21st century more competitive and better prepared for the future.

future.

We should approve this Agreement and then build on it in the It will, without doubt, be the most significant bilateral trade agreement either country has ever negotiated.

STATEMENT OF AMBASSADOR CLAYTON YEUTTER, UNITED STATES TRADE REPRESENTATIVE, ACCOMPANIED BY PETER MURPHY, CHIEF NEGOTIATOR; BOB REINSTEIN, DIRECTOR OF ENERGY POLICY; AND BILL MERKIN, DEPUTY ASSISTANT UNITED STATES TRADE REPRESENTATIVE FOR CANADA

Mr. YEUTTER. Thank you very much, Mr. Chairman and Mr. Broomfield, for the your kind comments in opening this hearing. It is a pleasure for me to be here.

Accompanying me is Ambassador Peter Murphy, who is our chief negotiator in the United States-Canada Agreement, as you know. I asked him to join me at the table in case you have any specific questions for him on the negotiating process.

ADVANTAGES OF UNITED STATES-CANADA AGREEMENT

I would have, first of all, just a couple of philosophical comments to respond to what you just said, Mr. Chairman. One is that clearly one of the advantages of the United States-Canada Agreement is that it will contribute to the international competitiveness of both countries.

As you have just pointed out, this is a highly competitive world today, and we are operating in an economy that is global in scope in most products. It is not as easy for us as it was in the immediate post-war period. We won everything in economic competition handily back in those days because we were so far ahead of everybody else in the world.

Now they have begun to catch up a bit, maybe even pass us in a few areas. But I am not gloomy about that at all. As a matter of fact, looking at it from the broad perspective that you must have on this committee, that is healthy.

What that means is that the world is better off than it was 40 years ago: people are living better, their economies are performing better and standards of living are a lot higher. So we ought to rejoice in those successes rather than be concerned about them.

We do have to, however, keep our eye on the competitiveness ball, and we must rise to the challenge of international competition, and my judgment is that we can do that.

I came from the private sector only about three years ago, Mr. Chairman, as you know, and I can tell you that I am well aware of individual companies that have cut their cost of production in manufacturing operations dramatically in the last few years.

In other words, they are rising to that competitive challenge, and I am convinced the United States can do so. But we in government ought to help where we can.

And this happens to be one specific instance where we can help a good bit, because the joining together of the United States and Canada through the aegis of a Free Trade Agreement and the rationalization that will emerge thereby should be beneficial to both countries in an internationally competitive environment.

Putting it another way, we should see some appreciable generation of economies in scale as a result of what will transpire in the United States-Canada Agreement, and the synergies here ought to be beneficial to both of us.

But to go beyond that now into something a little less philosophical and a little more down to earth at the moment, let me, if I may, just articulate very briefly what I see is a few of the major advantages of this agreement, and the basic reasons for giving it strong support here in the Congress.

I certainly hope both the United States Congress and the Canadian Parliament will approve it and we will have this agreement into effect in January of 1989, as anticipated.

I was saying as a preface to that, Mr. Chairman, it is important that we take a big picture perspective in evaluating this Agreement. You and your committee are accustomed to doing that because that is a part of your overall function in this committee.

That is not necessarily true of all committees of the Congress or all individual members, because they must necessarily respond to constituent interests that are more parochial than that.

But somehow we have to go beyond the parochial and approach this on a basis of, is it in the overall best interest of the United States. And I am convinced that if we take that kind of a big picture look, it is an easy decision.

This Agreement is clearly in the best interest to the United States as a whole. The aggregate benefits of this Agreement are infinitely in excess of any aggregate losses that might be involved in this rationalization process that will occur.

And that will be true of both countries. This, as we have often said, is a win-win proposition. It is not the kind of a negotiation where one country wins and the other loses. It is one where on an aggregate basis both countries win in a very major degree.

I am convinced that the Agreement will add significantly to economic growth in the United States, and I am convinced that it will add even more significantly to economic growth in Canada, the smaller of the two trading partners.

Both of us are going to benefit from a dramatic increase in economic activity between the two. And that is not just conjecture, that is based upon the experience that we have seen with other comparable agreements around the world over the last two or three decades.

I suppose the most obvious example of this would be the establishment of the European Economic Community, which is not quite a free trade arrangement but something approximating that. It has been in existence now for 30 years, and there is no doubt about the increase in economic activity that generated between and among the European countries.

It is now happening with something similar to this emerging between Australia and New Zealand. It is happening in our own initial free trade arrangement with Israel. All past history of these kinds of arrangements would point to them being successful.

I am convinced that we will have even greater success with this one for both countries because we are dealing here with the two largest trading partners in the world to start with, and that makes it all the more relevant.

