Mr. SCHULZE. I would just like to commend this panel, and I will wait until the industry people testify.

Mr. COELHO. Thank you, Mr. Chairman.
Chairman GIBBONS. Thank you.

Mr. FRENZEL. Could I ask another question, Mr. Chairman?
Chairman GIBBONS. Go right ahead.

Mr. FRENZEL. I am trying to grapple with the new bill as distinguished from the old. Is section 8 that amends countervailing duty and antidumping laws, is that new with the revised version?

Mr. COELHO. Yes, it is.

Mr. FRENZEL. Can anybody tell me anything about section 8 or should I ask the wine people about that? It apparently allows raw material producers to complain and, as I understand it, allows the raisin producers particularly to make complaints under those particular laws. Are those people going to be represented here?

Mr. COELHO. Yes, they will be, Mr. Frenzel. Basically what it does is it allows consistency in the law. The grape producers in this particular case, the raisin producers, had been involved in the ITC case. They were kicked out as they were not considered part of the wine industry, and this would, in effect, clarify that to make sure that all grape producers would be at the table as well. So they will be able to testify to that at greater length and to the reason for this inclusion.

Mr. FRENZEL. Does that also cause the change in section 3 where grape juice and raisins are included?

Mr. COELHO. Yes.

Mr. THOMAS. Yes. Raw product producers.

Mr. FRENZEL. That is a substantial change in the law, of course. Mr. COELHO. From the original bill?

Mr. FRENZEL. No, in the law. It wasn't in the original.

Mr. COELHO. Correct.

Mr. FRENZEL. Well, we can discuss that with the wine people when they are here. Thank you very much.

Chairman GIBBONS. I want to commend all of you again for the vigor and the spirit of work that you have entered into in developing this legislation.

Our next witness is Ambassador William E. Brock, U.S. Trade Representative.

Ambassador Brock, we are happy to have you here.

You may proceed as you wish, Mr. Ambassador. You can make a statement, read a statement or just talk with us.

STATEMENT OF HON. WILLIAM E. BROCK, U.S. TRADE
REPRESENTATIVE

Ambassador BROCK. Well, I have been listening just for the last few minutes, and I heard one of the more thoughtful and distinguished members of your panel suggest that we might be dragged kicking and screaming to the altar. I would like to ask for an annulment before we get that far.

We are not going to support this bill, Mr. Chairman. We have not. We will not. We have no prospect of supporting this legislation.

I am not sure I need to elaborate a great deal.

Chairman GIBBONS. Well, tell us why. We have got your conclusions-help us with your reasoning.

Ambassador BROCK. As you recall, my counsel testified in opposition to this legislation back in November 1983. And while certain changes have been made to the original proposal, our earlier testimony is still relevant because we don't find that the substitute proposal alleviates any of the major concerns expressed.

Now, as then, the administration strongly opposes the passage of this proposed legislation. Neither H.R. 3795 nor the substitute language will help us make progress in reducing foreign barriers to U.S. wine exports. Rather, the effect of this legislation would be to restrict wine imports coming into the United States. This is because our trading partners will not reduce tariffs on wine, or any other commodity for that matter, without being legitimately paid to do so.

Since the President has no authority to offer tariff concessions on products entering the United States, and neither H.R. 3795 nor the substitute proposal provides such negotiating authority, negotiations to reduce foreign wine tariffs would be doomed for failure at the outset.

We have no such authority, Mr. Chairman.

Chairman GIBBONS. I have not been able to get you that authority. Maybe we can get it for you piecemeal rather than full out. I would rather get it full out, Mr. Ambassador.

Ambassador BROCK. I appreciate that. We will take it in bits and pieces or in whole, but we cannot negotiate without authority to negotiate. And we have not had that authority since December 31, 1982. I do appreciate the chairman's interest and support and very much appreciate action of the Congress to give us the authority.

Chairman GIBBONS. Perhaps we are building a case now that may be understandable to the American business and labor community that we cannot just sit idly by, we must be moving in this area or we will be overtaken by the various competitors around. We have to be out negotiating and trying to improve our position. Ambassador BROCK. That is right.

Chairman GIBBONS. We have really taken an "ostrich head in the sand" type attitude to trade problems because Congress has been unwilling to grant further negotiating authority.

Go right ahead. Give us hell as far as I am concerned.

Ambassador BROCK. Well, the problem is that I have such respect for not only this committee but those who have been testifying before you. I hate to find areas of disagreement but it is a little. frustrating to have criticism levied at us for not negotiating effectively and then denied the tools with which to negotiate effectively. Chairman GIBBONS. Let the record show there has been no negotiating authority for a long time.

Ambassador BROCK. That is right.

Chairman GIBBONS. So if anybody wants to jump on you for not negotiating, tell them to look in the mirror.

Ambassador BROCK. Thank you, sir. I appreciate that.

On this particular legislation, and I will just summarize, the bill does not address any of the problems that we raised last November. It is not GATT compatible and has no prospect of being compatible.