SPECIFIC BENEFITS OF THE AGREEMENT

Now with respect to particular benefits, I will concentrate on just a few. One of course is tariffs. In my judgment the tariff portion of this agreement alone would make it worthwhile. The agreement provides, as you may know, for the phase out of all tariffs between the two countries in a 10-year period.

Some will go immediately, some will phase out over 5 years, and some will phase out over 10 years. But it is just remarkable that these two countries will have free and clear borders from a tariff standpoint 10 years from now, assuming the Agreement goes into effect.

There are thousands of products moving across the border between the United States and Canada, and to consider that 10 years from now there would be no tariffs impeding movement of those products, and in some cases services, in a comparable way, that is truly remarkable.

So, we should not underestimate the importance of the phase out of all of those tariffs, totally aside from what is done in other areas. My judgment is that what happens elsewhere is a bonus in this Agreement, and a very important one.

Now where do the bonuses come? One is on the energy side. We, the United States, will benefit tremendously from free and open trade in energy that will be assured as the years unfold. As you know, national treatment is a basic principle of this agreement. That means that our energy consumers in the United States generally will have to be treated as well under Government laws and regulations as energy consumers in Canada, both from a pricing standpoint and from a standpoint of access.

That could be immensely valuable to this country in the future. A second one is investment. As you well know, there have been a lot of impediments to American investment in Canada that have been in existence for a long period of time.

One of the major achievements of this Agreement is that it removes not all but a vast number of the impediments to investment. We believe that that will be tremendously important in the flow of goods and services as time passes.

A fourth one would be services itself. I alluded to that, but this is the first time that we have had a major agreement bilaterally on services with any country in the world, one that will open up services trade between the two countries in a most significant way in the coming years in something over 150 service sectors.

We think this one will set an excellent example for additional negotiations in services in the Uruguay Round and bilaterally throughout the world.

There are a whole host of other ones, Mr. Chairman, in individual areas, but when I just concentrate on tariffs and energy and investment and services, just those four, it seems to me that this is an agreement worth doing beyond any shadow of a doubt.

I think it will be worth billions of dollars to the United States economy in the years to come, and billions of dollars to the Canadian economy in years to come, and it will make both countries a more formidable force in international commerce.

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That should be ample in the way of introductory comments, Mr. Chairman. I would be happy to take all the questions that you may have.

Chairman FASCELL. Thank you, Mr. Ambassador. What is the Canadian process and timing on implementation?

Mr. YEUTTER. I cannot speak for the Canadian Government in this, of course, Mr. Chairman, but our assumption has been that approval in Canada will come immediately after approval here.

suspect that Prime Minister Mulroney will present the agreement to the Canadian Parliament subsequent to its approval by the U.S. Congress. As you know, we have an agreement with the congressional leadership that implementing legislation would be presented on June 1, and that the legislation will be voted on here on a fast track procedure between now and the end of the year, and hopefully before the summer recess.

We would certainly like——

Chairman FASCELL. On the U.S. side we have to enact implementing legislation.

Mr. YEUTTER. That is correct. With a parliamentary form of government, of course, it is a bit easier on the Canadian side, at least theoretically, and I would hope that the necessary approvals would be obtained in Canada very shortly after the approvals here in the United States.

That is the most likely scenario. The Government in Canada could move earlier than we do if they wish, but it is in my judgment unlikely that they will do so.

Chairman FASCELL. Is any action required by the provinces, for example, such as on alcoholic beverages?

Mr. YEUTTER. That is an issue that has been raised often because it has had some emotion attached to it as the provinces in Canada have debated this question.

From our standpoint, Mr. Chairman, we have said from the very beginning that we wish to negotiate with the Government of Canada, not with a large number of provincial entities. That's the way that negotiations proceeded. We executed our agreement with the Government of Canada, and we expect the Federal Government of Canada to deliver whatever is necessary in provincial approvals, if any.

That fact, however, is that that is a relatively minor issue in terms of implementation of the overall agreement, because it is only the certain provincial liquor boards that need to act on some of the provisions relating to distilled spirits and wine that are involved in this negotiation, and almost all of those particular provinces are on board.

There may be one exception and possibly more, but I doubt it. That is really the challenge for the Canadian Government. We expect them to deliver at the appropriate time. They have indicated that they will find a way to make sure that the commitments that they had made in this agreement are met, and in my judgment we can count on the Federal Government of Canada to deliv

er.

Chairman FASCELL. Mr. Ambassador, we have a lot of subsidies in this country and Canada has a lot of subsidies. How is that question dealt with in the trade agreement?