As written, it would require us to break our commitments under the GATT, and it would expose us to compensation and retaliation. Second, it doesn't deal with the problems. I guess that is what really bothers me. I hear people saying we want to expand our markets overseas. Then legislation is introduced not to do anything about overseas markets but to close our markets here at home. That is the net sum and substance of this particular bill.

I don't think that makes a great deal of sense. Our trade policy does not and cannot operate in a vacuum. It really is not possible to increase restrictions on trade in one sector without affecting another. It is ludicrous to think that tariffs on wine could be raised without affecting other U.S. industries.

Our wine tariffs were bound in the General Agreement on Trade and Tariffs only after careful balancing of reciprocal concessions to other exports. Therefore, if we increase tariffs on wine, we just offer equivalent compensation to importers to other products of interest to them. This means that arbitrary protection for the wine industry will result in undeserved disruption for some other U.S. industry.

That is unfair, and it is uneconomic. If we fail to negotiate acceptable compensation with the wine exporting countries, they can raise their tariff on an equivalent amount of trade from us. In essence, this bill would force us to affect trade barriers to the detriment of other sectors unnamed in the bill. It does not, as its proponents claim, provide authority to eliminate restrictions to trade in wines. Were we to raise our duties on wines I would expect the European Community to do likewise in areas such as soybeans or corn gluten feed.

Let me just mention that while we oppose this particular bill we have not been quiescent in trying to deal with the problem. We have negotiated with the European Community in the barriers we found to our products there. We are at this moment taking action to implement agreement with them under which the EC will recognize our industry's practices and the United States will provide certification documents necessary for entry into Europe.

Furthermore, as a result of our discussions with Europe, the Europeans have now eliminated the countervailing duty imposed on U.S. wine in Europe. They have zeroed it out. These actions will provide additional marketing opportunities for our wine exports. In other words, we are dealing with the problem without legislation and without the reciprocity and pain that would come with it.

Second, with respect to Japan, we recently got agreement from the Japanese Government for a reduction of its ad valorem duty by almost a third, from 55 down to 38 percent. Duties will be reduced on bulk sparkling and for the identified wines, and we believe, as do many in the industry, that this action will significantly increase the opportunities for exports to Japan.

So the essence of my statement, Mr. Chairman, is that this bill is unwise and unnecessary. That it would cause far more problems than it would solve. That it does nothing to deal with the opportunity for wine exports. We are proceeding in that area with the limited authority we have, we could proceed a great deal more rapidly with effectiveness were the Congress to give us a broad grant of tariff negotiating authority which has expired.

I would like to have that as an alternative response of the Congress rather than this particular bill which we cannot, as I said earlier, and will not support. Thank you.

[The prepared statement follows:]

STATEMENT OF HON. WILLIAM E. BROCK, U.S. TRADE REPRESENTATIVE

Mr. Chairman, you have asked me to testify on the substitute proposal for H.R. 3795, the Wine Equity Act. You will recall that Michael Hathaway, my Deputy General Counsel, testified on bealf of the administration on the original bill in November 1983. While certain changes have been made to the original proposal, our earlier testimony is still relevant because we do not find that the substitute proposal alleviates any of the major concerns we expressed.

Now, as then, the administration strongly opposes the passage of this proposed legislation. Neither H.R. 3795 nor the substitute language will help us make progress in the reducing foreign barriers to U.S. wine exports. Rather, the effect of this legislation would be to restrict wine imports coming into the United States. This is because our trading partners will not reduce tariffs on wine, or any other commodity for that matter, without being legitimately paid to do so. Since the President has no authority to offer tariff concessions on products entering the United States, and neither H.R. 3795 nor the substitute proposal provides such negotiating authority, negotiations to reduce foreign wine tariffs would be doomed for failure at the outset.

By the provisions of this proposed legislation, the President would be required to direct the U.S. Trade Representative to enter into consultations with designated major trading countries to seek a reduction in foreign tariffs to wine. At the completion of these negotiations, for which the President will be granted no real negotiating authority, if duty reductions have not been achieved by January 1, 1986, the President would be required to raise duties on wine imports under section 301(B) of the Trade Act of 1974. It should be noted that section 301 of the Trade Act of 1974 is designed to provide remedies against unfair foreign trade practices and not a general remedy for trade imbalances. There is nothing inherently unfair about foreign tariffs that differ from U.S. tariffs be they higher or lower.

Further, if reductions in nontariff trade barriers to U.S. wine exports-regardless of whether they were found to be justifiable, reasonable, nondiscriminatory, or did not burden or restrict U.S. commerce-were not achieved by the same date, restrictions under section 301(B) would also be mandatory. In effect, this bill would give the U.S. Trade Representative and the President until January 1, 1986, to achieve the reduction of tariff and nontariff barriers on wine. After this date, the President would be required to exercise his power to apply restrictions to trade in wine.

There is, in my opinion, a major flaw in the conception of both H.R. 3795 and the substitute proposal. U.S. trade policy does not and cannot operate in a vacuum. It is not possible to increase restrictions on trade in one sector without affecting another. It is ludicrous to think that tariffs on wine could be raised without adversely impacting other U.S. industries. Our wine tariffs were bound in the general agreement on tariffs and trade only after a careful balancing of reciprocal concessions of benefit to other products which the U.S. exports. Therefore, if we increase tariffs on wine, we must offer equivalent compensation to principal exporters through lower U.S. Tariffs on other products that are of interest to them. This means that arbitrary protection for the wine industry will result in undeserved disruption for some other U.S. industry.

If we fail to negotiate acceptable compensation with wine exporting countries, they can raise their tariffs on an equivalent amount of trade from us. In essence, this bill forces us to erect trade barries to the detriment of other sectors; it does not, as its proponents claim, provide authority to eliminate restrictions to trade in wines. Were we to raise our duties on wine, I would expect that the European Community would choose to raise its duties on soybeans and corn gluten feed.

In sum, passage of the proposed legislation would have a grave impact on other U.S. sectors involved in world trade and would likely have, ultimately, a trade-restricting effect.

Although the goal of reducing foreign barriers to U.S. wine exports is one I have aggressively sought, this legislation would not help us achieve that goal. I have also been advised by representatives of the domestic wine industry that a significant proportion of wine producers in the United States oppose this bill, specifically producers who represent 60 percent of the production in the State of New York, and 20 percent of the production in California. I believe that the concerns of other sectors

of the U.S. economy and the objections within the domestic wine industry itself should be fully considered before any action is taken on this bill.

I would also like to express the administration's objection to a specific provision of the substitute proposal which would amend the Tariff Act of 1930. Section 8 of the proposed bill would expand the definition of "industry" in section 771 of the Tariff Act of 1930 so as to include both the producers of a "like product" and its principal raw agricultural input, in the case of a processed agricultural product. This is apparently meant to make it possible for input producers of the raw material to file antidumping or countervailing duty cases on processed products; that is, grape growers against wine imports, peach growers against canned peach imports. It would also widen the scope of an injury investigation in antidumping and countervailing duty cases.

This is contrary to the antidumping and subsidies codes of the general agreement on tariffs and trade, which provide that "domestic industry" shall be interpreted as referring to the domestic producers as a whole of the like products. The codes provide in a number of places that injury is to be assessed only in relation to the domestic industry producing the like product. Current law goes as far as we can go within the limits of our international obligations.

In fact, the proposed expanded definition of "industry" could make it harder to obtain relief against unfair imports of processed agricultural products. If a soybean processor were to file against imports of subsidized soymeal, we would have to show that the subsidized imports caused injury not only to the soymeal industry, but also to soybean growers. Relief would become impossible whenever the primary product input industry is healthy, no matter how injured the processed agricultural producers may be.

Mr. Chairman, the administration shares the objective of trying to reduce foreign barriers to U.S. wine exports, and we have been able to make some important progress in this area recently on the basis of our current limited negotiating authority.

As a result of our intense negotiations with the Japanese over the past few months, the Government of Japan has agreed to lower its duty on bottled wine by nearly a third, from 55 percent to 38 percent ad valorem. Duties will also be reduced on bulk, sparkling, and fortified wines. I am optimistic that this action will significantly increase U.S. exports to Japan.

Wine exports to the European Community should also improve as both the United States and the EC are taking action to implement an accord on wine under which the EC will recognize our industry's practices and the United States will provide certification documents necessary for entry into Europe. Furthermore, as a result of our discussions, the Europeans have now eliminated the countervailing duty imposed on U.S. wine in Europe. These actions will provide additional marketing opportunities for our wine exports.

Our ability to do more for the U.S. wine industry is constrained by our lack of authority from the Congress to negotiate the reduction or elimination of high tariff barriers. It is for this reason that the administration supports in principle H.R. 1571, the Reciprocal Trade and Investment Act of 1983, a general, rather than sectoral reciprocity bill, which includes a provision granting the executive branch tariff negotiating authority. If H.R. 1571 or similar legislation granting tariff negotiating authority is passed by the Congress, the administration would use this authority to try to further liberalize foreign barriers to U.S. alcoholic beverage exports. A grant of broader authority would enable the President to achieve the goals of the wine equity act while balancing the competing interests of other U.S. trading sectors.

I firmly believe that passage of broader tariff negotiating authority will help to achieve the worthy objective of reducing foreign barriers to U.S. wine exports. H.R. 3795 or the substitute proposal, on the other hand, will only invite retaliatory protectionism from abroad as a response to our own unfair creation of assorted tariff and nontariff barriers in our market.

Chairman GIBBONS. Let me ask you. I realize we are dealing in a very complicated area. I am just trying to keep it within the sector here. I recognize the arguments you have made. Are the United States and Europeans and other potential wine consuming countries' practices reciprocally compatible, or is there a great deal of differences in the barriers that have been erected, ours versus their barriers in the wine area?